This year, local government finances remained generally stable during the first half of the year, though several grassroots finance officials have noted persistent challenges with revenue-expenditure imbalances. As of August 6th, data compiled from 30 provinces (excluding Guangdong) showed varied fiscal performances.

While most regions saw growth in general public budget revenue, declines were recorded in Jiangxi, Liaoning, and Guangxi. Tibet and Xinjiang achieved double-digit growth at approximately 37% and 10%, respectively, though the majority of provinces reported only modest increases. On the expenditure side, 12 out of 30 provinces saw a decrease in general public budget spending, with 24 provinces reporting spending growth rates below revenue growth rates.

Overall fiscal health showing slight improvement but tight balance persists

In recent years, local government revenue growth has been sluggish due to economic downturns and declining real estate prices. However, the first half of this year showed a slight improvement. National local general public budget revenue reached 6.88 trillion yuan, a year-on-year increase of 2.7%, with 28 out of 31 provinces reporting growth. Although Guangdong has not yet disclosed its data, estimates suggest its general public budget revenue for the first half was approximately 742.18 billion yuan, up about 2.8% year-on-year.

The top seven provinces by revenue scale remained unchanged from last year: Guangdong, Jiangsu, Zhejiang, Shanghai, Shandong, Beijing, and Sichuan. Revenue growth rates were mostly between 0% and 3%, with only Jiangxi, Liaoning, and Guangxi experiencing declines. Analysts attribute Tibet's high growth rate of nearly 37% to strong central policy support, including major infrastructure projects and industrial development initiatives. Liaoning and Guangxi's declines are linked to high base figures from the previous year.

Xinjiang's revenue growth of 10% is driven by improved profitability in key industries, with industrial enterprise profits soaring 73.5% year-on-year in the first five months. The overall better-than-expected revenue performance is attributed to stable economic activity, rising prices, active stock markets, and strong foreign trade. Tax revenue quality has also improved, with tax revenue as a share of general public budget revenue increasing.

Growing pressure from land revenue shortfalls and debt burdens

Despite some improvements, local officials report significant ongoing pressure. An eastern county finance bureau chief noted that while tax revenue growth was acceptable, a sharp decline in land sales revenue鈥攑art of the government fund budget鈥攈as kept fiscal operations strained. A western finance official highlighted heavy debt repayment burdens, while a central region counterpart described the situation as "still difficult."

The primary pressure point is the second budget, particularly land transfer income. In the first half of this year, local government fund budget revenue fell 25.6% year-on-year, with land use rights transfer income plummeting 31.5%. Provinces like Fujian and Anhui have acknowledged these challenges in their budget execution reports, citing weak revenue growth foundations due to falling land income and declining tax contributions from traditional industries.

Outlook: Fiscal spending expected to pick up in second half

Local government general public budget expenditure grew only 0.6% in the first half, with 12 provinces seeing declines. Spending growth was generally below revenue growth, reflecting tight cash reserves at some levels of government and efforts to cut unnecessary spending. Analysts expect spending to accelerate in the second half as major projects and infrastructure plans roll out, supporting economic growth and social welfare.

To address local fiscal difficulties, both local and central government actions are needed. In the short term, local governments should intensify asset revitalization, supported by institutional frameworks for asset auditing, title defect remediation, due diligence exemptions, and state-owned asset assessment incentives. Long-term strategies include transforming local government financing vehicles, rebuilding tax bases, and fostering competitive industries based on local advantages, rather than relying on subsidies and tax incentives.

From the central government's perspective, increasing transfer payments鈥攅specially equalization transfers鈥攊s crucial in the short term to help regions navigate real estate adjustments, debt pressures, and economic transitions. Medium- to long-term solutions involve fiscal system reforms, shifting more expenditure responsibilities upward, and reducing local governments' mandates to avoid them becoming "infinite liability" entities. Tax reforms should also be pursued to adapt to the AI era, address polarization and weak demand, stabilize tax revenues, expand consumption taxes, and consider inheritance and gift taxes.

Ultimately, experts argue that while short-term emergency measures can provide temporary relief, long-term solutions require expanding the economic pie, increasing local fiscal autonomy, improving transfer payment systems, and ensuring institutional safeguards for people's livelihoods. Relying solely on local efforts may be insufficient, and central-level interventions are essential for sustainable fiscal health.