China Jan-Feb fiscal revenue shrinks despite pick-up in economy

BEIJING (Reuters) – China’s fiscal revenues fell 1.2% in the first two months of 2023 from a year earlier, the finance ministry said on Friday, despite signs that economic activity was starting to recover after the lifting of tough COVID measures.

Data this week showed the world’s second-largest economy is gradually recovering since pandemic curbs were abruptly dropped in December, but the rebound has been uneven. The central bank said on Friday it would cut the amount of cash that banks must hold as reserves to support growth momentum.

Fiscal revenues totalled 4.56 trillion yuan ($662.13 billion) in January-February year-on-year, while expenditures reached 4.09 trillion yuan, up 7%, the ministry said in a statement.

Revenues rose 0.6% in 2022.

State land sale revenue slumped further in the first two months, suggesting property developers remain cautious even after authorities stepped up support to help them weather a severe financing crunch.

Income from land sales, the biggest source of funds that local governments raise directly, fell 29% in the first two months of the year, the ministry data showed.

Minister of Finance Liu Kun said earlier this the month that fiscal conditions for China’s local governments are likely to improve as the economy gets back on its feet, though debt risks for some governments are high as they face repayment pressures.

As debt obligations mount, some local governments are pushing banks to extend maturities and cut interest rates, Reuters reported previously, citing sources.

With a complicated and changing external environment, the rebound of both external and domestic demand is facing some limits, vice industry minister Xin Guobin said during a recent meeting with major manufacturing provinces, according to a statement by the ministry on Friday.

“Productions and operations of firms still face many difficulties,” read the statement. That pointed to uncertainty in tax revenue after small firms were particularly squeezed by anti-virus measures last year.

($1 = 6.8869 Chinese yuan renminbi)

(Reporting by Ellen Zhang and Kevin Yao; Editing by Toby Chopra and Kim Coghill)