China’s local governments, denied lifeline, face catch-22 scenario as businesses lose confidence

Struggling under the weight of heavy-handed zero-Covid control measures, local cadres are ordered to take lead in boosting economic growth and employment

Meanwhile, businesses across China are reluctant to expand or hire amid low confidence in local government finances, further compounding economic woes

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Across China, businesses are struggling to survive because of strict coronavirus restrictions, leaving local officials at a loss for ways to boost employment. Photo: AP

Published: 8:00pm, 27 May 2022Updated: 9:47pm, 27 May 2022

With their coffers already stretched thin, local-level governments across China now find themselves in the high-pressure position of having to help prop up economic growth and employment, with Beijing sending them a strong signal: you’re on your own.

It’s a tall order at a time of considerable economic uncertainties stemming from China’s adherence to a strict zero-Covid policy that mandates lockdowns, mass testing and quarantines. These measures have had an outsized impact on consumer spending and on the desire and ability of businesses to expand and broaden their investments.

In a candid teleconference with more than 100,000 cadres across the nation on Wednesday, Premier Li Keqiang warned about the risks of rising unemployment and repeatedly urged local officials to use subsidies to protect the job market while also boosting their support for businesses and pressing on with infrastructure plans.

However, Li also seemed to imply that there would not be an additional injection of financial aid from the central government, despite pleas from several local governments desperate for assistance.

“Do everything possible to expand employment. Everyone knows that employment is the top priority for people’s livelihoods, and it is also an important pillar in stabilising the economy. Only with employment comes income that creates wealth,” Li said, according to a transcript of his speech on Wednesday that was verified by officials who attended the meeting.

“If there is a catastrophic natural disaster, there is the premier’s reserve fund,” Li said, referring to the fund that he oversees and which could be tapped for funds under dire circumstances such as a devastating earthquake. “But the rest of the money is dependent on you” – the local governments.

At its annual parliamentary meetings in March, when local officials from across the country converged on the nation’s capital, Li vowed that the central government would transfer a record 9.8 trillion yuan (US$1.46 trillion) to local governments this year – up 18 per cent from 2021.

But despite that influx of funding, there are mounting concerns over whether it will be able to offset a huge shortfall in revenue from land sales, which plunged nearly 30 per cent between January and April.