(Yicai Global) March 21 -- Chinese local governments at the grassroots level have not greatly improved their fiscal revenue so far this year. Financial experts believe that vigorously developing a market economy would be a long-term solution to the problem.

“Fiscal revenues haven’t picked up significantly,” three officials in grassroots governments in east, central, and west China told Yicai Global today.

One of the officials, from an eastern province, said that the government’s fiscal revenue growth in January and February was mainly from state capital operation, and that is generally true of revenues for other grassroots governments in the province.

The country’s revenue in the local general public budget totaled CNY2.4 trillion (USD349.1 billion) in the first two months of this year, up only 2 percent from a year ago, with the national tax take amounting to CNY3.9 trillion in the same period, down 3.4 percent, according to finance ministry data released on March 17.

Revenue from local government-managed funds, mostly from selling land, was also lackluster. It stood at CNY632.3 billion (USD92 billion) in the first two months, down 26 percent from a year earlier. The figure includes CNY562.7 billion from transfers of state-owned land use rights, down 29 percent, per ministry statistics.

“Shrinking revenue from land puts a lot of pressure on governments at the grassroots level,” an official from a central grassroots government noted.

Grassroots governments still face great pressure from expenditure to meet people’s basic living needs, pay salaries, and ensure normal government functioning though they have spent less on anti-Covid-19 actions since China relaxed its Covid-19 policies, he told Yicai Global. “We faced even greater pressure from expenditure in the first quarter than last year.”

Local general public budget expenditure totaled CNY3.7 trillion in January and February, up 6.8 percent from a year ago, but revenue therein jumped only 2 percent. Expenditure was about CNY1.3 trillion higher than revenue, finance ministry data showed.

Revenue this year will be better than in 2022, but expenditure is essential and obligatory, so the tight fiscal revenue balance will not fundamentally improve, Luo Zhiheng, chief economist at Yuekai Securities, told Yicai Global.

Pressure can be eased by increasing revenue and reducing expenditure in the short term, such as expanding the coverage of consumption tax, and merging the grassroots governments of sparsely populated areas to cut government institutions and staff, he added.

The fiscal challenges of grassroots authorities have been a long-standing problem, and the primary cause is the severe imbalance in the governments’ authority and financial resources, according to Prof. Deng Shulian from Shanghai University of Finance and Economics.

Deng, who has been concerned about government budgets, believes it is very important to vigorously develop the market economy, adding that only when the local economy grows big can local government revenues rise and their financial difficulties be fundamentally solved.

This makes it all the more important to develop the private economy. Governments should withdraw from competitive industries and in particular not do things to compete for benefits with people, Deng suggested.

Editors: Tang Shihua, Peter Thomas