Shenwan Hongyuan: Decoding Local "Fiscal Accounts"

Summary Local financial reports contain key information such as changes in revenue structure and expenditure implementation. Based on the final accounts for 2024 and budget reports for 2025 from various regions, this analysis examines the "bottlenecks" in local finances for 2024 and the expected revenue and expenditure for 2025, which can serve as a reference. Question 1: What is the completion status of local general finances in 2024? The growth of local non-tax revenue is significant, and measures to strengthen non-tax revenue vary. In 2024, the growth rate of local general fiscal revenue is relatively high, while the growth rate of general fiscal expenditure is relatively low. The growth rate of local general fiscal revenue reached 1.7%, higher than the national overall growth rate of 1.3%, likely benefiting from local efforts to dispose of idle assets and revitalize resources and assets; the growth rate of local general fiscal expenditure is 3.2%, lower than the national expenditure growth rate of 3.6%, possibly due to the ample central government carryover and surplus funds in 2024, effectively supporting national fiscal expenditure. From the perspective of general fiscal revenue components, local non-tax revenue shows a significant increase compared to the general decline in tax revenue. Local fiscal final accounts indicate that the weighted average year-on-year change in local tax revenue is -2%, while the weighted average year-on-year change in non-tax revenue is approximately 12.5%. Among them, the growth rate of non-tax revenue in the Northeast region reached 20.1%, accounting for about 39% of its general fiscal revenue; the growth rates of non-tax revenue in the central and western regions are relatively close, at 12.7% and 11.8%, accounting for 36% and 35% of their general fiscal revenue, respectively. Strengthening non-tax revenue, the central and western regions are intensifying the revitalization of state-owned resources, while the eastern region is enhancing state-owned capital operating income. In the central and western regions, Shanxi, Inner Mongolia, and Xinjiang all saw non-tax revenue growth exceeding 20%, likely driven by income from the transfer of mineral and other resources; in the eastern region, Beijing actively expanded the pilot scope for the income paid by enterprises run by municipal agencies, resulting in a 97% increase in state-owned capital operating income. Question 2: How did local government funds perform in 2024? Land transfer income has a significant drag, while ultra-long-term special government bonds provide effective support. In 2024, local government fund revenue decreased significantly, while expenditure saw slight positive growth. The revenue from local government funds in 2024 decreased by 13.5% year-on-year, while expenditure increased by 0.4% year-on-year. According to the fiscal budget execution reports from various regions, among the 30 regions excluding Tibet, only 8 saw an increase in government fund revenue; 22 regions experienced a significant decline in government fund revenue. Some regions supplemented local government fund revenue through project construction and investment income. Analyzing the government fund revenue in Guizhou reveals that in 2024, the revenue from the national major water conservancy project construction fund and the revenue from large and medium-sized reservoir areas increased by 127.6% and 69.8%, respectively, resulting in an overall growth of 1.5% in Guizhou's local government fund revenue. Tianjin and Beijing both strengthened the collection of project investment income corresponding to special bonds, driving corresponding revenue growth of 318.3% and 390.3% year-on-year, respectively. Many regions have not yet fully utilized ultra-long-term special government bonds, which are primarily directed towards transportation, industrial information, and other fields. Local fiscal final accounts show that in 2024, 13 provinces and cities have utilized approximately 203.1 billion yuan of ultra-long-term special government bonds, with a utilization rate of about 53%, indicating that 47% of the ultra-long-term special government bond funds will remain available for use in 2025 From the perspective of investment, various regions mainly allocate ultra-long-term special government bonds to the transportation and industrial information sectors; these two categories of expenditure account for 37% and 36% of total expenditure, respectively. Three Questions: What are the fiscal budget targets for various regions in 2025? Local fiscal revenue may significantly recover, but expenditure may still require financing support. Local governments have raised their general fiscal revenue targets for 2025, primarily due to tax recovery, while the growth rate of non-tax revenue may significantly slow down. According to local budget reports for 2025, the expected growth rate of general fiscal revenue is 3%, higher than the 1.7% in 2024. In terms of revenue components, the weighted average growth of local tax revenue is expected to be 3.9%, an increase of 5.5% compared to 2024, while non-tax revenue is expected to decrease by 11.6%. According to local fiscal budget reports for 2025, tax revenue is expected to show a recovery growth trend. As of mid-February 2025, 21 provinces have announced their local tax revenue forecasts, with 4 provinces predicting tax revenue growth of over 7%, 5 provinces predicting growth between 4%-7%, and 12 provinces forecasting tax revenue growth between 1.0%-4%. If we refer to the data from the 21 provinces, national tax revenue is expected to recover to the 2023 level (approximately 18 trillion yuan). At the same time, many regions have also raised their expected growth rates for government fund revenue in 2025 while lowering expenditure expectations. The budget for local government fund