For the first time in five years, China’s total fiscal revenue has declined year-on-year due to a 1.7 percent decline in revenues in the year 2025. To this date, the number had not decreased since April 2020, at which time the pandemic began. According to China’s Ministry of Finance, China’s total fiscal revenue was 21.6 trillion yuan, or US$3.11 trillion in fiscal revenue for calendar year 2025.
Key drivers of the decline in fiscal revenue from 2024 to 2025 include declining internal demand (as it relates to retail sales) and a multi-year slump in the national property market. Additionally, total fiscal expenditures declined moderately from previous years, creating continued pressures on China and local government budgets.
Reducing Factors: Slump of Property Sector, Weak Consumption
Fiscal revenue declined sharply in 2025 largely due to the persistently weak property market (which was previously a major source of government income) in China. For instance, the decline in total land sales revenue received mostly by local governments decreased 14.7 percent year on year. The year-over-year decrease in total land sales continues a multi-year downward trend as property developers have not and do not intend to purchase additional land, given the weak demand for real estate.
Meanwhile, total revenue from non-tax income sources — such as fees and transfers from state-owned enterprises — declined 11.3 percent, further contributing to the overall decline in fiscal revenue in China. Finally, tax revenues increased 0.8 percent but were not sufficient to offset the overall decline in fiscal revenue from 2024 to 2025.
According to economists, there remains an ongoing pattern of weak consumer spending in Australia, with households increasingly conservative with their money, resulting in lower retail sales growth levels which have consequently led to lower tax receipts from consumption-based on domestic consumption and therefore, lower levels of aggregate corporate activity. The ongoing reduction in consumer spending, especially towards services and/or non-essential items, has continued to hamper the broader momentum of the economy, which is reflected in aggregate economic data.
The level of fiscal outlays is increasing at a fast pace
In terms of government revenues, total recurrent taxation revenue was approximately $285 billion for the 2025 year, which reflects an approximate decrease of 0.7% on the previous year’s total of $287.6 billion. The increase in total government spending for the 2025 financial year was approximately 1% compared to the previous year’s level, at approximately $28.7 trillion—this level of growth is significantly lower than the approximately 3.6% recorded for the previous 2024 financial year. The modest increase in government expenditure can be seen as a response by the government to ensure that domestic economy remains propped up by increasing public (capital) and social expenditure.
Spending increases in areas such as social welfare and education and infrastructure represent part of the bigger spending initiative as a response to the diminishing economic growth of the domestic economy. The challenge for many local governments—who historically have relied upon revenue generated from the sale of land to provide them with revenue—is that they are being squeezed by falling land revenues and will need to increasingly rely upon increased revenue translated from federal government funding. The increasing demands for increased levels of federal transfers will put increasing strain on already stressed public finances at the local government level.
Economic Growth Paradox: Strong GDP, Weak Demand
China’s economy reached its official growth objective of approximately 5.0% in 2025, notwithstanding the decline in fiscal revenues, due mainly to exceptional export performance and strong global demand for goods manufactured in China. This represents a disconnect in the growth pattern with external factors offsetting deficiencies in the internal consumption and investment sectors.
Mixed feelings about the sustainability of solely relying on foreign demand have been raised by analysts. With ongoing global disruptive events as well as geopolitical risk factors, most analysts believe that a robust domestic economy with strong consumer spending is required for the continued stable and balanced growth of China.
Fiscal Policy Response — Fiscal Reform and Enhancement of Tax Administration
Beijing is taking action to improve its fiscal management and diversify its revenue sources in response to fiscal pressure. This includes an unusually large tax official recruitment initiative, the largest in more than a decade, to enhance tax compliance, modernise data analytics, and collect taxes from digital platforms and very affluent individual.
In addition, the authorities are reviewing tax reform proposals that were under consideration long ago, such as a change to the authority to collect taxes from central versus local government and the possible enactment of a property tax, which has been postponed due to a continuing depressed real estate market.
Broader Economic Challenges: Deflationary Risks and Consumption Weakness
China is confronting serious problems that extend beyond just government budgets. Current research supports the conclusion that weak demand for goods and services, overproduction in industries, deflationary price pressures, low corporate profit margins and limited consumer spending all contribute to China’s potential for entering into a prolonged cycle of deflation. The existence of structural imbalances intensifies the difficulty of reversing declining levels of government revenue.
Economists have indicated that fundamental economic reforms will need to be enacted to create a better balance in the economy, such as implementing stronger social safety nets and incentives for consumers to spend. If systemic disparities are not resolved, China may have a hard time achieving sustainable levels of economic growth over the next several years.
What This Means for the Year Ahead?
Declining amounts of fiscal revenue for China gives evidence of deeper strain on a slowing, yet still growing, economy; where traditional growth engines like real estate and domestic consumption are slowing. Although China’s GDP continues to grow at an acceptable level, the growing strain on government finances creates concern over the ability of China to respond to financial shocks without accumulating even more debt, or substantially reducing the provision of critical services.
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