中国地方政府为什么更喜欢“造东西”,而不是“让人消费”?// Why Do Chinese Local Governments Prefer Building Things Over Boosting Consumption?

一个很重要、但经常被忽略的原因,是税制激励。

中国现行增值税是中央和地方共享税。2016年营改增后,地方分享比例从25%提高到50%,而地方拿到的这部分收入,仍然很大程度上跟企业纳税地绑定。换句话说,一家汽车厂、电池厂、化工厂落在哪里,哪里不仅拿GDP、就业和投资,也能拿到持续的增值税税源。

这会自然强化地方政府的制造业偏好。

假设一个新工厂每年创造10亿元应缴增值税。过去地方可能只分到2.5亿元,2016年以后可以分到5亿元。再叠加企业所得税、城建税及各种附加,一个大型制造项目对地方财政的价值非常高。

于是地方政府最合理的行为,就是抢工厂、抢产能、抢总部、给土地、给融资、建产业园。单个地方这样做完全理性,但全国所有地方一起这样做,就容易形成重复投资和过剩产能。

反过来,一个居民多消费1000元,对当地政府的财政收益却没有那么直接。

比如上海居民买一辆安徽生产的车,制造企业缴纳的增值税税源主要仍跟企业纳税地相关。上海创造了最终需求,却未必能像生产地一样直接获得对应税收。

这就是中国税制一个很重要的结构性特征:

地方财政更奖励“生产发生在哪里”,而不是“消费发生在哪里”。

其实“消费地”并不一定难定义。实体商品可以按最终收货地,线下消费可以按门店所在地,汽车可以按上牌地;数字订阅没有收货地址,也可以按信用卡或支付账户的账单/KYC地址归属。规则不需要做到哲学意义上的100%准确,只要统一、稳定、可验证即可。

因此,中国并不一定需要简单加税。可以降低一部分现有VAT,同时把对应税率改成按最终消费地归属的sales tax;或者更简单,把现有地方VAT的一部分从“纳税地分配”改成“消费地分配”。

核心不是税叫什么名字,而是地方政府面对什么激励。

如果新增一座工厂能明显增加地方财政收入,而新增100亿元居民消费却不能,那么地方政府自然会继续优先招商、投资和扩产。

所以中国“重投资、重制造、轻消费”不仅是产业政策问题,也有很强的财政制度基础。

想真正刺激消费,除了给居民发钱,更重要的是让地方政府也能从消费增长中赚钱。


One important but often overlooked reason is the incentive created by China’s tax system.

China’s VAT is shared between the central and local governments. After the 2016 VAT reform, the local share rose from 25% to 50%. Crucially, much of that local revenue is still tied to where the company pays tax. So when an auto plant, battery factory, or chemical plant locates in a city, the local government gets not only GDP, jobs, and investment, but also a recurring VAT tax base.

That naturally strengthens the incentive to attract manufacturing.

If a new factory generates RMB1 billion of VAT a year, the local government might have received roughly RMB250 million before 2016 and RMB500 million afterward. Add corporate income tax, urban maintenance tax, and other surcharges, and a large manufacturing project becomes extremely valuable to local finances.

The rational response is obvious: compete for factories, capacity, headquarters, industrial parks, land investment, and financing support. That may be rational for each individual locality, but when every locality behaves the same way, the national result can be duplicated investment and excess capacity.

Consumption works differently.

If a Shanghai resident buys a car produced in Anhui, much of the VAT-related local revenue still follows the producer’s tax location. Shanghai creates the final demand, but it does not necessarily capture the corresponding marginal tax revenue in the same way Anhui does.

This creates a structural bias:

Local fiscal systems reward where production happens more than where consumption happens.

A consumption-based system does not necessarily have to be technically complicated. Physical goods could be sourced based on the final delivery address, offline services based on the store location, and cars based on the registration location. For digital subscriptions with no shipping address, the tax could be assigned using the billing or KYC address of the credit card or payment account.

The rule does not need to identify the philosophically perfect “true” place of consumption. It only needs to be uniform, stable, and verifiable.

China therefore would not necessarily need to raise taxes. One option would be to reduce part of the existing VAT and replace it with a sales tax allocated according to the final place of consumption. An even simpler option would be to keep the VAT system intact but redistribute part of the local VAT share based on consumption rather than the producer’s tax location.

The key question is not what the tax is called. It is what behavior the fiscal system rewards.

If building another factory clearly increases local government revenue, while another RMB10 billion of household consumption does not, local governments will naturally continue to prioritize investment, manufacturing, and capacity expansion.

China’s bias toward investment and manufacturing is therefore not only an industrial-policy issue. It is also embedded in the fiscal system.

If China wants to stimulate consumption structurally, it is not enough to give consumers more money. Local governments also need to make more money when consumption rises.

Governments, tax, shareholders

Isn’t governments the invisible shareholder of all corporations?

Say tax is 25% , essentially gov will take 25 of 100 profit before tax, and the rest $75 are called profit after tax and is distributed to shareholders.

Does it sound odd?

Isn’t governments essentially a permanent 25% shareholder of the company, and the ratio is net by itself.

How convenient.

Btw, shareholders are should give their shares a 25% hair cut.. if they own 50% of a company, they just own 37.5% in case of 25% tax.

US following China policies?

1/ Drug prices

China used volume-based procurement to lower drug prices by 50-90%.

Trump in May 2025 signed EO seeking to cut drug prices by 59% and 90%.

 

2/ Housing 

In China, “houses are for living in, not for speculation” has been the guideline till 2023.

