Assessing Economic and Social Risks from Declining Local Fiscal Revenues in China

5 min readMay 20, 2022


In China, the outcomes of the economic downturn are often inevitably reflected in finance.

In April, some provinces of the country began announcing fiscal revenues and public expenditures. Affected by the COVID-19 pandemic, downward economic pressure has increased. Superimposed on the consequences of the implementation of large-scale tax rebates and tax reduction policies, the reduction of local fiscal revenues has gained prominence. Up to now, from the officially released fiscal revenue data, the local fiscal revenues of many cities have dropped by more than 30%.

Recent data published by the Finance Bureau of Shenzhen Municipality show that from January to April this year, Shenzhen’s public budget revenues amounted to RMB 130.98 billion, down 12.6%. Its fiscal revenue increased slightly in the first quarter, but it dropped sharply by about 44% in April. Nanjing’s fiscal revenues were RMB 60.1 billion in the first four months, a 15.1% year-on-year (y-o-y) decrease, and fiscal revenues in April alone were only about RMB 9.5 billion, a 54.9% y-o-y decrease. Suzhou’s fiscal revenues in the first four months were RMB 87.55 billion, down 10.4% y-o-y, with fiscal revenues in April being only about RMB 13.96 billion, down 49.6% y-o-y. During the same period, Hangzhou’s fiscal revenues were RMB 103.4 billion, a y-o-y fall of 3.45%; in April, the fiscal revenues were about RMB 15.43 billion, a decline of 37%. Ningbo’s fiscal revenues in the quarter were RMB 73.6 billion, waning 3.8% y-o-y; of it, fiscal revenues in April were RMB 11.8 billion, shrinking 36.1%. Chongqing’s fiscal revenues in the months were RMB 75.1-billion, 10.69% lesser; in April, fiscal revenues were RMB17.88 billion, deteriorating by 35%. Wuhan’s fiscal revenues for the same months were RMB 67.2 billion, 4.73% lower; of which, the fiscal revenues in April were RMB 11.74 billion, a year-on-year slump of 29.8%. Guangzhou’s fiscal revenues for the period were RMB 65.4 billion, a y-o-y increase of 1.22%; of which, the monthly fiscal revenues were RMB 17.64 billion, a loss of 12.76%.

From the above data, between January to April this year, the top ten cities in China’s economy showed a trend of slowing growth. Shenzhen, Suzhou, Chongqing, and Tianjin experienced relatively large drops from the downward trend, while Hangzhou, Ningbo, and Wuhan experienced smaller drops. Only Guangzhou’s fiscal revenue from January to April achieved real growth. Fiscal revenue figures for Shanghai and Beijing have not yet been released. However, it is not surprising that fiscal revenues have fallen sharply since Shanghai has been completely closed since April, with both industrial and consumer activities halted. In the first half of this year, Beijing was intermittently affected by COVID-19. Although the pandemic has been partially controlled since the end of April, its fiscal revenue will be greatly affected by the pandemic control measures.

The Shenzhen Municipal Bureau of Finance explained that the main reason for the sharp drop in fiscal revenue in the first four months is that the central government implemented combined tax and fee support policies such as VAT credits and refunds, as well as tax deferrals for small, medium, and micro-enterprises in the manufacturing industry, which both resulted in revenue losses. This year’s RMB 1.5 trillion VAT refund policy was officially implemented on April 1. Subsequent to the pandemic, as the industry’s difficulties intensified, the finance and taxation departments accelerated the progress of tax rebates. According to the State Administration of Taxation, the VAT refund in April reached RMB 801.5 billion. This scale is evenly distributed among 31 provinces, equivalent to RMB 25.8 billion in tax rebates per province. This is indeed a burden for local finance.

However, policy tax cuts are only one aspect of fiscal revenue cuts. According to ANBOUND researchers, there is a more pertinent reason for the decline in fiscal revenue: strict pandemic prevention and control measures, industrial difficulties, and sluggish consumption have exacerbated the local economy, making a decline in public revenue unavoidable.

Pandemic prevention and control measures are top priorities for China’s government, but they have had a significant impact on economic growth, industrial development, business activities, and household consumption in the first half of the year. Since April this year, after the outbreak of the pandemic in Shanghai, expressways in more than ten provinces were closed. Approximately delivery of goods was not possible in half of China’s areas, and a significant portion of the 30 million truck drivers was trapped. According to a Nomura Securities survey conducted in mid-April, 45 Chinese cities were under full or partial lockdown at the time, and these cities account for more than a quarter of China’s total population and 40% of its GDP. Unlike the situation in 2020, the lockdown occurs primarily in economically and industrially developed areas, hence the outbreaks this time carry a greater economic impact than previously.

On April 29 this year, the Politburo of the Chinese Communist Party held a meeting to analyze the current economic condition and put forward the development goals of “pandemic prevention, economic stabilization, and safety”. Achieving these policy goals can be challenging. The “pandemic-economic-safety” triangle is conflictive. While this is not impossible, achieving all three at the same time is backbreaking. From the recent interaction between ANBOUND and some local officials, they expressed that striking a balance of these three is a daunting task. If the local pandemic is effectively controlled, the policy of immediately resuming normal operations in June will stabilize the economy in the second half of this year.

In addition, the decline in fiscal revenue of some cities in the first four months not only increases the pressure on local fiscal expenditures, but also affects the three bottom lines of local governments (guaranteeing basic livelihood, ensuring wages, and economic development).

Experience shows that if the three bottom lines are not met, people’s livelihoods and social stability, including civil service, may appear shaky at the grassroots level.

Final analysis conclusion:

China’s local fiscal revenue has fallen sharply in the first four months, reflecting both the challenges of this year’s economic downturn and the potential risks to local economic activities and social governance. This confirms that economic stabilization will be a major area of concern in 2022. To maintain the stability of the economic situation, China’s utmost policy priority should be adjusting the pandemic-related measures scientifically, while without neglecting its economy.

Writer by He Jun
Partner, Director of China Macro-Economic Research Team and Senior Researcher. His research field covers China’s macro-economy, energy industry and public policy.

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ANBOUND is a multinational independent think tank, specializing in public policy research, incl. economy, urban and industry, geopolitical issues. Est. 1993.