Business Maverick

Business Maverick

Esoteric fines pile up as China’s provinces hunt for revenue

Esoteric fines pile up as China’s provinces hunt for revenue
Members of the border defense team patrol on motorcycles in Changgo Township of Xigaze City, southwest China's Tibet Autonomous Region, 2 June 2023. (Photo: EPA-EFE/XINHUA / Jigme Dorji)

China’s indebted local governments are increasingly imposing controversial fines on residents in a bid to generate revenue, stoking anger among social-media users.

A Shanghai restaurateur was fined 5,000 yuan ($702) this month for serving shredded cucumber without a licence, prompting outrage on China’s Twitter-like Weibo. In a post viewed 9.5 million times, one user wrote: “If they wanna fine you, even adding vinegar could be wrong.” 

Truckers in central Henan province last month made headlines when they questioned the accuracy of government vehicle weighing machines, after being repeatedly fined for exceeding limits: one driver had received tickets totaling $38,000 in the past two years.

In Guangxi, one of China’s most indebted provinces, a state-backed company sparked anger in May for hiking parking fees, leading some commuters to rack up thousands of yuan in charges. After Weibo users questioned their legitimacy, the Nanning city mayor bowed and apologised at a press conference. 

These high-profile scandals represent a broader trend of local governments using fines to bolster their coffers. A State Council inspection last year found that in the wake of the pandemic and other economic difficulties, local government penalties had become stricter and more severe, according to an article in state media.  

Guangxi alone made 13 billion yuan from fines last year, according to an analysis of government data by Caijing Industry Research Centre — equivalent to about 14% of its tax income, rising from 9% in 2021.  

“It is a sign of desperation,” said Victor Shih, an associate professor at the University of California, San Diego, who specialises in China’s banking policies. “Arbitrary fines and predatory behaviour will drive businesses away, especially small and medium businesses without the political protection of large state-owned enterprises,” he added.

China’s local governments have suffered the dual blows of the pandemic and a property crackdown from Beijing in recent years, leaving them with too little income to spend on salaries and building roads, while at the same time paying their debt bills. Goldman Sachs Group Inc. estimates China’s total government debt is about $23-trillion, a figure that includes the hidden borrowing of thousands of financing companies set up by provinces and cities.

The central government reiterated this month that provinces have to fix hidden debt problems on their own, leaving local officials to get more creative to raise revenue for their day-to-day spending. Last year, a grocer in Shaanxi province was fined 66,000 yuan for selling 2.5kg of substandard celery, while in August, officials in Guangdong were found to have falsified evidence to fine trucks for suspected illegal dumping. 

As such cases spark outrage on social media, government scrutiny of levies has ramped up. Following the Guangxi street-parking uproar last month, city authorities in Jiangsu, Inner Mongolia, Zhejiang, and Shandong also started cracking down on expensive parking fees. In February, then-premier Li Keqiang called on provinces to “resolutely put an end to arbitrary fees” and fines at a cabinet meeting.  

The levies are unlikely to make a meaningful difference to the shortfall in local finances. Still, excessive fines will probably remain a feature as provinces are left to shoulder their own problems, said Zerlina Zeng, senior credit analyst at CreditSights Singapore LLC. 

“As fines and other regulatory burdens kill off the SMEs, local governments would further lose tax income, become even more reliant on fines, and dependent on transfers from central and other upper-tier governments,” Zeng said.

She added: “This could be detrimental to the local business environment and result in a vicious cycle in weak regions.” DM


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