In Depth: Chinese Local Governments Foresee Heightened Fiscal Pressure

In 2025, Chinese local governments are bracing for increased fiscal pressure due to economic challenges such as weak price growth and a struggling property market, culminating in conservative revenue targets for the year [para. 1]. The fiscal performance of China's provincial-level regions in 2024 was varied, with the general public budget (GPB) revenues showing some regions with year-on-year declines, others with modest growth ranging from 0.2% to 6.6%, and only three achieving double-digit growth [para. 2]. China's total GPB revenue for the previous year was lower than anticipated, growing by only 1.3% to 22 trillion yuan ($3.1 trillion), significantly below the government's target of 3.3% [para. 3]. This background feeds into provincial expectations of intensified fiscal pressure in 2025, with 14 regions setting lower revenue growth targets than in 2024, generally expecting growth between 2% to 3% [para. 4].

The GPB, primarily funded through taxes and profits from state-owned enterprises, is the largest among China's four fiscal budgets, with many regions projecting slower revenue growth [para. 5][para. 4]. Despite some economic powerhouses like Zhejiang, Jiangsu, and Shanghai performing under the national revenue growth rate of 1.3% [para. 6], specific factors contributed to varied performances. For instance, Shanghai's revenue rose only by 0.7% due to a high comparison base from 2023, new preferential tax policies, and the ongoing pressure on pricing levels affecting fiscal calculations [para. 7]. Shanxi province's GPB revenue increase was held to 1.8%, further illustrating the impact of falling coal prices on tax revenues [para. 8].

Overall tax revenue took a hit with a 3.4% fall to 17.5 trillion yuan, while nontax revenues surged by 25.4% to nearly 4.5 trillion yuan [para. 9]. This nontax revenue growth was mainly due to increased profits from central government bodies and revitalization efforts, coupled with a significant 14.8% increase from fines and confiscations [para. 10]. An example is Jiangsu, where nontax revenue rose by 22.7%, including an 8.9% increase from fines and confiscations, though much of this was driven by temporary factors [para. 11]. In contrast, Shenzhen saw its first annual GPB revenue decline since 1990, with a marginal 0.6% increase in nontax revenue, highlighting variability across regions [para. 12]. Shenzhen's Futian district experienced a 20.6% drop in nontax revenue, partly due to a strategy focusing on enterprise protection and business environment maintenance [para. 13].

Concerns persist regarding sustained deflation of producer prices, impacting tax revenue growth, along with factors like the enduring property market slump [para. 14][para. 15]. Local governments are also dealing with the aftermath of China’s property downturn, which has notably impacted the land sales market [para. 16]. This market, essential in funding local government coffers, has suffered since 2022, with 22 out of 31 provincial-level regions reporting declines in land sales revenue; Hunan and Zhejiang were among the worst affected, displaying double-digit decreases [para. 17].

In summary, China's local governments are adjusting to fiscal realities marked by cautious growth projections amidst broader economic challenges, continuing to navigate recovery attempts while grappling with reduced land sales and subdued tax revenue growth prospects [para. 1][para. 4][para. 16][para. 17].