China’s indebted local governments are resorting to imposing fines on residents as a means of generating revenue, causing outrage on social media platforms.
One instance involved a Shanghai restaurateur who was fined for serving shredded cucumber without a license, sparking a public outcry on platforms like Weibo wherein a user wrote, “If they wanna fine you, even adding vinegar could be wrong.”
Truckers in Henan province also faced fines for allegedly exceeding weight limits, raising concerns about the accuracy of government auto-mobile weighing machines. According to a driver, they are subjected to fine up to $38000 in just the last two years.
Similarly, in Guangxi, a heavily indebted province, a state-backed company faced backlash for increasing parking fees, resulting in commuters accumulating substantial charges. These incidents reflect a broader trend of local governments relying on fines to bolster their financial resources.
A state council inspection revealed that local government penalties had become harsher due to the economic challenges brought about by the pandemic. Guangxi, for example, generated significant revenue of 13 billion yuan from fines, amounting to approximately 14% of its tax income in 2022, compared to 9% in the previous year. Experts view these practices as a “sign of desperation” amidst financial difficulties.
China’s local governments are facing financial challenges due to the impact of the pandemic and stricter regulations on the property market, leaving them with limited funds for salaries and infrastructure development while also having to pay off their debts. According to estimates by Goldman Sachs Group, China’s total government debt stands at approximately $23 trillion.
The central government has recently emphasized that provinces must address their hidden debt issues independently, forcing local officials to find alternative ways to generate revenue. In the past, excessive fines have been imposed in various instances. For example, a grocer in Shaanxi province was fined a substantial amount of 66,000 yuan for selling 2. 5kg of substandard celery, while officials in Guangdong were discovered to have manipulated evidence to fine trucks for suspected illegal dumping.
Although these fines are unlikely to significantly alleviate the financial shortfall faced by local governments, they are likely to persist as provinces are left to manage their own financial difficulties. As small and medium-sized enterprises (SMEs) suffer from heavy fines and regulatory burdens, local governments may become increasingly reliant on such fines. “As fines and regulatory burdens kill off the SMEs, local governments would further lose tax income, become even more reliant on fines”, highlights Zerlina Zeng, a credit analyst.
