The PRC’s Local Governments Turn to Predatory Revenue Tactics

The PRC’s Local Governments Turn to Predatory Revenue Tactics

Executive Summary

• The structural exhaustion of the “Land Finance” model has compelled local governments in the People’s Republic of China (PRC) to abandon the reform-era “developmental state” model, pivoting toward a paradigm of “predatory survival” to avert insolvency.
• To bridge widening deficits, local authorities have resorted to aggressive wealth extraction. Beyond intensifying levies on local enterprises and residents, three distinct predatory modes have emerged: instrumentalizing state power for direct extraction; mortgaging long-term public resources for short-term liquidity; and fabricating collateral by capitalizing low-value assets.
• These measures represent a degradation of state capacity. By prioritizing immediate liquidity over market stability, local cadres are dismantling the PRC’s unified market and eroding the legal predictability required for private sector growth, creating systemic risks that central “debt resolution” initiatives cannot mitigate.

The fiscal compact underpinning local governance in the People’s Republic of China (PRC) has fundamentally unraveled. For two decades, the Chinese Communist Party (CCP) incentivized local cadres through a “land finance” (土地财政) model, wherein land transfer fees frequently constituted over 40 percent of local revenue, funding infrastructure, servicing debt, and paying salaries. The collapse of the country’s property bubble that began in mid-2021 has rendered this model obsolete. Data indicate that revenue from residential land sales has plummeted, slumping 65 percent in 2025 from its 2020 peak as state-backed buyers retreat (Caixin, January 6). This has left the “government-managed fund budget” (政府性基金预算) with a structural shortfall that traditional fiscal transfers cannot bridge.

In 2025, these ramifications shifted from abstract balance sheet deficits to tangible operational crises. The fiscal contraction first hit public institutions (事业单位), with teachers in provinces like Guizhou and Henan reporting canceled performance bonuses and months-long delays in basic salary issuance (Radio Free Asia [RFA], May 9, 2025). The crisis has also breached the core civil service (公务员), shattering the “iron rice bowl” (铁饭碗) even in wealthy coastal jurisdictions. In Zhejiang Province, traditionally a fiscal stronghold, civil servants reportedly received annual pay cuts in the range of Renminbi (RMB) 50,000–150,000 ($7,200–22,000), on top of pay cuts the previous year, while township officials in Shandong received only 70 percent of their salaries, often with significant delays (RFA, June 17, 2025). Caught between the immediate exigency of meeting payrolls and the rigid mandate to service massive local government financing vehicle (LGFV) debt, officials have had to recalibrate. In this quest for survival, local governments have resorted to predatory revenue tactics, shoring up their finances through direct extraction of wealth, auctioning off future revenue, and even balance sheet manipulation.

The Instrumentalization of State Power: Direct Extraction

As land revenues evaporate, local governments have aggressively pivoted toward “non-tax revenue” (非税收入) to stave off insolvency. State power—encompassing administrative, judicial, and supervisory organs nominally designed for regulation and public order—is being repurposed as an instrument of direct wealth extraction. This shift has entrenched a predatory incentive structure wherein law enforcement agencies operate effectively as revenue-generating units. The correlation between fiscal distress and predatory enforcement is quantifiable: by May 2025, municipalities facing acute debt pressure, such as Lianyungang in Jiangsu and Quzhou in Zhejiang, reported year-on-year increases in fines and confiscation revenue exceeding 100 percent, inversely mirroring their declining tax receipts (The Paper, May 1, 2025).

Beyond the intensification of routine local seizures, a far more aggressive innovation is the proliferation of “Ocean Fishing” (远洋捕捞). This term refers to a practice in which law enforcement—most typically public security bureaus (PSBs; 公安局)—from fiscally distressed inland jurisdictions assert cross-border authority over private enterprises and their owners located in wealthier coastal economic hubs. Driven by revenue-sharing mechanisms that permit local agencies to retain a percentage of confiscated funds as “case-handling subsidies” (案款提留), these organs have monetized their coercive capabilities. [1]

Illustrating this trend is the high-profile case of the Guangdong-based private health technology firm Archealth (壹健康). Reporting in 2024 divulged a massive cross-provincial operation, in which public security forces from Henan Province mobilized over 1,600 officers to Guangzhou, freezing the company’s accounts. The intervention disrupted operations and forced Archealth to abort its planned IPO, exemplifying the destructive capacity of predatory enforcement (RFA, October 29, 2024).

The judiciary is not necessarily a recourse in such situations. Often, it has already been co-opted, acting less as an arbiter and more as an accomplice. A mid-2025 dispute involving a Shanghai-based valve manufacturer saw a court in Shanxi Province freeze RMB 19.3 million ($2.78 million) of its assets without any direct business relationship, simply to secure cash flow (Procuratorate Daily, June 13, 2025).

Parallel to direct asset seizures, tax enforcement has morphed into a comprehensive dragnet targeting both high-net-worth individuals and historical corporate liabilities. In the first 11 months of 2025, intensified “double high” (双高) audits, which targeted those with a high income and high net worth, recovered RMB 1.52 billion ($220 million) from 1,818 individuals (The Paper, December 12, 2025). The campaign was exemplified by heavy fines on influencers like Chen Zhen (陈震) (WallstreetCN, December 10, 2025). Authorities have also shattered the tacit “statute of limitations” for corporations, most notably ordering Zhijiang Liquor (枝江酒业) to pay RMB 85 million ($12 million) in taxes and penalties dating back to 1994. This retroactive aggression, colloquially termed “looking back 30 years” (倒查30年), effectively treats historical business success as a savings account for present-day fiscal rescue, eroding the legal predictability essential for long-term investment (Shanghai Securities News, June 13, 2024).

