Non-Tax Income: The Unconventional Strategies of China’s Local Governments Amid Debt Crisis

China's local governments are grappling with a severe debt crisis, exacerbated by the COVID-19 pandemic and a faltering property market. With local government debt exceeding 40 trillion yuan, officials are employing non-tax income strategies to meet financial targets. These tactics include monetizing government assets, collecting heavy fines, and halting previously granted tax breaks to keep budgets balanced.

The Rise of Non-Tax Income

As local governments in China face harsh financial realities, the reliance on non-tax income has surged. A recent report revealed that local governments collected 2.18 trillion yuan in non-tax revenue in the first half of this year, a significant increase from previous years. Such income is mainly derived from monetizing government assets and imposing excessive fees.

Unconventional Revenue Generation

• Local officials have resorted to selling state-owned assets, renting out resources, and collecting fines.
• Some counties are engaging in prior tax payments, pressuring businesses to meet local financial targets.
• As a response to dwindling land sales, governments are searching for alternative funding sources to cover budget shortfalls.

Concerns and Implications of Non-Tax Revenue

The trend of relying on non-tax income raises significant questions regarding sustainability and future financial stability. Many fear these practices are akin to 'kicking the can down the road,' with local governments merely delaying more profound economic issues. Senior financial experts caution that such practices could lead to increased public resentment and a lack of trust among private enterprises.