China’s central and local governments are intensifying efforts to bolster fiscal revenue amid a widening budget shortfall, resulting in stricter tax enforcement and unconventional methods to generate cash. Recent high-profile cases reveal escalating pressure on both state-owned enterprises and regional authorities to address revenue gaps caused by shifts in the country’s economic landscape.

The National Audit Office recently disclosed that Bank of China, a state-owned commercial bank, exploited regulatory tax exemptions via two of its subsidiaries, which repackaged 11 private equity funds as public investment vehicles. This maneuver allowed the bank to evade approximately 2.37 billion yuan (HK$2.73 billion) in taxes, according to the audit report. The case highlights the central government’s renewed crackdown on tax evasion within major state enterprises.

In a separate example, Heilongjiang Agriculture Co., widely known as Beidahuang and overseen by the Ministry of Finance, revealed it owes more than 1.4 billion yuan in back taxes and late fees. This liability surpasses the company’s total profits from the previous year and underscores the increasing fiscal scrutiny state entities face under current policies.

Local governments, especially in less prosperous regions, are also seeking alternative revenue sources amid declining income from traditional channels such as land sales, which historically played a significant role in financing regional budgets. In Biyang County, Henan province, market regulators detained 21 freight trucks over a six-month period from July 2023 to January 2024, conducting roadside inspections that resulted in fines and the auctioning of some cargo. Reportedly, even trucks with valid permits were targeted, sparking concerns about the impact of these revenue-driven enforcement actions on interprovincial commerce.

These developments coincide with China’s broader economic transition away from a high-leverage property sector toward a more sustainable growth model centered on advanced manufacturing. While this shift aims to establish a more disciplined and durable tax base, it has left local governments financially vulnerable in the short term, as emerging industries cannot immediately replace the liquidity formerly generated by land auctions.

The roll-out of Phase IV of the Golden Tax System, an advanced digital tax administration platform, illustrates Beijing’s long-term ambition to strengthen institutional compliance and state capacity. However, the recent publicized enforcement actions targeting both large enterprises and regional actors indicate an urgent fiscal imperative is accelerating these regulatory measures.

Fiscal pressure has also led to a rise in penalty and confiscation revenues, which reached 452.3 billion yuan in 2024, marking a 14.9 percent increase from the previous year. In some indebted provinces, this form of revenue is growing rapidly and effectively acting as an informal substitute for traditional tax bases, with local authorities imposing fines on passing commercial vehicles as a method of raising funds.

Experts warn this fragmented enforcement approach risks undermining efforts to create a unified national market by escalating logistics costs and administrative uncertainty. Such unpredictability may dampen private sector confidence and consumer spending, potentially hampering China’s goals for a consumption-led recovery.

Policy analysts in Beijing have proposed centralizing penalty and confiscation revenues to the national treasury, redistributing funds through structured transfer payments. This system aims to remove local governments’ incentives to engage in predatory enforcement practices motivated by immediate fiscal needs.

Looking ahead, the critical challenge for China remains developing a local tax structure capable of standing independently without reliance on land sales or extralegal fees. Observers note that excessive taxation and enforcement risks stifling enterprise growth and investment, jeopardizing the broader economic health Beijing seeks to maintain while securing government revenues.