Local governments face large shortfall in revenue despite raking in land transfer fees

Despite a surge in local land sale revenue, governments in China still face a widening gap between revenue and spending, Finance Minister Lou Jiwei said on Wednesday.

"Fiscal revenue growth has slowed down, especially for the central government. The gap between fiscal revenue and expenditure remains prominent," Lou reported to the Standing Committee of the National People's Congress, the top legislature.

China's public finance revenue from January to July grew 8 percent year-on-year to 8 trillion yuan ($1.3 trillion), on par with the growth target set earlier in the year.

But the central government's fiscal revenue only grew 2.6 percent, well below the 7 percent official target.

Lou attributed the slow revenue growth to a deceleration in the broader economy, the ongoing value-added tax reform and low growth in imports.

Affected by a sluggish import sector, tariff income fell "substantially", Lou said, without giving an exact number.

Besides the general fiscal picture, Lou also discussed government-managed funds. The funds, mainly made up of land transfer fees, posted record growth of 41.1 percent to 2.53 trillion yuan in the first seven months.

Of the various fees that go into the funds, land transfer fees surged 49.4 percent to 2 trillion, accounting for 79.5 percent of the funds. By comparison, land sale revenues in the same period last year slumped 27.1 percent.

"The upsurge in government-managed funds is because of the land supply increase, robust land turnover and rising land prices," Lou said.

Thanks to booming land and property markets, local governments' fiscal revenue jumped 13.5 percent in the first seven months to 4.2 trillion yuan, defying the broader economic slowdown.