China’s property crisis has hit local governments hard, drying up a key source of income as land sales crumble. Fiscal reform plans have sparked hope relief is on the way, but economists see little progress. Cash-strapped and indebted, regional governments are seeking alternative revenue streams to compensate for falling land and tax income.
That is a worrying sign that fiscal conditions are deteriorating, analysts say, and bodes ill for China’s sputtering economy. For the first seven months of 2024, China’s tax revenue fell 5.4% on the year, reflecting continued economic malaise and tax cuts. Local government proceeds from land sales slid over 20%, Ministry of Finance data showed.
In contrast, China’s fiscal income from nontax items—including proceeds from state-owned assets sales, fines and confiscated property—jumped 12% during the period, with most going into local governments’ pockets. That compared with a 3.7% annual drop in 2023. “The continued double-digit growth of nontax revenues suggests cash-depleted local governments may have sought to raise penalties, as they grapple with declining land sales revenue," Nomura economists said in a recent note.
In July, nontax revenue rose nearly 15% from a year ago, sustaining June’s double-digit pace of growth, Nomura calculated based on official data. While nontax income offers relief for regional governments, economists warn it isn’t sustainable. And as it tends to be less transparent, could further erode already-weak consumer and business confidence.
One issue is poor data on sources of nontax revenue. This leaves room for speculation, especially amid a recent string of local news reports of instances in which authorities gave out big fines for minor infractions. But
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