China’s Local Officials Cut Color-Printing, Travel to Save Cash

Don’t expect a pay raise or bonus. No color printing. Turn off the lights when leaving the office. Travel less.

These are part of a 90-point directive the government of Heilongjiang in China’s far north-east gave its employees in May, as part of cutbacks to free up money to fight the coronavirus and support the economy. Officials were also instructed to cut spending on pens, paper, scissors and glue. Purchases of new official cars are forbidden.

The rustbelt province, plagued by an aging population and dim growth prospects, expects a fiscal shortfall of at least 20 billion yuan ($2.9 billion) in 2020, or about 16% of local revenue last year. The fiscal stress is “extremely prominent,” the government said.

Heilongjiang’s belt-tightening gives a glimpse of the predicament faced by local authorities across the country. The coronavirus has paralyzed the economy, hitting already shrinking tax revenue but increasing demands to spend on everything from payroll subsidies to consumption vouchers and virus control.

China’s Local Officials Cut Color-Printing, Travel to Save Cash

“Local governments are financially squeezed at both ends,” said Betty Wang, a senior economist at Australia and New Zealand Banking Group Ltd in Hong Kong. “The virus has affected economic growth and government income, while restoring the economy requires more spending.”

Local governments’ main income -- including tax receipts and state asset revenue -- was down by 6.2% in the first seven months of 2020 from the same period last year.

Officials are going all out to look for additional funds while making cutbacks. Heilongjiang has accelerated the disposal of idle state assets, Fujian has banned the repair of any government buildings unless it’s unsafe, while in relatively rich Guangzhou, officials have combed through thousands of budget lines to re-evaluate spending in light of the pandemic. Many cities and counties have also rolled out guidelines to cut car purchases, conference budgets and housing renovation.

China’s Local Officials Cut Color-Printing, Travel to Save Cash

China’s fiscal system ensures that local authorities start off in a weak position. While provinces receive about half of national revenue directly, they are responsible for about 85% of expenditure, according to Bloomberg calculations based on the 2019 budget. That leaves them reliant on transfers from the central government as well as land or bond sales and off-balance-sheet borrowing to plug the gap.

A more fundamental solution is to divide expenditure responsibilities more reasonably between the central and local authorities, said Chaoping Zhu, Global Market Strategist at J.P. Morgan Asset Management.

Some changes are underway. The central government decided late last year to reallocate some revenue such as the consumption tax directly to local authorities and channel some fiscal stimulus directly to counties, but change has been slow.

©2020 Bloomberg L.P.

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