In China’s heavily indebted cities, “fiscal winter” is manifesting through a peculiar ritual: businessmen crowding government offices in a year-end rush to claim overdue contract payments. In private conversations, some bitterly recounted waiting for hours in line to deliver a short, rehearsed plea for payments – only to be told that the official they sought was unavailable. For the well-connected lot who were granted an audience, the meeting often ended quickly: a shrug, an apology, and a resigned admission from the official that his coffers were empty.

The fiscal strain weighing on China’s local governments has been long in the making. Years of debt-fueled infrastructure expansion, lax oversight of off-balance-sheet borrowing, and heavy spending during pandemic years have left many localities dangerously leveraged. The collapse in land-sale revenue and slumping tax receipts have further battered local finances. Adding to the stress, Beijing has demanded that local governments rein in their liabilities, lately by setting up a new department under the Finance Ministry to oversee debt repayment.

As local officials scour every corner for cash, businesses are feeling the brunt. For officials, delaying payments to government contractors and suppliers is “easy”: few small and medium-sized firms are willing to challenge the state. In an unusual piece of investigative........

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