China Squeezes State-Owned Enterprises Further Amid Fiscal Pressure

Budget Transfers from SOEs Reach 123 Trillion Won Last Year
Twelvefold Increase Compared to a Decade Ago

The Chinese government has increased the amount of profits collected from state-owned enterprises (SOEs) to a record high in response to declining tax revenues caused by an economic downturn. As the slump in the real estate sector continues for an extended period, concerns are growing that the government will become even more reliant on tax revenues from SOEs.

Chinese President Xi Jinping and other leaders attended the annual session of the National People's Congress held on the 5th at the Great Hall of the People in Beijing. Photo by Yonhap News

According to an analysis by Bloomberg News of data released last week by China's Ministry of Finance, funds transferred from SOEs to the general public budget last year reached 574 billion yuan (approximately 123.4 trillion won), marking an all-time high. This figure represents a twelvefold increase compared to ten years ago.

Zhao Pengxing, chief China strategist at ANZ Bank, told Bloomberg News, "If we include other payments made directly by central government SOEs to the main budget, it is very likely that the total contribution from SOEs exceeded 1 trillion yuan last year." He added, "As fiscal revenues come under greater pressure, the government is increasingly relying on contributions from SOEs."

The Chinese leadership has long regarded SOEs as a "cash cow" for shoring up tax revenues. When President Xi Jinping took office in 2013, the Chinese Communist Party declared that a much larger portion of profits generated by state capital should be injected into public finances.

Premier Li Chang demanded during the "Two Sessions" (the National People's Congress and the Chinese People's Political Consultative Conference) that SOEs pay out even more of their earnings as dividends this year. Premier Li emphasized, "We will better coordinate fiscal resources and budgets, and increase the share of state capital returns collected by the central government." Currently, the Chinese government collects a certain percentage of SOE profits by industry. The highest rate is applied to tobacco companies, followed by sectors such as oil, electricity, telecommunications, and coal. As of 2024, the average profit recovery rate for SOEs managed by the central government stands at around 18 percent.

On the 5th, Premier Li Chang is delivering the work report at the Great Hall of the People in Beijing, where the annual session of the National People's Congress, China's highest legislative body, has opened. Photo by Yonhap News.

The increased reliance on SOE tax revenue is attributed to the effects of the economic slowdown. In recent years, China has experienced a deceleration in economic growth. In addition, the real estate downturn has reduced land sales revenue, which was a key source of local government income. Last year, China's general public revenue was 21.6 trillion yuan, a 1.7 percent decrease from the previous year. Aside from the COVID-19 pandemic period, this was the only decline since 1994.

In particular, land sales revenue for local governments fell by 14.7 percent, marking a double-digit decline for the fourth consecutive year. Jeremy Zook, an analyst at Fitch Ratings, said, "Weak revenue remains a key constraint on fiscal policy."

He Wei, an economist at Gavekal Dragonomics, pointed out, "SOEs need to ensure operational sustainability and maintain their ability to repay debt and invest, so there is little room to squeeze out more cash." He added, "Ultimately, tax revenues are linked to nominal GDP, so the key is to get the economy back on track."

This content was produced with the assistance of AI translation services.