China’s tax man hands out decades-old bills to companies, hinting at funding shortage

China’s local governments are facing unprecedented pressure to expand revenues because economic growth is slowing and the contracting real estate market has sent income from land sales plunging. Their already elevated debt stockpile is limiting their ability to leverage up further, forcing the central government to borrow more and give them the funds.

The tax recovery is “likely due to the fiscal distress of local governments,” said Xing Zhaopeng, an analyst at Australia & New Zealand Banking Group. “I think they need some money to pay by quarter end” because regional authorities usually pay contractors of government projects then, he added.

Local governments booked less than 5.8 trillion yuan in revenues under the general public budget and the government-fund account, which include taxes and land sales income, in the first four months of the year. That figure was less than the more than 5.9 trillion yuan in the same period last year, according to data from the Finance Ministry.

Their spending also fell to just under 10 trillion yuan from 10.4 trillion yuan a year earlier.