Sample Paper on China Revenue and Expenditure

Sample Paper on China Revenue and Expenditure

Introduction

Revenue and government expenditure in any given country are a function of the economic activities and the needs of the nation respectively. For instance, the revenue and expenditure systems in China are guided by the provincial fiscal policy, which is considered to be a major part of the macroeconomic policy. The level of coordination between different government levels in China plays a very important role in the efficiency of the fiscal policies at hand. The fiscal policies across China are cyclic and so are the expenditure systems. In spite of the efficiency of the pro-cyclic financial policy system, the fiscal system is affected by several factors including: political factors; financial constraints and exposure to shocks. The response of the national expenditures to the changes in fiscal policies depends on the factors at play at any given time, and may be characterized by an equation which relates the fiscal policy to various factors including the duration of policy change and the financial constraints among others.[1]

Revenue in China

The Chinese revenue is described as the income received by the government as payment for the distribution of various social services and products. The revenue also describes the financial resources that the government uses for its complete functioning. Government revenue in China, as in several other countries comprises of various tax revenues, special revenues and other revenues. Planned subsidies can also contribute to government revenue in China. The different tax revenues may include fiscal sources such as value added tax, consumption tax, resources tax, construction and city maintenance tax; business tax, stamp tax, enterprise tax, tax on agriculture and land value added tax among. Special revenues on the other hand comprise of taxes such as the revenue which is collected as a result of imposition of fees on the treatment of sewage, treatment of urban waste resources and extra education charges among others. Other revenues may be obtained as a result of loan repayment e.g. for capital construction loans, revenue from donations as well as grants and revenue that arises from capital construction projects.[2] Although planned subsidies are categorized as part of government revenue, their effect is more on consuming the government finances rather than adding value to the government funds. This comes in especially as losses incurred by state- owned enterprises hence its consideration as a negative aspect of revenue.

In the past three years, the Chinese economy has continued to expand steadily, defying all expectations of slowing down. According to Crimmins, the government led stimulus for economic growth has been the key driver of economic growth in China, through practices such as providing support for various economic sector drivers. The Chinese inflation rate, which can be a key indicator for the economic condition of the country, shows steady growth over the last few months indicating the potential for reduced economic performance. The Dow Jones industrial growth index showed an expected growth of 0.15% through the year. Similarly, China’s producer prices also disappointed expectations by beating the market expectations by 6.9% through the last quarter of the year. The average revenue growth for the month of July alone rose by 11.1%, while the credit and debt growth increased significantly. The combination of high expenditures and high credit growth rates has therefore impacted economic growth in China significantly.[3]

The government revenues structure was classified in 1994 resulting into the distinction of revenue streams into different categories. The structure of government expenditures was changed since 1994, to address the different sources and expenditures of national resources. Revenue channels were classified to include tax revenues, central government revenues and the local government revenues, which have different expenditure coverage.[4] The central government obtains revenues through tariffs, value added tax enterprise income taxes, consumption tax, and enterprise taxes for enterprises that are subordinate to the national government. Other revenue streams for the central government include: the income taxes associated with the railway and the ports, insurance companies; and foreign funded banks among others. More than 75% of the value added tax in China, approximately 50% of the stamp tax, and taxes charged for city construction and maintenance are all categorized as part of the central government revenue in China. On the other hand, the local governments obtain revenue through business tax, personal income tax, and taxes collected from enterprises that are subordinate to the local governments. Tax on real estates, special agricultural products, adjustment on fixed records, and land occupancy tax all go to the local government as revenue. More than 25% of the VAT and more than 50% of the stamp tax collected from the businesses can be an instrumental source of revenue for the businesses that do not deal in petroleum and traditional, conventional resources.[5]

Expenditure

As the revenue of China grew by 11.1% in July alone, the expenditure for the country also grew by 5.4%. The total government spending comprises of several factors including distribution and utilization of funds from the government bodies.[6] The funds raised by the government through revenues have to be distributed to cater for various economic, construction and social needs in the community. The most crucial government expenditure in China is capital construction. Expenditure on capital construction comes about due to the non- gratuitous utilization of the appropriated funds. The government raises a budget based on its presenting needs and the resource allocations. The government also spends through innovation funds from enterprises. These are those funds which are utilized in the tapping of latent power, for technology upgrades and with the objective of enhancing innovation. The expenditure may also include department innovation funds, enterprise innovation loans and subsidies provided to individuals and organizations for the developments of small industrial plants such as the recent fertilizer plant. Other businesses such as small coal mines, cement plants and machinery plants and development expenditures are all categorized under innovation funds for enterprises. When interests are charged on loans given for innovation purposes, the government spends by giving an input during the interest payment procedure.

