Local authorities in China have been facing considerable financial gaps for various reasons, such as the COVID pandemic, tax refunds, and poor land sales.

A recent article on Caixin Weekly stated that the downward pressure on China’s economy has increased since this year. It analyzed the situation and reasons for the lack of money in China’s local authorities’ coffers.

Frequent outbreaks of COVID in various places, and the superimposition of problems, such as the full refund of the value-added tax in some industries, have resulted in severe financial challenges to local authorities.

Citing data from the Ministry of Finance, the article pointed out that since April 2022, the public budget revenue of local authorities has experienced “negative growth” compared with the same months last year.

The revenue even declined 40.4% in April and 30.8% in May. 

During the first eight months, budget revenue fell 6.5% year-on-year. The tax rebate policy is one of the critical reasons for the decrease in local authorities’ income.

Due to the downturn in the real estate market this year, land sales revenue, an essential source of local authorities’ fiscal income, has declined rapidly. 

In the first eight months, the land sales revenue fell 28.5%. 

Meanwhile, local authorities’ fiscal expenditure increased 6.3% in the first eight months of this year, which put higher pressure on them.

In addition, the COVID pandemic and the lockdown measures have forced provinces and cities to increase the pandemic prevention expenses, which significantly impacted the local economies.

The article pointed out that health expenditure related to local authorities’ COVID pandemic battle rose 8.9% in the first eight months, higher than the 5.4% and 3.9% increases in 2020 and 2021.

Jilin, Tianjin, Yunnan, and Shanghai have experienced large-scale outbreaks. As a result, they also are the localities with the most significant decline in fiscal revenue in the first seven months, falling between 16.2% and 40.4%. 

Only six provinces in China have seen their fiscal revenue increase.

The article quoted an analysis of Wang Dehua, a Chinese Academy of Social Sciences researcher. It said that because many cities and counties have difficulty achieving the annual target of land transfer income, the fiscal gap in local authorities has expanded.

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