Zero self-sufficient provinces: China’s new fiscal reality

(Edited and refined by Candice Chan, with the assistance of AI translation.)

China’s fiscal health has come under fresh scrutiny after no province recorded a fiscal self-sufficiency ratio above 100% in the first quarter, prompting the Ministry of Finance to publicly address the issue. Analysts say the milestone reflects a widening gap between the faster growth of central government tax revenues and weaker local tax receipts. It also underscores a deeper challenge: as local governments become increasingly cash-strapped, Beijing will be under growing pressure to provide greater fiscal support.

A table showing the fiscal revenue and expenditure of 28 provinces in the first quarter of 2026 has recently gone viral in China. Compiled from reports released by provincial finance departments, it shows that all 28 provinces, municipalities and autonomous regions that disclosed their first-quarter fiscal data recorded fiscal self-sufficiency ratios below 100%.

The fiscal self-sufficiency ratio measures how much of a region’s spending can be covered by the local public budget revenue it raises itself. A ratio above 100% means a local government generates enough income to finance its own budget, while a lower ratio indicates it depends on transfers from the central government or other sources.

According to the table, Zhejiang posted the highest ratio in the first quarter at 96.1%, followed by Shanghai, Tianjin, Jiangsu, Fujian, Shandong and Guangdong, all of which had ratios over 70%. Nevertheless, half of China’s provinces recorded ratios below 50%, with Tibet ranking last at just 13.8%.

What the figures suggest

Several self-media accounts subsequently analysed the figures, fuelling further discussion. Property-focused WeChat account “Ramblings About Buildings” (楼城呓语) described the table as having “stripped away the last fig leaf of local government finances”, arguing that it exposes the systemic collapse of local fiscal health as governments shift from dependence on land sales to widening fiscal imbalances.

Tang Zaifu, deputy director-general of the Budget Department at China’s Ministry of Finance, specifically addressed the reports at a press conference recently. He stressed that local public budget revenue is only one source of fiscal funding, and that fiscal self-sufficiency ratios below 100% are normal.

“Although local fiscal self-sufficiency ratios are below 100%, the central government has stepped up transfer payments to local governments, enabling them to balance their budgets.”

Tommy Xie, head of macro research at OCBC, told Lianhe Zaobao (LHZB) that the mismatch between local government revenues and expenditures is a legacy of China’s tax-sharing reform introduced in the 1990s. Since most tax revenues are remitted to the central government, it is not unusual for local fiscal self-sufficiency ratios to remain below 100%, with the resulting shortfall filled through central government transfer payments.

Dependency by local governments

Xie argued that the trend in fiscal self-sufficiency is more significant than the ratio itself.

“For example, if regions that traditionally enjoyed relatively high fiscal self-sufficiency are seeing their ratios decline, this could indicate weaker local tax revenue growth or falling land-sale income.”

According to statistics compiled by online outlet Sohu City, Shanghai — one of China’s most fiscally self-sufficient jurisdictions — recorded a fiscal self-sufficiency ratio below 100% only twice over the past decade: during the first quarter of 2020 when the Covid-19 pandemic erupted, and again in the first quarter of this year. This year’s reading was also the city’s lowest first-quarter level in a decade.

Business news outlet Yicai cited Ministry of Finance data showing that China’s average local fiscal self-sufficiency ratio fell from about 55% in 2015 to around 50% in 2025, representing a decline of roughly five percentage points over the decade.

Xu Tianchen, senior economist at the Economist Intelligence Unit, said the decline in local fiscal self-sufficiency reflects the reality that central government tax revenues are growing faster than local tax revenues.

“For example, individual income tax has grown relatively quickly this year. Since the revenue-sharing arrangement allocates 60% to the central government and 40% to local governments, Beijing benefits more. Meanwhile, buoyant stock market trading has driven a sharp increase in securities transaction stamp duty, and most of that revenue also goes to the central government.”

By contrast, most taxes retained entirely by local governments remain closely tied to the property sector, including deed tax and land appreciation tax. Xu noted that the prolonged weakness in the housing market has significantly reduced local governments’ own-source revenues.

Mixed results

During the first half of this year, China’s individual income tax revenue rose 13.1% year on year, while securities transaction stamp duty surged 97.3%. Revenue from the sale of state-owned land-use rights, however, fell 31.5% over the same period.

For the first time, at the Central Economic Work Conference held late last year, Beijing included “addressing local fiscal difficulties” among its priorities for 2026.

Tang said that, as of the first half of this year, the central government had allocated 9.4 trillion RMB (US$1.4 trillion) in transfer payments to local governments, representing 90.3% of the full-year budget.

Xu said fiscal revenue this year has exceeded budget expectations, particularly at the central government level, leaving Beijing with additional fiscal resources to support local governments, while some local governments are still facing considerable fiscal pressure, which may require even larger transfer payments.

“Overall, transfer payments are highly likely to exceed the original budget.”

This article was first published in Lianhe Zaobao as “中国各省财政自给率低于100％ 分析：中央税增速超过地方税”.

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