Government revenue rises slowly, spending increases

China's fiscal revenue grew modestly in the first half of 2014 while its expenditure surged as the government stepped up spending on key projects, the Ministry of Finance said on Monday.

Total fiscal revenue rose 8.8 percent to 7.46 trillion yuan ($1.21 trillion) in the first six months.

The central government collected 3.43 trillion yuan, up 6.2 percent, which was slower than the budgeted increase of 7 percent set during the annual legislative meeting in March.

In June alone, central government revenue was up 5.8 percent to 547.7 billion yuan, while local government revenue rose 10.9 percent to 798.4 billion yuan.

The ministry said that revenue received by the central government last month continued a trend of slow growth due to a decline in value-added tax and increasing tax rebates for exports.

Land transfer revenues, a source of revenue for local governments other than taxation, rose 26.3 percent to 2.11 trillion yuan in the first half, but it posted a meager 7.3 percent expansion in June, the ministry said.

Fiscal expenditure maintained double-digit growth. In the first half, total national fiscal spending expanded 15.8 percent to 6.92 trillion yuan. For June alone, the figure surged 26.1 percent to 1.65 trillion yuan.

Local governments spent 1.45 trillion yuan in June, up 28.3 percent, while the central government spent 201.7 billion yuan, up 12.3 percent.

The combination of modest growth in fiscal revenue and accelerating fiscal spending presents a challenge for governments at various levels, especially as the country pursues broad reform amid downward pressure.

The economy grew 7.4 percent in the first quarter, the fastest of all major economies but below the full-year target of 7.5 percent. Data for the first half are expected to come out on Wednesday.

China has vowed to build a comprehensive, transparent and efficient fiscal and tax system, as indicated in a statement released after a central leadership meeting in late June.

One highlight of the reform is a program to replace business tax with VAT in some service sectors, which analysts said may reduce tax revenue in the short term.

China aims to fulfill key tasks in the new round of fiscal and tax reforms by 2016 and establish a "modern fiscal system" by 2020.