Economy : China’s overall fiscal deficit hit an all-time high in the first nine months of the year, as Covid outbreaks and a slowing housing market undermined government revenue. China’s expanding budget deficit surpassed around $1 trillion between January and September.

The imbalance at all levels of government budgets was 7.16 trillion yuan ($980 billion), according to sources calculations based on figures released by the Ministry of Finance on Tuesday. This is a new high for any similar period, and it is more than three times the 2.6 trillion yuan loss sustained from January to September of the previous year.


Chinese authorities have struggled to make ends meet this year since large tax rebates and the ongoing housing market collapse have decreased government revenue significantly. However, repeated lockdowns of major cities to prevent Covid outbreaks have resulted in higher spending on monitoring and testing persons, while extra infrastructure spending has been advocated to enhance economic growth and compensate for weak private consumption.

“China’s fiscal conditions have faced major challenges since spring this year, owing to the abrupt contraction in land sales, large-scale tax refunds, and deferrals, and increased spending on Covid controls,” Goldman Sachs Group Inc. economists including Lisheng Wang wrote in a late Tuesday research note.

Following a near-stagnation in GDP in the second quarter due to the closure of Shanghai and other cities earlier in the year, economic growth recovered to 3.9% in the third quarter. Increased infrastructure investment has fueled the recovery, yet retail sales and unemployment have both increased.

The services sector, which accounts for more than half of the Chinese economy, contracted last month for the first time since May as major cities such as Chengdu were closed down to contain virus outbreaks, causing consumers to stay at home, closing shops and restaurants, and preventing people from traveling across the country.


The overall income from the general public and government fund budgets was 19.9 trillion yuan in the first nine months of this year. Revenue from the general government fell 6.6% year on year, easing from an 8% drop in the first eight months. According to the finance minister, it would have grown by 4.1% if not for the tax breaks.

The majority of the tax breaks were given out between April and June, resulting in a gain in revenue in the last few months. In September alone, income climbed by 8.4% year on year to 1.5 trillion yuan. Land sales revenue declined 28.3% year on year in the first nine months of this year, hitting 3.85 trillion yuan, compared to a 28.5% reduction from January to August.

Due to the current liquidity crisis, property developers have been hesitant to purchase land, forcing some local governments to sell land to state-owned enterprises to generate immediate cash, even if this is effectively selling to themselves. MOF issued a statement earlier this month forbidding local governments from borrowing money to purchase land or “inflating” their land-sale income through SOE purchases in response to this practice.

The overall government spending for the first nine months was 27.1 trillion yuan. General government spending on education, healthcare, defense, and scientific research totals 19 trillion yuan. This was a 6.2% year-on-year growth, compared to a 6.3% increase from January to August. Government fund expenditure climbed by 12.5%, compared to a 23.4% growth in the first eight months.

Government investment has been a critical underpinning for domestic demand this year, as consumer consumption has been battered by Covid outbreaks and low confidence. According to Haitong Securities Co. analyst Liang Zhonghua in a note Tuesday, local governments may issue the majority of the 500 billion yuan in new special bond quotas in October, which would assist fund infrastructure projects.

However, according to Yuekai Securities Co. economist Luo Zhiheng, China’s official deficit, which only includes the general government budget, will need to be increased to more than 3% of GDP next year. Beijing has set the deficit target for this year at around 2.8% of GDP, but he believes that an increase in the deficit would be necessary to deal with fiscal stress, which is expected to rise in part due to the real estate crisis.

About China Economy

The People’s Republic of China is a developing market-oriented economy with upper-middle-income levels that integrates economic planning through industrial strategies and strategic five-year plans. A socialist market economy has SOEs and mixed-ownership corporations, as well as a substantial local private sector and openness to foreign businesses.

China is the world’s second-largest economy in terms of nominal GDP, with a total of approximately US$17.7 trillion in 2021, and the world’s largest economy in terms of purchasing power parity since 2016. (PPP). It has been the second largest in terms of nominal GDP since 2010, according to figures based on changing market exchange rates. In 2021, it will have overtaken the economy of the European Union.

According to projections, China will surpass the United States in nominal GDP by 2028. In 2022, China will account for 18.79% of global GDP in PPP terms.

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