China Tightens Its Belt: Tax Collections Surge While Public Spending Pulls Back

In October 2025, China’s public budget revenue climbed by 3.2% year-over-year, marking its fastest monthly growth in several months. The surge was driven by an 8.6% leap in tax collection, even as non-tax revenue collapsed by a third. This pattern indicates that authorities are leaning more heavily on conventional taxation rather than relying on one-off receipts or land-sales revenues, which have long underpinned local government finances.

Simultaneously, government spending is retreating. Recent reports show that overall fiscal outlays have slowed significantly, reflecting a pullback in infrastructure and other capital-intensive expenditures. Analysts attribute the drop to tighter fiscal discipline at the central level, as well as local governments’ dwindling capacity to finance projects via land sales or off-balance-sheet mechanisms. This retrenchment exacerbates pressure on growth, particularly when combined with weak household demand and a sagging property sector.

The shift has systemic implications. By raising taxes but cutting spending, China may be trading off short-term financial stability for weaker demand and softer growth. Local governments, which rely on tax revenue but also bear the brunt of spending obligations, face a fiscal squeeze. These dynamics could widen regional fiscal disparities, as richer jurisdictions collect more taxes but may also reduce investment disproportionately. At the same time, the central government’s tighter purse strings may signal reluctance to further bail out indebted local authorities.

In light of this, fiscal reforms may become urgent. Beijing has already signalled plans to overhaul tax sharing and grant local governments greater fiscal autonomy. But until reforms take shape, the current strategy, ramping up tax collection while retrenching spending, seems to be a stop-gap. For China to return to sustainable growth, it will need to strike a delicate balance between revenue generation, debt risk, and investment in its economy’s long-term drivers.