revenue in 2025 is expected to grow by 1.6% year-on-year, while the expenditure budget is expected to decrease by 6.5% year-on-year. The reduction in the growth rate of local government fund expenditure budgets at the beginning of the year compared to 2024 may be mainly due to the fact that the new special bond quotas and ultra-long-term special government bonds have not yet been fully allocated, and the expected growth rate targets for local government fund expenditure in 2025 do not yet include support from special bonds and special government bonds for the entire year. Report Body 1. What is the local general fiscal situation in 2024? In 2024, the growth rate of local general fiscal revenue is relatively high, while the growth rate of general fiscal expenditure is relatively low. The growth rate of local general fiscal revenue in 2024 is 1.7%, higher than the national overall growth rate of 1.3%; the growth rate of local general fiscal expenditure is 3.2%, lower than the national expenditure growth rate of 3.6%. The relatively high growth rate of local general fiscal revenue may mainly benefit from local efforts to dispose of idle assets and enhance the revitalization of resources and assets, as well as strengthen the collection of non-tax revenue to effectively supplement fiscal revenue; the lower growth rate of local general fiscal expenditure compared to the national level may be due to the relatively ample central carryover and surplus funds in 2024, such as the funds from the issuance of additional government bonds at the end of 2023, which effectively support national fiscal expenditure. ! The breakdown of local general fiscal revenue shows that compared to tax revenue, which has generally declined, local non-tax revenue has seen a significant increase. Local fiscal reports indicate that in 2024, tax revenue in 30 provinces and cities mostly declined, with a weighted average year-on-year change of approximately -2%; meanwhile, non-tax revenue has increased significantly, with a weighted average growth rate of about 12.5%. Among these, the non-tax revenue growth rate in the Northeast region reached as high as 20.1%, accounting for about 39% of its general fiscal revenue; the non-tax revenue growth rate in the Eastern region reached 10.3%, accounting for 25% of its general fiscal revenue; the non-tax revenue growth rates in the Central and Western regions were relatively close, at 12.7% and 11.8%, respectively, accounting for 36% and 35% of their general fiscal revenue. Strengthening non-tax revenue, the Central and Western regions are enhancing the activation of state-owned resources, while the Eastern region is strengthening state-owned capital operating income. In resource-rich provinces in the Central and Western regions, such as Shanxi, Inner Mongolia, and Xinjiang, the non-tax revenue growth rate has exceeded 20%. Xinjiang's fiscal report revealed significant increases in income from the transfer of mineral resources and other resource asset disposals, with state-owned resource (asset) usage income growing by 20.4%. In the Eastern region, Tianjin's state-owned capital operating income surged by 775%, while also conducting a special cleanup of inter-agency funds, with fiscal funds remitted reaching 2.15 billion yuan; Beijing is actively expanding the pilot scope of profits remitted by enterprises run by municipal agencies, leading to a 97% increase in state-owned capital operating income. In the Northeast region, Jilin's confiscated income increased by 43.5% year-on-year, mainly due to the concentration of major cases being concluded; the income from the paid use of state-owned resources (assets) saw a significant year-on-year increase of 62.5%, primarily due to intensified efforts to activate resource assets II. What is the performance of local government funds in 2024? In 2024, the income of local government funds at the municipal level has significantly decreased, while expenditures have shown slight positive growth. The income of local government funds at the municipal level in 2024 has decreased by 13.5% year-on-year, while expenditures have increased by 0.4% year-on-year. According to the fiscal budget execution reports from various regions, among the 30 regions excluding Tibet, only 8 regions have seen an increase in government fund income, with Tianjin experiencing the fastest growth at 16.8%; 22 regions have seen a significant decline in government fund income, with four provinces experiencing declines of over 20%, namely Hunan (-32.2%), Zhejiang (-26.2%), Guangdong (-23.3%), and Jiangsu (-21.5%). The significant decline in government fund income is mainly due to the drag from state-owned land transfer income. In 2024, the income from the transfer of state-owned land use rights at the local level has decreased by 16% year-on-year. As of late February, among the 25 provinces that have announced their 2024 state-owned land use rights transfer income, 19 provinces and cities have seen a decline in this income. Hunan experienced the largest decline at -36.1%, with five provinces seeing declines of over 20%, namely Guangdong (-28.8%), Qinghai (-27.3%), Zhejiang (-27%), Jiangsu (-23.3%), and Guangxi (-23%). The significant decline in government fund income is primarily due to the drag from state-owned land transfer income. For example, Guangdong disclosed in its fiscal settlement report that the main reason for the underperformance of government fund income was the ongoing adjustment in the real estate market, leading to a decline in state-owned land use rights transfer income. In some regions, project construction and investment income have compensated for the decline in land transfer revenue, promoting the growth of government fund income. Analyzing the income from government funds in Guizhou reveals that in 2024, the revenue from the transfer of state-owned land use rights in Guizhou is expected to