The journalists of the Yicai website 第一财经 have carried out a study on the public revenues of Chinese municipalities in the first seven months of 2020. What does their analysis tell us?
60% of cities have declining government revenues
Of the 330 municipalities with the rank of city, some are administered directly by the central government. They cannot be compared. Some of the cities did not have complete data. One hundred seventy-six were therefore retained. 60% of them showed a decline in government revenue over the first seven months of the year. Those most affected, such as Harbin, are dependent on heavy industry and an undiversified industrial structure.
Hubei and the Northeast
Of the 74 cities with positive growth, seven posted an increase of more than 10%. Most are in Guangxi.
Of the 102 cities with declining revenues, 20 showed a drop of more than 10%. Some were at the heart of the epidemic in Hubei: Xianyang -47.2%, Shiyan, Jingzhou, and Wuhan.
Xianyang -47.2%, and Shiyan – 36.3 experienced the largest falls. The automotive market is vital for these two cities. At the break-even point in the first quarter, the sector weighed on revenues. In the first quarter, Wuhan, which was down 45.9%, managed to reduce the fall to 30.5% over the first seven months.
The Northeast suffered, with Harbin at -20.7%. Regions focused on heavy industries and energy were not spared, such as Yangquan and Ordos in Inner Mongolia.
The digital economy still
The digital economy, which generated a quarter of the national GDP in the first half of the year with an increase of 10.5%, has enabled municipalities invested in the sector to resist.
Hangzhou benefited from a 1.1% increase in revenue.
Better local governments
Local governments fared better than the central government, with a 6.2% drop in revenue than 11.3%. Indeed, central revenues are more tied to the economy, and the impact of the epidemic on taxes is strong. Local taxes, such as property taxes, are less affected. Moreover, local governments, faced with financial difficulties, use more energy to collect taxes and do not hesitate to increase them to achieve a balance. They have a whole arsenal to their credit; moreover, non-tax revenues increase much more than usual tax revenues. With special taxes on education, administrative charges, they can sell assets and land.
Zhang Zhenyu, Director of the Research Institute of Local Finance at Dalian University, should consider two important points: 1. alongside the emergence of Central China; there is a retreat of the North-East. Alongside an East-West economic structure, North-South differentiation is taking shape. 2. The quality of public revenue is declining; non-tax income is becoming too important.
Positive GDP and government revenues decline
These figures are interesting because they provide another view of the state of the economy. Besides the GDP growth, public revenues are decreasing, much for the central government, 11.3%, less locally 6.2%, according to this study. No one is surprised by this difference in GDP and revenue data. One can remain perplexed! The local governments use their usual creativity and get money into the coffers. Publicly, the article can go no further into the causes and implications.
They draw attention to the Northeast retreat mentioned last week and the widening gap between North and South in recent years. The good news is the confirmation of the center of the country’s dynamism around a Chengdu-Chongqing area.
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2 October 2020