Most of the 30 provincial-level regions in China that have shared their fiscal data for the first half of this year reported higher-than-expected general public budget revenues, which include both taxes and non-tax income. However, several financial officials caution that conflicts related to local government revenue and expenditure remain substantial.
Only two provinces achieved double-digit growth in their public budget revenue: Tibet Autonomous Region saw a 37% increase, and Xinjiang Uygur Autonomous Region experienced a 10% rise. Twenty-two provinces reported growth, led by Gansu, Shaanxi, and Beijing, each with increases of 6% or more. Conversely, Jiangxi, Liaoning, and Guangxi Zhuang Autonomous Region saw declines.
In 24 provinces, the growth in public budget expenditures was lower than that of revenues, and 12 of these regions even reported a decrease. Guangdong, China’s largest provincial economy, has not yet released its mid-year financial report.
Overall, revenue from local government funds fell 26% compared to the same period last year, and revenue from land sale rights dropped 32%, according to Luo Zhiheng, chief economist at Yuekai Securities. He emphasized that amid mandatory spending obligations and debt repayment requirements, local governments are facing a relatively tight fiscal situation.
Although tax revenue growth in the first half has been acceptable, the sharp decline in government fund income—mainly from land sales—has increased pressure on local fiscal management, said a director of a local finance bureau in an eastern region. Meanwhile, a finance official from a western region noted that while revenue and expenditure figures are generally positive, the heavy debt burden is creating significant repayment challenges. A counterpart from a central region also highlighted that local financial conditions remain quite strained.
To address these difficulties, Luo suggested that local governments should focus on revitalizing existing assets in the short term and, in the longer term, reform urban investment companies and reshape their tax bases. Identifying and promoting sectors that leverage local strengths, creating attractive business environments, and avoiding industries attracted solely by subsidies and tax incentives are crucial.
Luo also emphasized the importance of increasing transfer payments from the central government to help local authorities manage ongoing adjustments in the real estate market and substantial debt repayment pressures. Looking ahead, he advocates for continued fiscal and tax reforms: reducing the administrative powers and expenditure responsibilities of local governments gradually and steering clear of providing them with large, inefficient fiscal subsidies.