China’s debt distress among local governments seen rising in 2023, with hard-to-reach economic targets
- Economic recovery, particularly in eastern powerhouse region that includes Shanghai, may not be sufficiently buoyed by taxes and land sales
- A prolonged property market downturn has also affected local governments’ ability to pay off interest on debt that reached record highs this year
With questions mounting as to whether China’s policymakers will be able to continue supporting economic growth by spending more, some analysts say financial distress could rise next year even in the nation’s affluent eastern region that includes Shanghai.
That powerhouse region, which has been a driving force behind China’s economic growth over the past few decades, was hit hard by months-long lockdowns earlier this year.
“The overall tax revenue in the eastern region is in a sluggish trend. Under the continuous impact of the outbreaks, the economic recovery of the eastern provinces and cities is slow,” a note by the Topsperity Securities financial group said last week.
China’s international hub, Shanghai, which resorted to widespread lockdowns to stamp out coronavirus infections, plans to tap into its fiscal reserves amid a revenue shortfall, local finance authorities said last month.