A fiscal self-sufficiency rate below 100% is linked to China's fiscal system and other factors, and a low rate does not mean local governments cannot achieve fiscal balance.
The concept of local fiscal self-sufficiency, which reflects a region's fiscal capacity and economic development level, has recently sparked heated discussion. In response to media reports suggesting that no province would achieve a fiscal self-sufficiency rate of 100% or fiscal balance by the first quarter of 2026, Tang Zaifu, Deputy Director of the Budget Department at the Ministry of Finance, provided clarification at a recent press conference on the first half-year fiscal performance. He explained that the fiscal self-sufficiency rate is the ratio of a region's general public budget revenue to its general public budget expenditure. Under China's budgetary system, local general public budget expenditures are funded not only by local general public budget revenue but also by central government transfer payments, transfers from government-managed funds and state capital operation budgets, and the use of carryover surpluses from previous years. Since local general public budget revenue is just one of several funding sources, a fiscal self-sufficiency rate below 100% is the norm. Although local fiscal self-sufficiency rates are under 100%, the central government has increased transfer payments to local governments, enabling them to achieve fiscal balance.
Several experts interviewed by Yicai stated that a fiscal self-sufficiency rate below 100% is related to China's fiscal system and does not equate to an inability for local governments to balance their budgets. In recent years, local fiscal self-sufficiency rates have declined, leading to a greater reliance on central transfer payments and fiscal difficulties for some regions. To address this, the central and local governments are implementing measures to increase local autonomous fiscal capacity, with several major reforms expected to be rolled out.
The Relationship Between Fiscal Self-Sufficiency and the Fiscal System
Looking at the annual fiscal self-sufficiency rates of 31 provinces, none reach 100%. However, economically developed provinces show stronger fiscal capacity and higher rates, while less developed regions exhibit lower rates. For example, according to official data from provincial finance departments, in 2025, the fiscal self-sufficiency rates for economically developed Shanghai, Beijing, Guangdong, and Zhejiang all exceeded 70%, ranking among the highest nationwide. In contrast, Qinghai and Tibet had the lowest rates, falling below 20%. The national average local fiscal self-sufficiency rate for 2025 was approximately 50%. Therefore, the fiscal self-sufficiency rate to some extent reflects a region's fiscal autonomy and economic development level.
At the grassroots government level, the disparity in fiscal self-sufficiency rates between regions is even more pronounced. A few economically strong cities (or counties) have rates exceeding 100%, but the vast majority of cities and counties have rates significantly below 100%. This is closely tied to China's fiscal system. Under the tax-sharing system, which applies to general public budget revenue primarily from taxes, taxes are divided into central taxes, local taxes, and central-local shared taxes. Consequently, a significant portion of tax revenue generated in a city must be remitted to the central government, provincial government, or prefectural city government. This structure dictates that the vast majority of cities and counties have fiscal self-sufficiency rates below 100%.
According to Ministry of Finance data, in 2025, central government general public budget revenue accounted for about 44% of the national total, while local general public budget revenue accounted for approximately 56%. In the same year, central government general public budget expenditure made up about 15% of the national total, while local expenditure accounted for 85%. Notably, although the central government collects a slightly smaller share of revenue, its share of expenditure is relatively small. This is because the central government transfers these funds to local governments through transfer payments to fill fiscal gaps, balance regional disparities, and promote equal access to basic public services, resulting in the high share of local expenditure. In recent years, central government transfer payments to local governments have slightly exceeded 10 trillion yuan annually, making them crucial for many local governments to balance their budgets.
Therefore, the fiscal self-sufficiency rate is not synonymous with fiscal balance. With central transfer payments and local efforts, such as revitalizing existing assets and resources, local governments can achieve fiscal balance. However, in recent years, factors such as slowing economic growth, a sluggish real estate market, and tax and fee cuts have slowed revenue growth. Meanwhile, rigid expenditures for areas like social welfare and debt have continued to rise, leading to a decline in local fiscal self-sufficiency rates and a characteristic of "tight balance" in local fiscal budgets, with some regions facing difficulties. Ministry of Finance data shows that the national average local fiscal self-sufficiency rate dropped from about 55% in 2015 to approximately 50% in 2025, a decrease of about 5 percentage points. This decline is more pronounced at the grassroots level, especially in financially challenged areas, where rates are even lower. A report released by the School of Public Finance and Taxation at Southwestern University of Finance and Economics at the end of last year, titled "2025 Provincial and County Fiscal Status Report," analyzed the 2024 fiscal status of over 2,700 county-level regions. It found that the average fiscal self-sufficiency rate for these regions in 2024 was approximately 38%. The lowest rate, at about 1%, was in a county in Qinghai Province, while the highest, at about 252%, was in a district of Nanjing, Jiangsu Province.
