China's Fiscal Revenue Plummets 21.4% in February Due to COVID-19 Impact

[Asia Economy Beijing=Special Correspondent Park Sun-mi] It has been revealed that the fiscal revenues of the central and local governments in China also sharply declined in January and February, when economic activities came to a halt due to the spread of COVID-19.

On the 25th, Chinese economic media Caixin reported that China's fiscal revenues in January and February decreased at the largest rate in 11 years due to the spread of COVID-19. According to the Ministry of Finance, the revenues of the central and local governments in January and February amounted to 3.5 trillion yuan. This represents a 9.9% decrease compared to the same period last year, marking the largest decline since February 2009 during the global financial crisis.

In February, when COVID-19 prevention activities were concentrated and economic activities nearly stopped, fiscal revenues decreased by as much as 21.4%, recording the largest monthly decline since statistics began in 1996.

Tax revenues in January and February totaled 3.1 trillion yuan, down 11.2%. Value-added tax, consumption tax, corporate tax, vehicle purchase tax, and customs duties all significantly decreased, reflecting that both corporate activities and consumption were contracted due to the impact of COVID-19. In particular, taxes paid by the food service and lodging industries were only about half of those in January and February last year.

As economic activities stopped, not only fiscal revenues but also government expenditures decreased accordingly. Despite a 22.7% increase in spending in the public health sector in January and February, overall government expenditures decreased by 2.9%.

The government is preparing various countermeasures to minimize the economic damage caused by COVID-19, but concerns are emerging that the rapidly declining fiscal revenues may narrow the government's room for maneuver to minimize economic damage. Due to the impact of the trade war, China's fiscal revenues last year increased by only 3.8%, showing a significant difference from 2018 (6.2%). Last year's fiscal revenue growth rate was the lowest since 1987.

For these reasons, earlier, Hong Hao, a researcher at Bank of Communications International in China, viewed that the possibility of the Chinese government launching a large-scale monetary stimulus and comprehensive economic stimulus like during the global financial crisis in 2008-2009 is limited this year. He pointed out, "Some economists argue that a large-scale economic stimulus is necessary for the Chinese economy, but these voices overlook limited additional infrastructure investment capacity, high local government debt, and the possibility of consumption contraction due to household debt."

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