Tax revenues have fallen, leaving the government with less money to help consumers or exporters as Beijing braces for President Trump’s tariffs.
Buried in China’s latest government budget were some numbers that add up to an alarming trend. Tax revenue is dropping.
The decline means that China’s national government has less money to address the country’s serious economic challenges, including a housing market crash and the near bankruptcy of hundreds of local governments.
Weak tax revenue also puts China’s leaders in a box as they square off with President Trump, who has imposed 20 percent tariffs on goods from China and threatened more to come. Beijing has less spare cash to help the export industries that are driving economic growth but could be hurt by tariffs.
The drop in tax collections leaves China’s leaders in an unfamiliar position. Until the last several years, China enjoyed robust revenue, which it used to invest in infrastructure, a rapid military buildup and extensive industrial subsidies. Even as economic growth has slowed gradually over the past 12 years, taking a dent out of consumer spending, tax revenue held fairly steady until recently.
Tax revenue fell further last year than ever before. And the only two previous declines in recent decades were under special circumstances: In 2020, China imposed an essentially nationwide pandemic lockdown for a couple of months, and in 2022, Shanghai endured a two-month lockdown.
China’s declining tax revenue now has several causes. A big one is deflation — a broad decline in prices. Companies and now the Chinese government find themselves with less money to make monthly payments on their debts.