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China’s Q1 fiscal revenue falls as tax cut policies weigh

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BEIJING (Reuters) – China’s fiscal revenue in the first quarter fell 2.3% from a year earlier, as some special factors including previous tax cut policies weighed, the finance ministry said on Monday.

The world’s second-biggest economy grew faster than expected in the first quarter, data showed last week, offering some relief to officials, but March indicators showed domestic demand remains frail. The property downturn continues to hurt local governments’ finance and fiscal capabilities, analysts said.

China’s tax revenue dropped 4.9% to 4.9 trillion yuan ($676.48 billion) in the first three months, but revenue from cultural, tourism and advanced manufacturing industries grew fast, Wang Dongwei, vice finance minister, told a press conference in Beijing on Monday.

Excluding the influence of special factors such as a high base and tax cut policies of 2023, China’s fiscal revenue grew about 2.2% in the first quarter, he added.

Fiscal expenditures grew 2.9% on year to nearly 7 trillion yuan in the first three months, according to Wang, slowing significantly from 6.7% growth seen in the first two months.

Responding to a question about the slow issuance of local government special bonds in January-March, Wang Jianfan, an official at the ministry said that issuance was related to funding needs of local projects, seasonal influence on construction conditions and interest rates in the bond market.

In response to the impact of COVID previously, the ministry also stepped up such bond issuance volume at the beginning of each year, he said, indicating this had created a high base.

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The finance ministry will support technology-led industrial innovation with “full support” and shore up technology innovation and manufacturing development with tax and fee cut policies, Wang said.

Amid tepid domestic demand and a property crisis, Beijing has turned to investing in high-tech manufacturing to lift the economy this year.

“We will strengthen macro control, focus on expanding domestic demand, cultivate and develop new growth drivers and prevent and defuse risks” to improve the quality and efficiency of fiscal policies and enhance economic recovery, he said.

Funds from the trillion yuan of sovereign bonds issued last year had been given to local governments by the end of February, the vice minister said. In particular, spending on disaster prevention and emergency management out of the funds grew by 53.4% in the first quarter.

In recent days, floods have swamped a handful of cities in southern China’s densely populated Pearl River Delta following record-breaking rains.

($1 = 7.2434 Chinese yuan)

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