China is redirecting anti-poverty funding to testing at Covid as the crisis deepens

China is redirecting anti-poverty funding to testing at Covid as the crisis deepens

China’s local governments with limited cash have been forced to divert funds from poverty alleviation and infrastructure to fund mass coronavirus testing as President Xi Jinping’s zero-covered Covid policy causes growing financial tensions.

An official in Northeast Jilin said the authorities had allocated a “significant” portion of state-sponsored poverty reduction funds to purchase PCR tests following the outbreak, which has infected more than 26,000 people since March.

At the South Quanzhou Industrial Center, local officials said the ambitious infrastructure investment plan had partially slowed as the office reallocated funds for testing following an outbreak that had infected more than 3,000 people in the past two months.

The struggle of local authorities to secure a test drive has increased financial pressures as the world’s second largest economy faces the worst coronavirus outbreak since the start of the pandemic. Authorities have introduced quarantines in large parts of the country, including its largest city and the financial center of Shanghai.

The measures caused a drop in economic activity, retail sales fell 11.1 percent year on year in April and industrial production by 2.9 percent, according to official data released this week.

According to Dongwu Securities, the testing mandate could cost up to 1.7 trillion Rmb ($ 250 billion) in 2021, or 9 percent of China’s fiscal revenue annually.

Local governments are already struggling as blockades have pushed the economy.

Authorities in Jilin said in January that they expect an 8% drop in fiscal revenues and a 6.9% increase in health care spending this year compared to 2021.

The city suffered a double-digit drop in tax revenues and a double-digit increase in health care spending in the first four months of this year after local authorities imposed a blockade in March and tested 4 million people several times to stop the epidemic. people familiar with the situation.

“When we created the budget at the beginning of the year, we were not prepared for such frequent and extensive testing,” said a local official. “We need to find alternative sources of funding to meet our priorities, and there is no poverty alleviation at the moment [a priority]. “

The need to fund testing has forced Quanzhou to reduce its infrastructure investment plan to Rmbn 185 billion this year. The city reported a 8.2 percent drop in fixed investment in March, compared to a nationwide increase of 6.6 percent.

A local official blamed the decline in part on the need to use construction equipment for testing. “The central government wants us to lift the pandemic and speed up infrastructure construction,” the man said. “We can’t do both, and the priority is to create a city without Covid.”

Local governments are “draining key resources from economic growth and testing them,” said Andrew Collier, CEO of Orient Capital Research. “Their economies will be in even worse shape than they already are.”

Sun Chunlan, China’s deputy prime minister, said last week that residents should be able to walk to the test station within 15 minutes, so virus detection could be faster.

Dozens of cities, including the Hangzhou Technology Center, have begun to require residents to show negative test results within 48-72 hours before entering public spaces such as restaurants and supermarkets. The measures were interpreted as a signal that regular mass testing could become permanent throughout China.

Japan’s Nomura Bank said that continuous testing every 48 hours would cost up to 1.8 percent of China’s GDP.

In addition to the financial crisis, experts said it was unclear how effective the test measures were in reducing virus transmission.

Nomura said the benefits of the mandate could be “limited” because cities could “continue to face frequent partial or even complete blockades” due to the high portability of the Omicron variant.

“Regular mass testing is completely unnecessary because a zero Covid target is impossible,” said Jin Dongyan, a virologist at Hong Kong University.

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