(Yicai) July 27 -- Having a fiscal self-sufficiency rate of below 100 percent is a normal phenomenon for Chinese local governments, according to the deputy director of the finance ministry’s budget department.

The fiscal self-sufficiency rate is the ratio of general public budget revenue to expenditure, Tang Zaifu said at a press conference on July 22. Local governments finance expenditures not only with general public budget revenue but also with funds from higher-level governments and the management of state-owned capital. Therefore, insufficient revenue does not necessarily mean that they cannot achieve a balance between income and expenditure.

The central government continues to increase its transfer payments to local governments, which is key to bridging the financial gap at the local level, Tang noted.

The average fiscal self-sufficiency rate of Chinese local governments was 50 percent in 2025, down from 55 percent in 2015, according to the latest data. The figure in economically developed provincial-level regions, such as Shanghai, Beijing, Guangdong province, and Zhejiang province, exceeded 70 percent, while in less developed Qinghai province and Xizang Autonomous Region, it was below 20 percent.

China’s over 2,700 county-level governments had an average fiscal self-sufficiency rate of 38 percent in 2024, with the lowest of 1 percent and the highest of 252 percent, per a report from the School of Public Finance and Taxation at Southwestern University of Finance and Economics.

In China, taxes are shared between the central and local governments. For instance, a significant portion of the tax revenue collected by a city must be remitted to the central government, provincial authority, and municipal government.

Last year, the central general public budget revenue accounted for about 44 percent of the national general public budget revenue, while expenditure made up only about 15 percent of local expenditure. The difference was returned to local governments through annual transfer payments worth over CNY10 trillion (USD1.48 trillion).

In order to enhance local financial autonomy, the State Council has called for optimizing the structure and improving the management of transfer payments and strengthening the integration and coordination of funds to better meet the actual needs of local governments.

Advancing the pilot reform of transfer payment coordination is a key measure to counter the decline of land finance, balance regional developmental disparities, and ensure stable operations at the grassroots level, said Yuan Haixia, director of the research institute of China Chengxin International Credit Rating. She suggested increasing the proportion of equalization transfer payments and granting provincial authorities the power to coordinate and allocate these funds.

The next step could involve studying the possibility of moderately shifting certain eligible consumption tax collection points to local governments to enhance local financial autonomy, said Luo Zhiheng, chief economist at Yuekai Securities. He also emphasized the need to improve the scope of consumption tax collection and the design of the tax system.

Editor: Futura Costaglione