One Chinese province spent $22 billion on eliminating Covid before policy U-turn

By Laura He, CNN

A number of regional governments in China have revealed the enormous sums they’ve spent on fighting the pandemic, reinforcing a previous state media report suggesting that mounting costs were a key reason why the country abruptly abandoned its zero-Covid policy.

On January 8, when China reopened its borders and formally downgraded its management of Covid as a serious infectious disease, the state-owned Xinhua News Agency published an article disclosing the main reasons behind the leadership’s change of thinking on their Covid policy.

“It is difficult to eliminate the coronavirus, and the social cost and price of Covid prevention and control are rising,” it said.

Last week, local governments across China began to convene for annual legislative sessions laying out their respective policy goals for the year. The meetings will culminate in the national parliamentary session to be held in March, in which the premier is expected to disclose the nation’s GDP growth target, as well as its budget plans and other goals.

Guangdong, the country’s top province by economic output, spent a total of 146.8 billion yuan ($22 billion) on pandemic prevention and control over the past three years beginning 2020, according to the provincial budget report released on Friday. That money was spent on Covid testing, vaccination and a raft of policy enforcement-related expenses. It did not include other medical related spending, including public health expenditure.

During the three years, the Covid-related spending surged by about 50% each year. In 2022, it reached a peak of 71.1 billion yuan ($10.6 billion).

That figure is equivalent to 35% of the province’s spending on research and development. It was also more than what the country had spent on establishing its national chip fund, one of the hallmark initiatives of leader Xi Jinping’s administration.

The China Integrated Circuit Industry Investment Fund, also known as the “Big Fund,” was set up in 2014 with an initial investment of $138.7 billion yuan ($21 billion.) It’s key to Beijing’s ambitions to boost its domestic chip industry and compete with the United States in key technologies.

Short on cash

China’s local governments are facing a shortfall of cash, as three years of the zero-Covid policy placed extraordinary pressure on their finances, while a slump in the housing market cut into their funding.

The nation’s broad fiscal deficit, which amalgamates deficits for both the central and local governments, hit 6.66 trillion yuan ($944 billion) in the first ten months of 2022, nearly tripling from a year ago, according to CNN calculations based on data from the Ministry of Finance. Economists estimated the entire year’s deficit could hit a record 10 trillion yuan ($1.4 trillion) in 2022.

Local government finances are also being stretched by a sharp contraction in revenue as feeble economic growth and huge tax breaks for businesses reduce income.

Several other regional governments also reported massive Covid bills.

Beijing, the nation’s capital, said Sunday that it had spent nearly 30 billion yuan ($4.5 billion) last year on preventing and controlling Covid. That’s up 140% from 2020. The city didn’t reveal its 2021 Covid spending.

Fujian, an eastern coastal province that neighbors Guangdong, dedicated 13.04 billion yuan ($2 billion) in 2022 to handling the Covid-19 pandemic, up 56% from 2021, according to its government budget published last week. During the past three years, the bills amounted to 30.5 billion yuan ($4.6 billion.)

Shanghai, the richest city in mainland China which was hit by a two-month Covid lockdown in April and May, reported that its Songjiang district had spent more on fighting Covid than on public healthcare last year. The district, where several chipmaking giants such as TSMC and SMIC have factories, saw its Covid-related expenditure hit 4.45 billion yuan ($664 million), while its healthcare spending was only 3.625 billion yuan ($541 million).

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