By The Economic Times
The finances of some local authorities are stretched to the limit, after three years of astronomical spending to combat the Covid-19 pandemic, and above all a property crisis that has deprived them of a major source of income.
The economic context is exacerbating their difficulties, according to analysts at SinoInsider, an American consultancy specialising in China.
And they point out that some companies have recently complained about receiving tax arrears dating back to the 1990s.
SinoInsider noted that local governments are “trying various methods” to increase their revenues, at the risk of weakening businesses that have already been tested by the economic situation.
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Given the economic climate, the financial sector is reluctant to invest in traditional growth sectors, fuelling an “asset shortage”, SinoInsider said.
On the other hand, it is buying more and more “risk-free” long-term government bonds, which is driving down yields.
This is helping to depreciate the Chinese currency, with the risk of accelerating capital flight, SinoInsider warned.
