Data released by China’s Ministry of Finance on August 19 shows that from January to July this year, the country’s national general public budget revenue reached RMB 13,583.9 billion, a year-on-year increase of 0.1%. This marks the first time in 2025 that cumulative fiscal revenue growth has turned positive. In July alone, revenue was RMB 2,027.3 billion, up 2.6% year-on-year, the highest monthly growth rate so far this year. In terms of revenue structure, tax revenue accounted for about 82% of total revenue, showing a year-on-year decline of 0.3% over the first seven months. However, the rate of decline narrowed by 0.9 percentage points compared to the first half of the year. Non-tax revenue in July grew by 2%, maintaining a stable contribution. Notably, there is a significant difference between central and local government revenues: central government revenue fell by 2% year-on-year, while local government revenue grew by 1.8%. This divergence may be due to local governments strengthening non-tax collection efforts to offset tax shortfalls, thereby partially driving local revenue growth.

Looking at specific tax data, tax revenue in July alone grew by 5%, a 4 percentage point increase from June and the highest monthly rate this year. Among the four major tax categories, domestic value-added tax (VAT) increased by 3%, consumption tax by 2.1%, and personal income tax by 8.8%, all showing improved growth compared to the first half of the year. The decline in corporate income tax narrowed to 0.4%, indicating some recovery in corporate profits. It is worth noting that tax revenue from the equipment manufacturing sector was particularly strong: taxes from the railway, ship, and aerospace manufacturing industries grew by 33%; computer and telecommunications equipment manufacturing rose by 10.1%; and electrical machinery and equipment manufacturing increased by 8%. These figures suggest that new productive forces and high-end manufacturing are showing robust growth momentum. Meanwhile, stamp duty from securities trading surged 62.5% year-on-year, mainly due to a rebound in capital market activity. However, overall tax revenue still declined by 0.3%, contrasting with the growth in non-tax revenue. This reflects a possible increasing reliance of local government finances on non-tax revenue channels.

The growth in tax revenue is also driven by a combination of price and policy factors. On the one hand, the decline in the Producer Price Index (PPI) has continued to narrow. In July, the month-on-month decline shrank by 0.2 percentage points, directly boosting the scale of tax revenue calculated at current prices. As Hu Jinglin, Commissioner of the State Taxation Administration, noted, “Changes in the PPI result in corresponding changes in tax revenue”. On the other hand, incremental policies implemented since the end of 2024, such as the issuance of ultra-long-term special government bonds and the acceleration of special-purpose bond issuance, have gradually taken effect. These measures have supported infrastructure investment and manufacturing upgrades, which in turn have driven tax revenue growth along upstream and downstream segments of the industrial chain.

However, the structural issues in fiscal revenue still warrant attention. Real estate-related tax revenues remain under pressure, with deed tax down 15% and land value-added tax down 17.8%. This aligns with the 4.6% decline in revenue from the sale of state-owned land use rights from January to July, reflecting the ongoing adjustment in the property market. In addition, tax revenues from imports, including import VAT and consumption tax, dropped by 6.1%, while tariffs fell by 6.5%. This indicates that external demand and a complex trade environment continue to exert pressure on fiscal revenue. These shortcomings serve as a reminder to the government that the current economic recovery in China is still relatively reliant on a few strong-performing sectors, and the overall foundation remains insufficiently broad.

On the expenditure side, from January to July, the country’s national general public budget spending reached RMB 16,073.7 billion, representing a 3.4% year-on-year increase. Among this, spending on social security and employment grew by 9.8%, education spending increased by 5.7%, and healthcare spending rose by 5.3%, showing strong momentum in investment in public welfare areas. Even more notably, government fund budget expenditure surged 31.7% year-on-year. Within this, central government fund spending grew by an astonishing 4.5 times, with the accelerated deployment of special-purpose bond funds providing strong support for infrastructure investment. This “increased revenue and increased spending” cycle aligns with the logic of the Chinese proactive fiscal policy this year, i.e., stimulating aggregate demand through expanded public spending, thereby driving tax revenue growth. However, local fiscal pressure has not eased. On the one hand, tax revenues remain weak; on the other, local governments carry heavy responsibilities for public welfare and infrastructure spending. This may further compel them to rely on non-tax methods such as fines, fees, and confiscations to keep their operations running.