The declining fiscal self-sufficiency rate has drawn significant attention from the central government. The Central Economic Work Conference at the end of 2025 mentioned for the first time the importance of addressing local fiscal difficulties. The Third Plenary Session of the 20th Central Committee of the Communist Party of China, in its deployment of deepening fiscal and tax system reforms, placed a major emphasis on increasing local autonomous fiscal capacity.
Reforms Are Being Rolled Out
Several policies to increase fiscal capacity have already been introduced. For example, since the beginning of this year, some tax incentives for value-added tax and other taxes have been withdrawn, and tax collection and management for individual income tax on high-income groups like some online streamers has been strengthened. These measures are conducive to increasing related tax revenue, and since these taxes are central-local shared taxes, they benefit local fiscal revenue growth. Additionally, the Ministry of Finance and other departments recently issued a document stating that from next year, full vehicle and vessel tax will be reinstated for energy-saving vehicles and some new energy vehicles. As the vehicle and vessel tax is a local tax, this will clearly benefit local revenue.
To increase local autonomous fiscal capacity, the State Council this year required optimizing the structure of transfer payments, improving their management, and strengthening the integration and coordination of funds to better meet local needs. Yuan Haixia, President of the Research Institute at China Chengxin International Credit Rating Co., told Yicai that promoting pilot reforms for the coordination of transfer payments is a key measure to offset the decline in land-related fiscal revenue, balance regional development gaps, and ensure stable operations at the grassroots level. In the future, the proportion of equalization transfer payments could be appropriately increased, scattered special transfer payments could be integrated, provincial-level coordination and allocation powers could be granted, and fund allocation formulas could be optimized, with greater support for underdeveloped and fiscally weak areas. An incentive and constraint mechanism for high-quality development transfer payments could also be established.
Some reforms to increase local autonomous fiscal capacity are still pending. Luo Zhiheng, Chief Economist at Yuekai Securities, told Yicai that currently, local governments bear significant responsibility for public services and economic and social development expenditures, and some regions still face considerable fiscal pressure. The next step could involve steadily advancing consumption tax reform in line with the goal of improving the local tax system. This includes studying the possibility of moving the collection point for some qualifying consumption tax items moderately downstream and allocating them to local governments to enhance local autonomous fiscal capacity. At the same time, combined with trends in consumption structure upgrades, the scope of consumption tax collection and tax system design could be refined to further leverage its role in regulating consumer behavior and optimizing income distribution. Currently, the consumption tax is a central tax, but the State Council has clarified that the future direction is to allocate some incremental revenue to local governments. The Ministry of Finance and other departments recently issued a document stating that from September 1, 2026, a consumption tax will be levied on lithium-ion batteries. Some institutions predict this move could generate hundreds of billions or even over a trillion yuan in tax revenue. However, the reform to allocate consumption tax revenue to local governments has not yet been implemented.
Another reform to increase local autonomous fiscal capacity is studying the merger of the urban maintenance and construction tax, education surcharge, and local education surcharge into a single local surcharge tax, authorizing local governments to determine specific applicable tax rates within a certain range. Experts interviewed by Yicai estimate that the scale of the local surcharge tax could be around 1 trillion yuan, making it one of the main local taxes. This year, the Ministry of Finance explicitly required that the formulation and revision of laws and regulations, such as the Local Surcharge Tax Law, be carried out. The legislative process for the local surcharge tax has officially been put on the agenda.
To improve the fiscal self-sufficiency rate, in addition to increasing local autonomous fiscal capacity, non-essential and inefficient expenditures should be cut on the expenditure side to improve the efficiency of fiscal fund utilization. For example, in recent years, many local governments have vigorously promoted scientific fiscal management, including deepening zero-based budget reforms, which are significant for solving the tight fiscal balance problem. Furthermore, the central government has also taken measures such as issuing additional treasury bonds to moderately strengthen central government responsibilities and increase the share of central fiscal expenditure, thereby alleviating the fiscal pressure on local governments.