China’s fiscal profit in the first two months of 2023 contracted 1.3% from a year earlier, the finance ministry said. However, there were signs that economic activity should pick up after the strict COVID measures.
Statistics this week showed the world’s second-largest economy gradually outperformed. This happened because the government suddenly relaxed restrictions in December, but the recovery has been shaky. The central bank said it would halve the amount of cash banks must hold as reserves to help spur growth.
Tax revenue totaled 4.57 trillion yuan from a year earlier in January-February, while spending reached 4.08 trillion yuan, up 7.2%.
Revenue generated from the sale of government land has declined further in the first two months. This meant that real estate developers are still hesitant to make large investments despite the additional assistance the government has provided to make finance more accessible.
Income from the sale of land, the largest source of financing directly collected by local governments, fell by 29.2% in the first two months of the year.
Challenges and opportunities for local governments and industries in China
The finance minister said earlier this month that fiscal conditions for China’s local governments could become more positive as the economy slowly improves. However, the debt risk for some governments is high as they face repayment pressure.
With a harsh and volatile external environment, the improvement in external and internal demand faces certain limitations, the Vice Minister of Industries said during a recent meeting with the main manufacturing provinces.
The work and operation of companies still need to improve. That points to a mess in tax revenue after small businesses were hit particularly hard by anti-virus measures last year.
