Analysis: Employment spree in heavily indebted Chinese provincial governments fuels fiscal fears.

BEIJING: Some of China’s most indebted provincial governments are booming employment and analysts say they could further strain fragile local finances as officials seek to create jobs for a record number of graduates entering the workforce this year says

China’s massive and growing local government debt, which totals $9 trillion, or about half of its gross domestic product, is one of the biggest threats to fostering sustainable growth in the world’s second largest economy.

Beijing said addressing these debt risks is one of the government’s main challenges this year, prioritizing job creation in an economy that is still reeling from years of costly COVID-19 lockdowns, travel restrictions and other lockdown measures.

The task of providing jobs in impoverished areas where population and private business flock to the city center falls more head-on to local governments at a time when local governments are struggling to raise tax revenues through income taxes and state land sales.

“This type of strategy may be calculated in part to retain educated young people within the state rather than see them leave for more developed regions,” said Jack Yuan, senior analyst and vice president at Moody’s.

But “budget and debt pressures are more severe in these provinces, so increased spending entails additional fiscal risks,” Yuan noted.

According to Offcn Education Technology Co., Gansu, Yunnan and Guangxi provinces are expected to see the largest increase in civil servant recruitment this year. test.

Gansu province in China’s dry and remote northwest plans to hire 4,249 civil servants, up nearly 80% from last year, while Yunnan and Guangxi provinces on the southern mountainous border are expected to hire 5,696 and 6,781 additional civil servants, up 59 jobs. percent and 55 percent, respectively.

The total number of jobs added in China’s 31 provinces, regions and municipalities is about 190,000, up 16% from 2022, financial media Caixin reported.

Local governments that have added the relatively highest number of jobs are also among the most indebted. Last year, Yunnan’s outstanding debt to fiscal revenues reached 1087 percent, the highest among all provincial economies. According to a survey by TF Securities, a Chinese brokerage firm, Gansu Province ranked third with 970%, and Guangxi ranked fifth with 910%.

The provincial governments of Gansu, Yunnan and Guangxi did not respond to requests for comment, and Reuters could not pinpoint why the government is increasing employment or how it will affect finances. But it is causing anxiety among economists.

Nie Wen, economist at investment firm Hwabao Trust, said large-scale government recruitment would be unsustainable if state-owned land sales continue to deteriorate in the region.

“Employment First”

In his first speech as China’s new prime minister earlier this month, Li Qiang said the government needed an “employment first” agenda, including setting a job creation target of 12 million, up from last year’s 11 million. Our conservative GDP growth target for this year is around 5%.

China must create jobs for a record 11.58 million college graduates expected to join the workforce this year. This is a difficult task at a time when unemployment among 16-24-year-olds is nearing an all-time high of 18.1%.

Offcn, a tutoring company, said the jobs it is looking for in Gansu, Yunnan and Guangxi are mainly in the legal, finance and accounting departments, and application requirements are more favorable to university graduates.

An official from Gansu, who requested anonymity, told Reuters, who requested anonymity because he was not authorized to speak to the media, that the hiring was partly to replace retired workers, but that some local workers were also subject to pay cuts. .

In addition to central government funding, many provinces in China rely on so-called Local Government Financing Vehicles (LGFV) to raise additional capital from the bond market, such as infrastructure projects.

According to an International Monetary Fund (IMF) report last month, China’s LGFV’s total debt surged from 57 trillion yuan last year to 66 trillion yuan (US$9.5 trillion).

Proliferated as a way for local governments to ban direct lending after the 2008 financial crisis, these LGFVs are technically insecure and many have assets of dubious quality, such as roads to nowhere and empty airports, analysts say. .

There are no public reports of LGFV defaults, but some have had their loans extended. Moody’s Yuan said provincial governments, including Gansu, are facing growing pressure to refinance to meet their debt obligations.

This is why he and others fear that attempts to create jobs and pursue growth too aggressively could lead to more fiscal troubles where finances are already tight.

“Usually, this high growth rate and high debt ratio is a very risky story,” said Iris Fang, chief economist for Greater China at ING.