(Yicai Global) June 17 -- A gauge of Chinese local governments’ financial independence is expected to fall below 50 percent this year as revenue growth slows.
The fiscal self-sufficiency rate, which is the ratio of a local government’s general public budget revenue to its general budget expenditure, will be 49.9 percent this year, according to calculations based on the central and local governments’ draft budgets released in March. These set local governments’ general public budget revenues at CNY11.5 trillion (USD1.72 trillion) and their expenditure at CNY23.1 trillion.
Last year the rate stood at 52.6 percent, but in 2020 it was 47.6 percent, the lowest level since 1994. The lower the rate, the more help an area needs from the central government in the form of transfer payments, such as tax refunds, categorical transfer payments and conditional payments, as well as bonds.
Expenditure is expanding faster than revenue in many places as business tax was changed into value-added tax in 2014, Liang Ji, vice director of the Research Center for Government Revenues of the Chinese Academy of Fiscal Sciences, said to Yicai Global.
Shanghai had the highest fiscal self-sufficiency rate in 2021 at 92.2 percent, followed by Beijing at 86.4 percent. Many provinces in the eastern part of the country, including Guangdong, Zhejiang, Jiangsu, Fujian and Shandong, had rates over 60 percent as these areas have a more developed economy and strong financial capacity.
But it was a different story in other parts of China. Some 22 out of 31 provincial-level regions had a ratio under 50 percent and 11 of them were below 40 percent. Most of these are in the less developed central, western and northeastern parts of the country which are weak financially but still have great pressure on expenditures.
The central government has hiked transfer payments to local governments in recent years to promote balanced regional development. This year it is making CNY10 trillion (USD1.5 trillion) in such payments. It is also boosting the local tax coffers through a number of methods such as allocating 50 percent of VAT revenue to local governments.
Editor: Kim Taylor