In recent times, utility fees in mainland China have seen a significant increase. According to economists, local governments in China are facing financial crises and are unable to subsidize utility fees, which will further squeeze household consumption and exacerbate inflation.
Over the past few months, utility fees in China have been soaring. More than ten cities, including tech and manufacturing hubs like Shenzhen and Guangzhou, have raised charges for water and gas services.
According to state media reports in China, ticket prices for the four busiest high-speed rail lines in the country will also increase from June 15, with the highest surge reaching up to 20%.
Many economists are concerned that this will further weaken the spending power of Chinese households, leading to nationwide economic stagnation and inflation. Many users have taken to social media to criticize these price hikes, saying that it puts pressure on their spending for other daily needs.
Xing Zhaopeng, a senior strategist at ANZ Bank China, stated, “The rise in utility costs will only have a one-time effect on inflation, but household sentiments will suffer from the increased cost of living. Ultimately, it may have a negative impact on domestic consumption.”
Xing estimated that cities like Guangzhou, Shanghai, Xianyang, Wuhu, Nanchong, and Qujing have announced water price increases ranging from 10% to 50%, while Chengdu, Putian, Zhenjiang, and Shenzhen have raised gas prices by 5% to 20%.
Evaluation data from ANZ Bank shows that utility costs account for 7.7% of consumer inflation in China, with electricity and heating at 4.2%, gas at 1.0%, water at 0.2%, and transportation fees at 2.3%.
As local government revenues in China sharply decline, the previous subsidy policies are becoming unsustainable. Official data from the Chinese government indicates that land auction revenues across China have dropped by around 20% compared to pre-pandemic levels in 2019.
Due to the impact of the extreme lockdown measures during the COVID-19 pandemic and the nationwide real estate crisis, local Chinese governments are faced with debts exceeding 13 trillion US dollars.
Wang Dan, Chief Economist at Hang Seng Bank (China), remarked, “Local governments… are unable to generate enough revenue to sustain the subsidies.”
For over a year, China has been grappling with inflation. In April, consumer prices rose for the third consecutive month, with a 0.3% year-on-year increase – partly due to the escalating utility costs.
Many economists are urging authorities to implement policies that promote household consumption to prevent further inflation.
Xing Zhaopeng noted that the recent price hikes are not authorities stepping up “inflationary measures,” as they typically lead to economic stagnation and could worsen inflation.
(Reuters contributed to this article)