Other government expenditures in China could entail geological prospecting costs, costs incurred for the promotion of science and technology, as well as expenditures incurred by organizations in catering for administrative costs. For science and technology promotion, the Chinese government has continued to invest in several countries across the world. The expenditures also extend to the intermediate technological trials and subsidies on technological and scientific researches. Expenses are also incurred in support for rural production through costs for forestation, subsidies to rural families and village projects, soil conservation measures and the associated expenses, subsidies to agricultural practices and the protection of farmlands and the aquatic industry at large. In some instances, the Chinese government, through local government authorities incurs expenses in providing special funds for grain production development. Departments such as forestry, meteorology and water conservation all have annual budgets, whose expenses are addressed by the Chinese government expenditures. The transport and commerce sector also has expenditures for appropriation by the national government whereby expenses are incurred in prospecting and designing; technical training and cadres trainings; as well as for the specialized technical secondary schools that are run by the government. Needless to say, most of these costs are incurred by the national government and only to a very small extent by the local governments.

In spite of the high national expenditure associated with the Chinese national government, the country has managed to operate within a range of budget deficits that not only portrays the image of strong economic development but also shows that the country can keep it world economic position sustainably. According to Xu and Cui, the Chinese government continues to find new revenue models, hence the observed constant of GDP deficit which has been at 3% of the gross income.[7] The country authorities continue to follow up on potential risks to national financing, including the possibility of increased debt as a result of borrowing by the national government.

Conclusion

The national and local governments in China have a diverse range of revenues and national expenditures. As the country revenues increases, the expenditures have been expected to increase through an almost similar trend, contrary to what is observed in the present times. The Chinese government has continued to surprise many through its regulatory measures which have seen the country remain within unexpected expenditure, revenue and inflation levels. China therefore has the potential to continue on its growth path and to maintain its economic position across the world for a sustainable duration. 

 

References

All China Data Center. Government finance. China Data Online, 2017. Retrieved from chinadataonline.org/info/yearly08.asp

Combes, Jean- Louis, Renard, Mary Francoise, Tapsoba, Tampawende Jules. Provincial public expenditure in China: A tale of profligacy. Hal Archives. Retrieved from hal.archives-ouvertes.fr/halshs-01217332/document

Crimmins, Carmel. China’s July fiscal spending pace slows but revenue rises.  Reuters. Retrieved from www.reuters.com/article/us-china-economy-fiscal-spending/chinas-july-fiscal-spending-pace-slows-but-revenues-rise-idUSKBN1AR06Q

Xu, Hua and Cui Huiyu. “The revenue system of China: past, present and emerging issues.” Journal of Public Budgeting, Accounting and Financial Management 23, no. 4 (2011): 544- 568. Retrieved from pracademics.com/attachments/article/827/Liou_Symp_Article_1_Xu_Cui.pdf

 

[1]Jean- Louis Combes, Mary Francoise Renard and Tampawende Jules Tapsoba. “Provincial public expenditure in China: A tale of profligacy.” Hal Archives.

[2] All China Data Center. Government finance. China Data Online, 2017.

.

[3]Carmel  Crimmins. China’s July fiscal spending  pace slows but revenue rises.  Reuters, 2017.

[4] All China Data Center. Government finance. China Data Online, 2017.

[5] Above.

[6] Carmel Crimmins, Above.

[7]Hua Xu and Huiyu Cui. “The revenue system of China: past, present and emerging issues.” Journal of Public Budgeting, Accounting and Financial Management 23, no. 4 (2011): 544- 568.