A sharp drop in revenues: China is in trouble

Total revenue, which includes the public budget and state fund budget, dropped by 4.1 percent in the January-May period compared to last year to 11.36 trillion yuan ($1.6 trillion), according to Bloomberg, which estimates that it is the biggest drop since February 2023, based on data from the Ministry of Finance.

Combined spending on those two accounts fell 2.2 percent year-on-year to 13.61 trillion yuan in the first five months.

That leaves a fiscal deficit of 2.25 trillion yuan, widening from January to May last year but below the level recorded in the same period in 2022.

The government's budget is under pressure as a slowdown in economic growth has weighed on tax revenues, while a multi-year slump in the real estate market has reduced its revenue from land sales.

Local officials have become more aggressive in pressing companies for taxes dating back decades as they try to plug the hole in their finances caused by the housing crisis.

Authorities have accelerated bond sales in recent months to raise funds as Beijing seeks to provide more support to the economy when businesses and households are reluctant to spend.

Economists are increasingly calling on Beijing to increase the budget deficit and sell additional government debt to maintain the recovery momentum.