OpinionChinese officials must tighten their belts
Hu Shuli calls on governments at all levels to cut extravagant expenses, raise spending on public services and set controls on their budgets
The growth in local government revenue is undeniably slowing in China. Even in the wealthier regions like Beijing, Shanghai, Zhejiang and Guangdong, revenue growth rates have slid to less than 10per cent from 20-30 per cent year on year.
In the first seven months of this year, total revenue grew by only 13.8 per cent, slower than forecast. Worse, land sales - the main source of income for local governments - have dropped sharply: in the first half of this year, the land transfer fees collected in 300 cities across the country fell 38 per cent from a year ago.
The central government is not doing any better, either. According to the Ministry of Finance, total tax revenue for the first half of the year grew by less than 10 per cent, representing a drop of nearly 20 percentage points year on year. The figures are even more stark when compared with spending. In July, China's total fiscal revenue grew by 8.2 per cent, while government expenditure increased by 37.1 per cent.
In almost all major cities, the growth in spending is outpacing the growth in revenue; in some cities, governments are already spending more than they are taking in. After years of unprecedented growth, how will China cope with lean times?
Believing the slowdown to be temporary, many local governments are less concerned with belt-tightening than with boosting income. Some have stepped up efforts on tax collection, and are aggressively pressing for back payments and to close loopholes. Yet other officials try to raise income by rolling out new-fangled charges and unreasonable penalties. But these short-sighted measures cannot be sustained.
Government revenues are likely to continue to decline in the middle to long term - a consequence of the combined effect of China's economic structural problems, a cyclical downturn and persistently weak external demand. If China carries out bold reforms to restructure its economy, its outlook may well improve when the global economy picks up, and it can achieve its target of steady growth. Whatever the future holds, however, the days of exceptional growth in government revenue are over; China's economy has entered the stage of medium growth.
Though still relatively well-off, the government cannot expand as it has in recent years, at rates of between 20 and 30 per cent. Tighter fiscal policies must be the new norm. More importantly, officials must consider how they can carry out their duty to overhaul the government structure under these conditions.