(Yicai) Sept. 15 -- Some local Chinese governments have revealed slowing income growth in their August fiscal income and expenditure reports.
Local governments saw relatively rapid growth in fiscal income in the first half amid China’s post-pandemic economic recovery, Yicai learned. But that growth has slowed along with the recovery, and another factor is the increasing base of comparison from the second half of last year.
In Jiangxi province, the general public budget revenue rose 4.5 percent in the first eight months from a year ago, down from 4.8 percent in the first seven months. In Inner Mongolia Autonomous Region, fiscal income grew 7.8 percent, slowing from 9.9 percent, while in Hunan province, it rose 7.9 percent, down from 10.3 percent.
Local fiscal conditions are dire, the director of a local financial bureau told Yicai. As of the end of August, the local government’s income, which mainly comes from auctioning land use rights, was less than 30 percent of the target set early this year, he said, adding that the local government has been spending more to support firms and on projects to benefit local people.
Some local authorities said in their reports that the shortfall in funds will worsen, exacerbated by growing expenditure.
Some, especially smaller grass-roots administrations, face a severe liquidity crunch as a result of various factors such as the weaker-than-expected economic recovery, a soft property market, increased debt repayment pressures, and cuts in taxes and fees, Wang Zhenyu, dean at Liaoning University's local government finance research institute, told Yicai.
This situation is likely to continue for some time, Wang noted.
Judging by recent local government financial reports, the main problem is the disappointing returns from auctions of land use rights, Yicai found, at a time when expenditure is still rising.
To deal with difficulties from a shortfall in income, local administrations usually find other ways to raise money and seek to cut unnecessary spending. The financial bureau of Inner Mongolia's Hangjin Rear Banner said that in the first six months it raised CNY19 million (USD2.6 million) by selling 14 state-owned assets at public auction, adding that the move monetized idle state assets. It said the income would go toward paying off the local government’s debts.
In the short term, local governments are facing a need to formulate a package of contingency fiscal measures. In the longer term, alongside the need for a more solid economic recovery, reforms will be required, especially in the fiscal bureaus of grass-roots administrations.
Editors: Tang Shihua, Tom Litting