A Chinese city with a population of 7.7 million drew public attention on Feb 23 for almost losing its bus services because of a lack of funds, highlighting the financial strain local governments are under after years of spending on Covid controls.

The only bus company in Shangqiu - a city in China’s central Henan province - said Thursday it would halt services from March 1, citing heavy losses that made it difficult to pay salaries or even vehicle insurance. It blamed the situation partly on the insufficient payment of fiscal subsidies from the city’s government.

Shangqiu Public Transportation Co Ltd’s “operation is extremely difficult”, the company said in a statement released on its official WeChat account. Local media reported the company hadn’t paid salaries for five months.

The statement was taken down after it began trending on social media platforms in the morning. Around noon, the company backtracked, apologising for the “negative impact” of its previous statement and promising to “overcome difficulties and make sure the buses are not suspended,” Chinese media including The Paper reported.

News of the bus service suspension was still a top trending topic on China’s Twitter-style Weibo by Thursday afternoon, with some 98 million views.

Shangqiu’s government vowed to ensure normal operations, adding it “has been subsidising the company as agreed.”

The bus company is privately owned, according to a corporate database and is affiliated with the city’s transportation bureau. Shangqiu reported a 31.8bil yuan (US$4.6bil) deficit on its main budget last year, 13% smaller than in 2021. Calls to the city and the company went unanswered.

Local government finances plunged last year as a property market slump reduced their income from land sales - a key source of revenue - and tax receipts declined because of a weak economy. At the same time, they were forced to boost spending on Covid testing and other controls.

Henan province spent almost 49bil yuan on Covid controls last year, according to local medical news outlet 8am Health Insight. That was nearly 5% of its main fiscal expenditure, the second-highest share among the 22 provinces and municipalities the outlet analysed.

For the country as a whole, the budget deficit jumped to a record US$1.3 trillion last year, mainly due to the decline in the financial health of the provinces and local governments.

While Shangqiu may be curbing its spending on public services, the city is still putting its money into infrastructure - a total of 132 major projects worth a combined 167bil yuan in investment were launched by the city in January, according to local media reports.

Other Chinese cities are also running into similar problems as Shangqiu.

A bus company in Mohe city in the northeastern province of Heilongjiang announced plans to halt services earlier this month, but reversed the decision soon after the government intervened, according to local media reports. Dancheng county, also in Henan province, temporarily suspended bus services in August 2022, as passenger numbers declined partly due to Covid lockdowns.

Hegang city in Heilongjiang, a rustbelt region, was at risk of losing centralized heating in January - when temperatures dropped to as low as minus 30C - after a local heating company said it will stop services due to surging coal prices and a lack of subsidies.

The company eventually promised to keep providing heating after the local government stepped in. Hegang made national news headlines in early 2022 after it became the first Chinese city to enter an official fiscal restructuring.

Many local governments are also battling a falling population as the nation ages and people move to bigger cities, making it harder to maintain basic public services. The population of Heilongjiang shrank almost 17% between 2010 and 2020, losing 6.5 million people over that period, according to government census data.

 - Bloomberg