China's declining tax revenues are a sign of growing economic pressures

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China's tax revenue is declining in the first half of the year, according to data from the Ministry of Finance on Wednesday. This phenomenon is indicative of mounting economic pressures, raising hopes that new stimulus measures will be introduced to support growth.

Instability of the world's second largest economy

In the second quarter of this year, the second largest economy in the world, that is, the economy of China, showed unsustainable growth. This happened against the backdrop of weakening demand both domestically and abroad. At the same time, politicians faced a number of other problems, including loss of confidence from the private sector and growing debt from local governments.

Tax revenues and their dynamics

Data from the Ministry of Finance show that in the first six months of 2023, tax revenues increased by 13.3% compared to the previous year. This is below the 14.9% growth rate recorded in the first five months.

In June this year, tax revenues increased by 5.6% compared to the same period last year. This markedly slowed growth from the 32.7% recorded in May, according to Reuters calculations based on data from the Ministry.

Selling land as a source of income

Revenues from land sales, which are the main source of direct income for local governments, fell 24.26% in June compared to the previous month. While the fall in May was 13%, according to Reuters calculations based on data from the ministry.

Problems in the real estate sector

These figures indicate that developers, short of funds, continue to be cautious when buying land. This highlights the weakness in the real estate sector, which has traditionally been an engine of economic growth, but has been in serious trouble for the past two years.

Budget expenditures and their dynamics

From January to June of this year, budget expenditures increased by 3.9%. This is a slowdown compared to the 5.8% growth in the first five months.

Overview of tax revenue

Tax revenues for the first six months were 11,900 billion yuan (1,470 billion euros) and expenditures were 13,400 billion yuan, according to the ministry.

Economic stimulus outlook

Sources close to Chinese politics and economists believe the government is likely to take other stimulus measures as well. This could include budget spending to finance large infrastructure projects, increased support for consumers and private companies, and measures to ease property policies, which have been tightened dramatically in the past two years.

Special bonds as an incentive tool

China will work with local governments to expedite the issuance of special bonds, ministry spokesman Li Dawei told a press conference in Beijing. In January-June, local governments issued special bonds worth 2,170 billion yuan.

This year, the government plans to increase funding for infrastructure projects through special bonds of local authorities by 3.8 trillion. yuan compared to 3.65 trillion. yuan last year.

Conclusion

Declining tax revenue in China is a signal of growing economic tension. Like any other crisis, this situation is an excellent opportunity to capitalize on stock fluctuations. Therefore, we recommend that you carefully monitor market changes so as not to miss the moment of maximum decline.

Jonathan Rowe

Jonathan Rowe

The creator and main author of the site is Jonathan Rowe. Trader and investor with many years of experience. A graduate of the Massachusetts Institute of Technology with over a decade of experience developing applications for financial and investment institutions.

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