The Risk Situation for China Local Fiscal Operations in 2022 is Very Bleak

A research report on the economic operation of local finance in 2022 released by the Chinese Academy of Finance on Feb. 27 found that the quality of China’s local fiscal revenue declined in 2022, showing the structural characteristics of falling tax revenue and increasing non-tax revenue. In that year, China’s national non-tax revenue increased by a high 24.4% year-on-year, while tax revenue fell by 3.5%, and tax revenue accounted for 83.3% of general public budget revenue, down 2 percentage points from 2021.

Where does non-tax revenue come from? The report points out that the proportion of non-tax revenue related to the revitalization of assets will increase in 2022, with the largest revenue from the government housing fund, up 303% year-on-year, coming from the revitalization of subsidized housing around the world. In terms of asset size, realizability and speed, the government housing fund has become the first choice for asset revitalization around the world, especially in the less developed regions in central and western China.

Other assets such as municipal facilities revitalization income, mainly into the “state-owned resources (assets) reimbursable use of income” project, the income also contributed to the financial resources, an increase of 152.5% year-on-year.

Another important source of local financial resources, land concession revenue, was hit hard in 2022. More than 70 percent of the country’s regions saw a year-over-year decline in land concession revenue, with more than 50 percent of cities and counties seeing a drop of more than 30 percent, especially in the northeast where more than 60 percent of regions saw a drop of more than 50 percent.

According to the report, the grassroots “three guarantees” (guaranteeing basic livelihood, wages, and operation) and local debt remain key risk areas. The research on 521 cities and counties shows that 37.04% of the regions’ treasury guarantee level is below the critical value of 0.3, i.e., the treasury is not enough to guarantee 9 days (=30 days*0.3) of expenditure needs within the jurisdiction, and 7.68% of the regions barely maintain the level of 0.3.

China’s grassroots finance departments generally reflect that a significant portion of expenditure policies have not been fulfilled in order to maintain the minimum guaranteed level of treasury funds, resulting in a certain scale of accounts payable. According to the Ministry of Finance’s calculation of the comprehensive debt ratio “red, orange, yellow and green” four levels, red areas will be the first to enter the peak debt service in 2022 and peak in 2023, and more than half of the areas will enter the peak debt service in 2023.

In some Chinese provinces, the interest due on general bonds and special bonds will peak in 2022–2024 and 2021–2023, respectively, which, combined with financial difficulties at the grassroots level, exacerbates the pressure on debt service during the peak period.

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中国财政部财科院2月27日发布的2022年地方财政经济运行调研报告发现，2022年地方财政收入质量下降，呈现税收降、非税增的结构性特征，当年全国非税收入同比高增24.4%，税收收入则下降3.5%，税收占一般公共预算收入的比重为83.3%，较2021年下降2个百分点。

非税收入从何处来？报告指出，2022年与盘活资产相关的非税收入占比提升，其中政府性住房基金收入规模最大、同比高增303%，来自各地盘活保障性住房，从资产规模、变现可操作性及速度看，政府性住房基金都成为各地尤其是中西部欠发达地区在资产盘活方面的首选。

其他资产如市政设施盘活收入，主要纳入“国有资源（资产）有偿使用收入”项目，该项收入对财力贡献也较大，同比增长152.5%。

地方财力的另一重要来源 — — 土地出让收入，在2022年遭受重创。全国70%以上地区的土地出让收入同比下降，50%以上的市县降幅超过30%，尤其是东北有60%以上的地区降幅超过50%。

报告称，基层“三保”（保基本民生、保工资、保运转）和地方债仍是关键风险领域。对521个市县的调研显示，37.04%的地区库款保障水平低于0.3的临界值，即库款不足以保障辖区内9天（=30天*0.3）的支出需求，7.68%的地区勉强维持在0.3的水平。

基层财政部门普遍反映，为维持库款最低保障水平，有相当一部分支出政策尚未兑现，形成一定规模应付款。依据财政部计算的综合债务率“红橙黄绿”四等级，红色地区在2022年率先进入偿债高峰期、2023年达峰，2023年一半以上的地区都进入偿债高峰期。

在部分省份，一般债券、专项债券的到期应付利息分别在2022–2024年、2021–2023年达峰，叠加基层财政困难，加剧了高峰期偿债压力。