Local governments rein in illicit fees and fines
Local governments are reducing exploitative fees and fines.
Some context: In 2024, to offset slumping tax receipts, local governments ramped up collection of non-tax revenues from corporates – including fees, fines, and confiscations, which together jumped ~14.7% y/y – undermining business sentiment.
More context: Earlier this year, the central government increased scrutiny over predatory local government business fines, ordering localities to rein in illicit levies.
Beijing’s crackdown has left local officials jittery, spurring them to ramp up audits and ensure unfair fees and fines aren’t taking place on their watch.
Per a Monday Yicai report:
- In April, inspections in Henan county revealed that officials tasked the local fire brigade with collecting monthly fine targets.
- In August, auditors in Inner Mongolia reported that 12 counties had engaged in arbitrary and cross-jurisdiction law enforcement.
- In September, Guizhou auditors found that one county had illegally collected RMB 61.8 million in “coordination fees” from five mining firms to fund township public expenses.
Stricter oversight and increased frequency of audits led to a 4.3% y/y drop in national revenue from fines and confiscations, across H1 2025.
Get smart: Cracking down on excessive fees and fines is undoubtedly a good thing for business confidence – and the economic environment more broadly.
Get smarter: That said, turning off yet another financing tap when local government revenues are already shrinking is a risky move.
- Poorly funded localities will be forced to either resort to off-balance-sheet borrowing, or to cut public spending.
- The former would heighten debt risks, while the latter would weigh on economic growth.