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China's Covid-zero policy has begun taking a financial toll on local governments across the country.

According to the Financial Times, local officials have begun diverting funds meant for tackling poverty and infrastructure projects to funding mass Covid-19 testing instead.

It cited experts outside of China who said that local governments are taking "key resources" from economic growth to finance testing, which will result in their economies being in an "even worse shape" than they already are.

The report also highlighted the Chinese cities of Jilin and Quanzhou as notable examples of the issue.

Jilin city: 'Significant' portion of funds for cutting poverty to be used for buying PCR tests

In the case of Jilin city, an unnamed official was quoted as saying that a 'significant' portion of state-backed funds for cutting poverty has been marked by authorities for buying polymerase chain reaction (PCR) tests instead, following the infection of more than 26,000 people since March.

The city has already suffered a "double-digit" drop in tax income, along with a "double-digit" increase in health expenditure from January to April of this year, following the authorities' implementation of a lockdown in March and subjecting 4 million residents to multiple tests.

Another unnamed official was quoted as saying that currently, poverty alleviation is not a priority and that the city's budget, which was created at the beginning of the year, did not account for frequent mass testing, thereby necessitating the need for "alternative" sources for funding.

CNA reported that the economy of Jilin province as a whole shrunk by 7.9 per cent in the first quarter of 2022, as a result of the outbreak in March.

In addition, this decline is worse than the 6.6 per cent contraction the province experienced in the same period of 2020, when China was first hit by Covid-19.

The lockdown was implemented on Mar. 14, with the province's 24.1 million residents banned from travelling out of it and between different areas within.

Quanzhou city: Infrastructure development slowed as construction funds are used for testing

As for the city of Quanzhou, FT highlighted that an infrastructure development plan has been slowed as a result of the need to reallocate construction funds towards testing, following the infection of over 3,000 people in the past two months.

Here, another unnamed official said that the central government wants local authorities to "eliminate the pandemic" and increase infrastructure construction at the same time.

This is impossible, the official added, given that the priority is for a city free of Covid-19.

Prior to the publication of the Financial Times article, a South China Morning Post (SCMP) report on May 7 said that provincial government of Fujian had allocated 18.86 million yuan (S$3.88 million) to build quarantine facilities in the cities of Fuzhou and Quanzhou.

In addition, Quanzhou also received an additional 300 million yuan (S$61.6 million) from provincial authorities for mass testing and the purchase of equipment for controlling Covid-19.

The city has since scaled down its infrastructure investment plan.

While the exact amount by which the plan was scaled down was not mentioned, the Financial Times highlighted that Quanzhou reported an 8.2 per cent drop in fixed investment in March, compared to the national average of a 6.6 per cent increase.

China confident it can meet official GDP target of 5.5 per cent even with "zero-Covid" strategy

SCMP further reported that China's leaders have set an annual target of 5.5 per cent growth for gross domestic product (GDP) growth and are confident that it can be met while maintaining a "zero-Covid" strategy.

Chinese officials have also maintained that the lockdowns required for the "zero-Covid" strategy are not in conflict with economic development, The Straits Times reported.

This is despite their admission that such an admission will be costly in terms of "human capital and money."

On Apr. 29, the vice-minister of China's National Health Commission (NHC) said that economic and social development will be seriously affected if the virus is allowed to spread due to a lack of resolution and decision by "individual places" (local authorities).

This was followed by a piece on May 18, published by China's state-run media Xinhua, arguing that its "zero-Covid" policy had been successful and was safeguarding the economic development of the country.

Xinhua added:

"China's strong economic pulse is discernible. In the first quarter of this year, the country achieved a 4.8 percent GDP growth, 0.8 percentage points higher than that in the fourth quarter of last year."

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