Caixin Weekly | Local Government Finances Under Tight Balance (AI Translation)

财新周刊｜地方财政紧平衡

Throughout late 2024 and early 2025, Chinese provinces released their annual government budget data amidst increasing fiscal pressures and shifting economic landscapes. As of February 14, 2025, of the 30 provinces with reported data, four, including Hainan, recorded a decline in general public budget revenue (narrowly defined), while 26 saw increases. However, in most, growth was modest—23 provinces posted single-digit uplifts (0.2%–6.6%), with only three areas, including Tibet, experiencing double-digit growth. Notably, concerns arose over reports of a year-on-year fiscal revenue decline in Shenzhen, an economic powerhouse, where evidence from districts like Futian indicated a drop in revenues, driven mainly by a fall in tax receipts [para. 1].

Most provinces cited significant revenue-raising challenges in 2024, primarily due to underperformance in tax collection, with about two-thirds of the 29 provinces reporting declines in tax revenue. Instead, increased non-tax revenues—such as proceeds from the activation of existing assets—bolstered overall fiscal results, generating debates about balancing short- and long-term gains. For example, Shenzhen, where tax revenue typically makes up over 80% of fiscal income, did not boost non-tax receipts to offset declining tax inflows, reflecting local government commitment to supporting businesses and a stable business environment [para. 2][para. 3].

While provinces anticipate economic recovery and fading effects from earlier tax cuts to support fiscal revenue growth in 2025, they also recognize persistent low inflation, a sluggish real estate recovery, uncertainties in foreign trade, and unsustainable one-time asset sales as headwinds. As a result, 13 provinces lowered revenue targets for 2025, with most expecting 2%–3% growth. With sharper fiscal imbalances, provinces are pressing for adjustments in spending structure. All have dedicated special plans for zero-based budgeting in 2025, emphasizing starting from scratch in budget allocation, prioritizing essential projects, and maintaining or increasing the share of social welfare spending [para. 4].

Despite China’s 2024 total general public budget revenue reaching 21.97 trillion yuan (up 1.3% year-on-year but below the planned 3.3%), several economic powerhouses recorded revenue growth below the national average or outright declines. For instance, Shanghai’s revenue grew just 0.7%, while economic factors like low coal prices led to a 10.1% tax income drop in resource-rich Shanxi. Similarly, Shaanxi missed its revenue targets due to weak demand and falling commodity prices [para. 5][para. 6].

National data revealed a pronounced divergence between tax and non-tax income; non-tax revenue soared by 25.4% to 4.47 trillion yuan, while tax receipts declined by 3.4%. Local governments, facing tax shortfalls, actively sold or managed state-owned resources and assets to supplement income. For example, Chongqing’s asset revitalization initiatives yielded significant fiscal benefits [para. 8][para. 9][para. 10]. In contrast, the real estate slowdown meant land transfer income—a key government funding source—declined in 21 out of 30 provinces [para. 11].

Persistent fiscal tightness is leading provinces to implement zero-based budgeting more broadly, aiming to reallocate resources toward pressing social priorities. Many are introducing measures like stricter performance evaluations and cuts to general administrative spending. Social welfare remains paramount; most provinces report that such expenditures account for two-thirds or more of their budgets [para. 17][para. 18][para. 21].

On the debt front, the latter half of 2024 saw accelerated action on local implicit debt restructuring, thanks to a 10-trillion-yuan national debt swap program. Provinces like Tianjin, Inner Mongolia, and Jilin reported significant progress in reducing high-risk platform debt, with some aiming for full resolution in 2025. Looking ahead, comprehensive monitoring of all local government debt and strengthening institutional reforms are key to containing fiscal risks [para. 23][para. 24][para. 25][para. 29].

In conclusion, China’s provinces are grappling with mounting fiscal challenges amid modest economic recovery, persistent spending demands, and efforts to resolve local government debt, all while pivoting toward more disciplined, efficient, and social welfare-centric public finance management [para. 32][para. 33][para. 34][para. 35].