By Song Fuli (宋馥李), Zhang Yanlong (張延龍) and Shen Nianzu (沈念祖)
Issue 627, July 8, 2013
Corporation, page 9-10 and 12
Translated by Tian Shaohui
Original article: [Chinese], [Chinese],[Chinese] and [Chinese]

At a recent meeting of China's State Council, Premier Li Keqiang called for a further reduction in government expenditure on what are oftern referred to as the  
"three publics" (三公) - travel abroad, vehicles and entertainment - and a further ratcheting-up of ongoing austerity measures. In recent months, local governments in Inner Mongolia, Shaanxi, Henan and Liaoning have experienced a different kind of tightening. As demand drops for the natural resources on which their economies are built, fiscal revenue growth has flatlined.

Ordos

In Ordos (鄂爾多斯), a prefecture-level city in the Inner Mongolia Autonomous Region, the People's Congress has been confronted by a fiscal revenue increase of only six percent, a 10 year low. One cause is a change in the tax structure. Turnover tax is gradually being replaced by a value-added tax (VAT), resulting in a net decrease in revenue for the government. However, the main cause of the slow down in revenue growth is the sharp drop in tax revenue associated with coal sales. As the price of coal falls, associated revenue has also declined.

Urban construction projects that focus on upgrading infrastructure and urban "greening" programs have been affected by reduced funding. The government has also cancelled festival celebrations, in addition to cuts already planned to help meet the "three publics" target.

In response to the drop in coal prices, Ordos mayor Lian Su (廉素) persuaded top power generation companies, including Huadian Energy Company Ltd (華電集團(tuán)) and China Huaneng Group (華能集團(tuán)) to increase their purchase volumes. But with prices and overall sales volumes still low, government revenue is still close to not covering budgeted outlays. 

Mayor Lian has called for all departments to focus on increasing revenue. A major initiative involves converting the branch offices of state owned enterprises (SOE) into 
subsidiaries of the parent companies. This would result in some of the tax assessed on the businesses being paid to the government in Ordos, rather than all of it being paid through the companies' headquarters, most of which are located in Beijing.
"Ordos has not reached the stage where we can't pay salaries, there's still no problem in getting by," said Wang Limin (王利民), the deputy director of the city's economic and technology commission (經(jīng)濟(jì)和信息化工作委員會(huì)).

Yulin

Yulin (榆林), a prefecture-level city in Shaanxi Province which shares a border with Ordos, at one stage boasted the largest coal production volume of any Chinese city. In 2011, coal accounted for over 70 percent of the city's GDP and drove the success of supporting industries such as transportation, lodging and food services. The sharp drop in coal prices has had a similar effect as in Ordos. Moreover, growth of coal-based or coal-related industrial products like washed coal, cement and power generation is negative.

A local Development and Reform Commission official indicated that government investment in medical care, education, poverty relief and social security would remain a priority. 

These investments would be preserved at the expense of funding for seven major infrastructure projects which had additional financial backing from SOEs, enterprises in Shaanxi and foreign companies operating in the provincial capital, Xi'an.

"Firms can't be allowed to fail, Yulin's efforts to actively promote the transformation of the economy cannot come to a halt," said the above-mentioned official. "The government has to adopt an appropriate stance, through a series of policies and financial support, enable this transformation to occur against a backdrop of growth occuring at a regular speed." 

Tieling

Tieling (鐵嶺) is a prefecture-level city in Liaoning Province. In May, its fiscal revenue growth rate dropped to 3.5 percent from 27.1 percent a year earlier. From January to May, industrial value added decreased as a large number of construction projects slowed down or were suspended.

The local People's Congress has proposed to convert non-productive government assets located in the old commercial district to new purposes, in ways that would generate revenue that could help repay government debt. The proposal specifically targets land and facilities attached to government institutions, such as schools and factories that are no longer needed. These would be sold to private developers to be converted to new uses.

To avoid a cash crunch, some government departments have submitted formal requests for budget increases. Others have requested performance target reductions to reflect the difficult economic environment.

Despite straitened times, the municipal government has redoubled efforts to assist enterprises. It has increased government procurement volumes from local companies, particularly for vehicles. It hosts industry exhibitions to promote companies' products. Tieling is also trying to develop new sales channels in Liaoning Province to market its manufacturing and construction industries.

Though problems remain, a local official believes that now is the key time to push for industrial reforms andtourism, logistics and food services all have potential to improve and become new centers of growth.