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China: Amid Xi-Jinping’s Coronation For The 3rd Time, China’s Fiscal Deficit to Hit a Record Low of 1 Trillion US$

China: Broad monetary deficit hit an all-time high in the first nine months of the year as Covid outbreaks and a housing market slump continued to eat away at the government’s income.

  • China’s Budget Deficit nears a record $1 trillion in the middle of global slowdown.
  • Deficit for first 9 months is almost three times last year.
  • Slumping land sales, tax breaks cut into government revenue.
  • Consumer demand has also been dampened by sudden lockdowns and strict travel restrictions under Beijing’s strict zero-Covid policy.
  • Fiscal expenditure then rose 6.2 percent to 19.04 trillion yuan in the first nine months, following a government-driven infrastructure push to boost growth and create employment.

The deficit in the budgets for all levels of government was 7.16 trillion Yuan ($980 billion), according to Bloomberg calculations based on data released by the Ministry of Finance on Tuesday. That is a record for any comparable period and is almost three times the 2.6 trillion Yuan shortfall in January-September last year.

Overall government revenue dropped 6.6 per cent to 15.3 trillion Yuan from January to September as the government doled out more tax rebates to businesses, according to the finance ministry.

Fiscal expenditure then rose 6.2 per cent to 19.04 trillion Yuan in the first nine months, following a government-driven infrastructure push to boost growth and create employment.

China’s economy grew 3.9 per cent year-on-year in the third quarter, data showed this week, beating expectations.

Xi-Jinping’s re-election have dampened investors spirit

But President Xi Jinping’s re-election to a historic third term as leader of the Communist Party spooked investors on Monday, with China’s currency slumping and stocks in Hong Kong nose-diving to their lowest level since the global financial crisis.

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China’s real estate sector which contributes more than 25%, battling unprecedented crisis

China is also battling an unprecedented crisis in its real estate sector, which makes up more than a quarter of the country’s GDP when combined with construction.In October 2022, second-hand home prices fell by the highest month-on-month rate since 2014.

The housing market is still stuck in a downward spiral, global demand is set to cool further, and the weak Yuan is restraining the central bank’s ability to provide policy support.

Consumer demand has also been dampened by sudden lockdowns and strict travel restrictions under Beijing’s strict zero-Covid policy.

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Service sector that accounts for more than 50% also slumped for the 1st time

Activity in the services sector, which accounts for more than half of the Chinese economy, contracted last month for the first time since May as big cities including Chengdu were locked down to contain virus flare-ups, keeping consumers at home, shuttering shops and restaurants, and stopping people from travelling around the country.

Chinese authorities have struggled to make both ends meet this year as massive tax rebates and to contain Covid outbreaks have meant more spending on controlling and testing people, while there have been demands to spend more on infrastructure to spur economic growth and compensate for weak private consumption.

Property developers have been unwilling to buy land as they are grappling with an ongoing liquidity crunch and this has driven some local governments to sell land to state-owned enterprises to try and generate some immediate revenue, even if this is effectively selling to them. This practice prompted the Ministry of Finance to issue a statement earlier this month banning local governments from buying land with borrowed money or “inflating” their land-sale revenues through purchases by SOEs.

President Xi-Jinping faces an uphill task to rejuvenate the beleaguered economy, bringing the present financial crisis back to normalcy should be his priority,  other geo-political issues like Taiwan may take a back-seat as of now.

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