Does the improvement in fiscal data indicate that the Chinese economy has entered a path of stable recovery? Researchers at ANBOUND suggest that the answer may lean toward cautious optimism. From a macro perspective, GDP grew 5.3% in the first half of the year, while tax revenue growth remained below economic growth. This gap is mainly influenced by the lagging effects of tax reduction policies and the drag from negative PPI. For example, policies implemented in 2024, such as subsidies for trade-ins of consumer goods and corporate income tax incentives, have temporarily suppressed tax revenue growth, but also offer long-term potential for expanding the tax base. In addition, the strong tax growth in equipment manufacturing contrasts with the more modest recovery in the consumer services sector, highlighting that the current rebound in endogenous growth momentum is still uneven.

In fact, the issue of fiscal sustainability in China remains a concern for the foreseeable future. First, the reliance on land-based finance has not fundamentally changed. Although the decline in land transfer revenue has narrowed, the overall scale still falls well below the peak levels seen from 2020 to 2023. The fiscal gap faced by local governments continues to depend heavily on central government transfer payments for support. Second, debt servicing pressure is steadily increasing. From January to July this year, national interest payments on debt reached RMB 757.3 billion, up 6.4% year-on-year, a growth rate that now surpasses most other fiscal expenditure categories. Third, regional disparities are becoming more pronounced. Some local governments, in an effort to close their fiscal gaps, may resort to non-tax revenue sources such as administrative fees and confiscations. These short-term measures risk increasing the burden on businesses and damaging the local business environment. Finding a balance between “intensifying support and improving efficiency” and “managing financial risks” will be a central challenge for China’s policymakers in the current context.

Under these circumstances, researchers at ANBOUND believe that the next phase of China’s fiscal policy should focus on three key areas:

First, improving the efficiency of fund utilization. Whether it’s ultra-long-term special government bonds or special-purpose bonds, the funds must be more swiftly converted into real projects and workloads to avoid capital being held up. For instance, this year’s newly added RMB 1 trillion special bond program, primarily designated for technological innovation and green transition, must be accompanied by strengthened full-cycle project oversight.

Second, accelerating tax system reform. In recent years, personal income tax has grown faster than taxes linked to corporate profits, indicating a rising share of direct taxation. This trend creates room to expand the scope of comprehensive income, improve special deductions, and thereby enhance the redistributive function of the tax system.

Third, standardizing the mechanisms for local non-tax revenue. It is essential for the country’s authorities to avoid unsustainable revenue-boosting methods such as campaign-style fines and forced levies. Instead, new fiscal resources should be developed through market-oriented approaches like revitalizing existing assets and piloting taxation of data as a production factor.

From a longer-term perspective, the return of fiscal revenue growth to positive territory is only a transitional signal, not an endpoint. Looking back, after the 1994 tax-sharing reform, China’s fiscal revenue as a share of GDP rose from 10.2% in 1995 to a peak of 22.1% in 2015, but in recent years, it has declined again to 16.8% (2022). This fluctuation essentially reflects the cyclical nature of economic transformation and policy adjustment. Although the current 0.1% growth rate appears modest, its significance goes beyond the number itself. It suggests that after undergoing external shocks and internal structural adjustments, China’s economy is gradually returning to a growth path driven by its own internal momentum. If this momentum can be sustained, a virtuous cycle between fiscal performance and economic development will form, providing stronger support for the country's pursuit of high-quality development.

Overall, while the recent peak in fiscal revenue growth marks a temporary signal of economic stabilization in China, its foundation still needs to be further strengthened. From a policy perspective, it is essential to maintain the tone of “moderate overall stimulus with targeted structural optimization”. This means continuing to use fiscal spending to support employment, safeguard livelihoods, and stabilize social expectations, while also leveraging tax policies to guide capital and resources toward innovation-driven sectors. As ANBOUND’s founder, Mr. Kung Chan, repeatedly emphasized, the resilience of China’s economy lies in the balance between government and market forces. If meaningful progress can be made in expanding domestic demand, upgrading industries, and mitigating risks, then the current fiscal rebound could potentially foster more sustainable and long-term growth momentum.

Final analysis conclusion:

The sharp rise in fiscal revenue growth in July, marking the highest rate so far this year, signals that China’s economy is gradually emerging from its adjustment phase. However, the divergence between rising local revenues and declining tax income also reveals potential risks tied to the expansion of non-tax revenue, particularly the overreliance of local governments on administrative measures to boost income. Looking ahead, fiscal policy should continue to focus on improving the efficiency of fund utilization, accelerating tax system reform, and supporting local governments in exploring new sources of revenue through innovative approaches. As things stand, the rebound in fiscal revenue provides a short-term signal of economic recovery, but sustaining this momentum will require achieving an effective balance between structural optimization and risk management.