The Financialization of Governance: Future Liquidation

When immediate asset liquidations fail to plug the gap, local governments resort to financializing the future itself—a desperate strategy colloquially known as “eating next year’s food” (寅吃卯粮). This represents a fundamental shift away from selling tangible stock such as land and toward the intergenerational monetization of governance rights. By auctioning off monopoly franchises for 20–30 years, officials are effectively extracting revenue from the next five or six administrative terms, sacrificing long-term fiscal elasticity for a one-time cash injection.

The initial wave of extraction, which became prominent in 2022, focused on physical public venues and essential services. In Rongjiang County, Guizhou Province, the local government auctioned off the franchise rights for the county’s funeral homes for RMB 127 million ($18.2 million)—a sum nearly equivalent to the county’s entire fiscal revenue for the first quarter (China News, August 24, 2022). Langzhong, in Sichuan Province, similarly attempted to auction off the 30-year operating rights for public school cafeterias with a starting price of RMB 180 million ($25.8 million) (The Paper, July 16, 2022). These transactions did not merely raise funds; they locked in private monopolies over rigid demand, inevitably transferring the cost of debt recovery to the public through service degradation or price hikes for decades to come.

This trend has since expanded to encompass systemic, city-wide service rights. In early 2025, Zhuhai, Guangdong Province, auctioned the operating rights for nearly 24,000 roadside parking spots for a 20-year tenure, raising over RMB 730 million ($105 million) up front (Southern Metropolis Daily, February 24, 2025). Xinzhou, in Wuhan, has gone even further, putting the franchise rights for urban sanitation services on the block for a tenure of 30 years (Solid Waste Network, December 10, 2024). By selling off these essential public functions, local governments are solving a liquidity crunch today by planting a solvency time bomb for the 2030s and 2040s, effectively stripping future administrations of the capacity to manage public utilities.

The logic was taken to its extreme when abstract administrative concepts became monetized. In a striking case, Pingyin County, in Shandong Province, auctioned the 30-year franchise rights for its “low-altitude economy” (低空经济)—a theoretical asset encompassing drone logistics and airspace management—for RMB 924 million ($133 million). The winning bidder was a state-owned enterprise (SOE) wholly owned by the Pingyin Finance Bureau itself. Such a maneuver—effectively shifting money from the left pocket to the right—signals the ultimate alienation of state power: the transmutation of administrative jurisdiction into immediate treasury liquidity (National Business Daily, November 26, 2024).

The Transmutation of Resources: Asset Fabrication

With land no longer viable as prime collateral, LGFVs are engaging in aggressive financial innovation to prevent balance sheet collapse. This involves repackaging low-value or non-commercial public resources as high-value assets—a process dubbed “turning stone into gold” (点石成金).

A paradigmatic model for this alchemy emerged in Ganxian, Jiangxi Province. A local government assessment valued river sand and gravel reserves across three rivers at an incredible RMB 6.68 billion ($960 million) to inflate its asset books (Shanghai Stock Exchange Disclosure, June 20, 2022). By 2025, this desperate tactic had not only proliferated but evolved into a cruder form in underdeveloped regions. In Yi’an, Heilongjiang Province, a province grappling with severe demographic outflow and industrial decline, local authorities capitalized the desilting and disposal rights of two reservoirs. That October, these rights were listed for transfer at a staggering RMB 839 million ($120 million) for a 20-year period. The sole bidder was a local SOE established merely 11 days prior to the auction (Central News Agency, November 4, 2025).

This tactic is most acute in underdeveloped regions. Unlike coastal peers who can still harvest revenue from a vibrant private sector or high-tech concepts, rust-belt jurisdictions lack both a tax base to plunder and a market for future rights. Left with no alternatives, they resort to the crude valuation of waste—coercing banks to monetize silt and converting systemic insolvency into immediate, toxic liquidity.

A more sophisticated variation of this strategy targets the digital frontier. In 2024, Nanjing Public Transport Group (南京公交集团) capitalized 70 billion lines of bus data to secure a RMB 10 million ($1.4 million) credit line, while Liuzhou’s urban investment arm utilized “Internet of Vehicles” (车联网) data to secure RMB 20 million ($2.9 million) in bank loans (The Economic Observer, May 5, 2024; Economic Information Daily, August 2, 2024). Although these maneuvers temporarily beautify financial statements, they create fictitious assets that lack genuine market liquidity. The inevitable failure of projected cash flows to materialize risks transferring the local fiscal crisis directly into the PRC’s commercial banking system.

Conclusion

Revenue extraction tactics observed in recent years indicate that the PRC’s local governments have entered a structural survival game. The developmental state, which once championed business growth to cultivate a tax base, is being supplanted by a predatory apparatus that cannibalizes the economic ecosystem to sustain its own existence.

These measures ultimately represent a profound degradation of state capacity. By prioritizing immediate liquidity over market stability, local cadres are effectively dismantling the PRC’s unified market and eroding the legal predictability required for private sector growth. Although Beijing launched a RMB 10 trillion ($1.4 trillion) debt resolution plan in late 2024, year-end assessments leading up to the 2025 Central Economic Work Conference reveal a grim reality: the package covers only a fraction of hidden liabilities, leaving grassroots regimes in a perpetual crisis where they must slowly consume the very market upon which they rely (ThinkChina, November 26, 2025).

Notes

[1] While central regulations explicitly prohibit linking fines to departmental budgets, local jurisdictions continue to use “indigenous methods” (土办法) or “hidden rules” (潜规则) to bypass these bans, effectively sustaining a profit-driven enforcement loop (China Social Sciences Net, May 21, 2025).