decrease by 9%. However, the income from the national major water conservancy project construction fund and the income from large and medium-sized reservoir area funds are expected to increase by 127.6% and 69.8%, respectively, resulting in an overall growth of 1.5% in the local government fund income. Additionally, both Tianjin and Beijing have strengthened the collection of project investment income corresponding to special bonds, leading to a year-on-year increase of 318.3% in Tianjin's special income from projects corresponding to special bonds in 2024, and a 390.3% increase in Beijing's special income from projects corresponding to special bonds. Although the local government fund income has significantly declined, supported by the ultra-long-term special treasury bonds, the expenditure of local government funds is expected to achieve positive growth in 2024. Financial reports from 13 provinces and cities disclose the usage of ultra-long-term special treasury bonds, with a total quota of 381.3 billion yuan for 2024. By 2024, the 13 provinces and cities have utilized approximately 203.1 billion yuan of ultra-long-term special treasury bonds, with a usage progress of about 53%, indicating that there is still a 47% surplus of ultra-long-term special treasury bond funds to be used in 2025. Regionally, Hunan has the highest completion rate, having used 16.82 billion yuan, with a completion rate of 86.7%. In contrast, Hebei and Jilin have lower completion rates of 26.1% and 13.7%, respectively; both regions' financial reports indicate that the central government's ultra-long-term special treasury bonds are being used slowly, mainly due to insufficient local project reserves. In terms of investment direction, various regions are primarily directing ultra-long-term special treasury bonds towards transportation expenditures and industrial information. Local financial settlement reports indicate that in 2024, the ultra-long-term special treasury bonds will be broadly allocated, including infrastructure, people's livelihood, and technology sectors. The highest proportions of ultra-long-term special treasury bonds in 2024 are directed towards transportation and storage and resource exploration/industrial information, reaching 37% and 36%, respectively, indicating that the main focus of local usage of ultra-long-term special treasury bonds in 2024 will be on transportation projects, as well as industrial transformation and upgrading, and the development of the information technology industry 3. What are the fiscal budget targets for various regions in 2025? Local governments have raised their general fiscal revenue targets for 2025, primarily due to tax recovery, while the growth rate of non-tax revenue may significantly slow down. According to local 2025 budget reports, the expected growth rate of local general fiscal revenue is 3%, higher than the 1.7% in 2024, while the expected growth rate of expenditures is only 2.4%, lower than the 3.2% in 2024; this may indicate that the subsequent increase in expenditure growth mainly relies on local general bond financing and central transfer payments. From the perspective of revenue components, local tax revenue has been significantly raised, while non-tax revenue has declined. According to the fiscal budget plans disclosed by various provinces and cities for 2025, among the 22 provinces and cities that have publicly announced their 2025 fiscal budgets, 14 have raised the growth rate of general public budget revenue, with a weighted average increase of 1.2%. The growth rate target for tax revenue has a weighted average increase of 5.5%, while the growth rate target for non-tax revenue has a weighted average decrease of 11.6%. According to local 2025 fiscal budget reports, tax revenue may show a trend of recovery growth. As of mid-February 2025, 21 provinces have announced their local tax revenue forecasts, with a weighted average year-on-year growth of 3.9% in tax revenue Four provinces forecast tax revenue growth of over 7%, namely Qinghai (13.8%), Xinjiang (8.0%), Hubei (7.8%), and Gansu (7.7%). Five provinces predict tax revenue growth between 4% and 7%, including Guangdong (6.0%), Heilongjiang (5.3%), Hebei (5.0%), Tianjin (4.5%), and Chongqing (4.0%). The remaining 12 provinces forecast tax revenue growth for 2025 to be between 1.0% and 4.0%. If we refer to the data from 21 provinces, national tax revenue is expected to recover to the 2023 tax revenue level (approximately 18 trillion yuan). At the same time, many regions have also raised their expectations for the growth rate of government fund revenue in 2025 while lowering expenditure expectations. The budget for local government fund revenue in 2025 is expected to grow by 1.6% year-on-year, while the expenditure budget is expected to decrease by 6.5% year-on-year. 24 provinces and municipalities have raised their expectations for the growth rate of government fund revenue in 2025; 22 provinces and municipalities have lowered their expenditure growth expectations, with Guizhou, Henan, and Hubei seeing the largest reductions, with expenditure growth rates of -66%, -53.4%, and -44.6%, respectively. The reduction in the growth rate of local government fund expenditure budgets at the beginning of the year compared to 2024 is mainly due to the fact that the new special bond quota and ultra-long-term special treasury bonds have not yet been fully allocated, and the expenditure growth rate targets for local government funds in 2025 do not yet include the full-year special bonds and special treasury bond support. Article authors: Zhao Wei, Jia Dongxu, Hou Qiannan, Source: Shenwan Hongyuan Macro, Original title: "Hot Thoughts | Decoding Local 'Fiscal Accounts' — 'Great Power Finance' Series Part Two" Risk Warning and Disclaimer The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. 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