China’s cash-strapped local governments have been forced to divert funds from poverty alleviation and infrastructure to finance mass coronavirus testing as President Xi Jinping’s zero-Covid policy causes growing financial strains.
An official in the north-eastern city of Jilin said authorities had earmarked a “significant” portion of state-backed funds intended to reduce poverty to buy PCR tests, after an outbreak that has infected more than 26,000 people since March.
In the southern industrial hub of Quanzhou, local officials said an ambitious infrastructure investment plan had slowed in part because the authority reallocated funds to testing following an outbreak that has infected more than 3,000 people over the past two months.
The struggle by local authorities to underwrite the testing drive has added to the financial pressures as the world’s second-largest economy faces its worst coronavirus outbreak since the start of the pandemic. Authorities have imposed lockdowns across large swaths of the country, including its biggest city and financial centre, Shanghai.
The measures have caused economic activity to plummet, with retail sales falling 11.1 per cent year on year in April and industrial production down 2.9 per cent, according to official data released this week.
The testing mandate could cost up to Rmb1.7tn ($250bn), or 9 per cent of China’s fiscal income in 2021, per year, according to Dongwu Securities.
Local governments have already been struggling, as the economy has been squeezed by lockdowns.
Authorities in Jilin said in January that they expected to report an 8 per cent drop in fiscal revenue and a 6.9 per cent increase in health spending this year compared with 2021.
The city has suffered a double-digit drop in tax income and a double-digit increase in health expenditure in the first four months of this year, after local authorities