China’s budget deficit reaches a new high of $1.1 trillion due to the Covid zero drop.

According to Bloomberg calculations based on statistics from the Ministry of Finance, the enhanced fiscal deficit was 7.75 trillion yuan ($1.1 trillion) from January to November.
So far this year, China’s overall budget deficit has reached a new high, demonstrating how devastating the now-abandoned Covid Zero strategy and the continued housing collapse have been to the economy and the government’s finances.
According to Bloomberg calculations based on Ministry of Finance statistics, the enlarged budget deficit was 7.75 trillion yuan ($1.1 trillion) from January to November. That was more than double the same quarter last year and greater than the same period in 2020, when the economy was devastated by the initial Covid epidemic and growth was the weakest in decades.
The growing deficit highlights how terrible the economy was at the end of November, right before the Chinese government basically abandoned its rigid policy of trying to prevent Covid infections.
The Covid Zero policy’s lockdowns, testing, and quarantine requirements imposed a pressure on consumer and corporate expenditure, driving the economy near to recession in the second quarter. This quarter’s increase in infections has already resulted in a reduction in retail sales in October and November.
The Covid policy was also becoming increasingly costly to sustain. Local governments had to face enormous costs for testing and quarantining citizens, while their income from land sales and taxes plunged as the property market slumped.
With Covid infections sweeping the country, local administrations are unlikely to witness an instant increase in tax income or budgets. Even if spending on testing and quarantines falls, healthcare cost is expected to rise as more people become ill. There is also no hope for a fast rebound in the property market, which will likely keep land sales revenue low.
Consumers are avoiding congested areas in several cities, and labour shortages and industry delays are projected to worsen in the coming months as diseases spread. Car sales, a rare bright light for consumption this year, fell for the first time in six months in November, while house purchases fell further even as local governments lifted purchasing restrictions. In the first 11 months of this year, total income from general public and government fund budgets was 18.6 trillion yuan. That was down 3% year on year, down from the 4.5% loss in the first ten months. According to the finance ministry, it would have climbed 6.1% if not for tax rebates distributed earlier in the year.
Governments throughout the country generated 715 billion yuan from land sales in November, up from 552 billion yuan the previous month but down nearly 13% year on year. This year, land sales revenue has fallen by double digits practically every month.
Deed tax revenue fell 23.8% in the first 11 months of the year compared to the same period in 2021.