Trump last week (Jan 7) said US to ban large investors from buying homes.

 

3/ Personal loan interest rate

China asked several funding sources to lower interest rates – banking (Apr 2025) capped at 24%, consumer finance companies average 20% (Oct 2025), micro lenders 4x LPR or ~12% now (Dec 2025).

Trump called for 1-year 10% interest cap on personal loans on Jan 10.

Popmart, holidays and 犒赏经济

Recently, 犒赏经济 has become a hot topic in China. The related articles try to show resilience in consumption and suggest a way to lift consumption.

While I agree with the necessity of this concept, as consumption in China needs to upgrade to “quality consumption” as some may say, I think 犒赏经济 is also trying to avoid some other key issues.

1/ key examples of 犒赏经济 are also lipstick effect.

Usually these articles argue that the rise in blind box toy sale like Popmart is a form of 犒赏经济.

However, if you think about it, Popmart toy is also like high-end brand lipsticks – people are replacing large item luxury purchases (handbags etc.) with smaller items ($20).

The desire to buy luxury products still exist during a bad economy, but people choose to buy stuff that have less impact on their financials.

One common use case of Popmart toy is to attach it to luxury handbags. Adding the “attachment” makes people feel that the handbag is “new” , thus somehow replacing the need to buy a new one.

Other examples of 犒赏经济 can also be lipstick effect.

Buying a nice dessert on the way back home? That’s a replacement for a much more expensive dinner out.

2/ 犒赏经济 tolerates other negative effects on overall consumption like stress or off-times.

Some part of the 犒赏经济 is not to celebrate in my opinion.

The mental stress is usually mentioned as a cause of rise in 犒赏经济, but is that a good thing? Are economists going to argue that in order to drive 犒赏经济, more people need to feel the stress?

Plus, these articles avoided discussions of long working hours and short holidays.

Long working hours is limiting dinner consumption and other 夜间经济.

In most companies in China, young people only get 5 days of annual leave per years. In additional, many companies will ask why you take a leave, and there is no such thing as getting paid for unused leaves. I bet many European people would say that like hundreds of years ago.

In 1936, France introduced law for 2 weeks of paid leave for all workers. This is on top of 9 days of national holiday at that time. The 2 weeks was further raised to 3 weeks in 1956, to 4 weeks in 1969, and to 5 weeks in 1982.

Wonder why concert is more popular than traveling? Because concert is usually in the city or a weekend trip that doesn’t involve taking a leave.

Let me just stop here.

Overall there are huge potentials in consumption in China I believe, and the quality consumption is the way to go. But some limiting factors need to be addressed first.

Purpose of Regulation

We had an interesting discussion today on the purpose of regulation. The case in point was the banking and securities regulation in 1933 & 1934.

Three key purposes:

1/ To ensure fairness, leveling the playing field – e.g. information disclosure, less friction

2/ To manage externalities – e.g. systematic risks or spillover effects

3/ To build public confidence – although it may create some enduring wedges as well

On the third point, the banking or securities act is not the perfect example; but in healthcare/drug, FDA seems to deliver a better outcome.

Also today, China’s State Administration for Market Regulation issued statement on fines over grocery group buying companies.

In the long run, good regulations are helping the industry grow – it encourages balanced growth, instead of growth at all cost.

Proposed Law in Japan For FinTech

Found this proposed law in Japan very interesting – for Financial Services Intermediary Business operator (FSIBO).

It’s basically a single registration system that allows 4 types of major fintech services​: Banking / Lending / Securities / Insurance​, as long as it’s an intermediary business.

It’s like a law for Ant Group…

Or for PayPay (backed by SoftBank).


To list a few details here:

FSIBO is not required to be sponsored by a principal institution​

A FSIBO is required to make a security deposit at a public deposit office before commencing its services to secure the payment of potential damages to its clients.

FSIBO can offer only those conventional products or services that do not need a sophisticated explanation to the clients​

The FSIBO must disclose fees or remuneration to be received from financial institutions or other matters upon clients’ request. The FSIBO is generally prohibited from receiving deposit from clients in relation to its intermediation service with financial institutions.​

FSIBO is subject to further requirements depending on the financial sector where the FSIBO provides its services

Facebook – Not An Easy Business

Facebook blocked all news content in a Australia on Thursday – users cannot share news links and Facebook Pages of media account are taken down.

This is in response to Australian government’s proposed law, which requires payment deals between media outlets and tech companies over content.

This is also one day after Google stroke a deal with News Corp, the media giant. Under the proposed law, Google will need to pay for news content if they appear in search results.

1/ Why Google and Facebook chose different routes (at least for now)?

I think their ad business are fundamentally different.

Facebook ads is seen on Facebook platforms, but Google ads is seen on both Google products and third-party websites.

Google is enabling third-party advertisers (think about the ads on newspaper’ website) to make money, e.g. AdSense. They are partners, and this network of advertisers is valuable to Google.

Facebook’s ads is sold by getting to know users better and letting users stay on its platforms longer. Traffic is important to Facebook, so news is important as a form of content that users want to see. However, Facebook also thinks it is giving media outlets traffic in return. More important, ads sold by Facebook is not relying on those media outlet.

2/ What content should be on social media?

Instagram is in a purer form of social media, so does Twitter. They are usually gravitating towards certain types of contents. On the other hand, products such as Facebook’ main app are aggregating all kinds of “feeds” as long as they can drive traffic.

I think the two types are both here to stay.

Another related issue is how to regulate contents, which has been an increasingly important issue in the US and globally.

“Regulate more” or “regulate less”?

I think either way more regulatory interventions (government) is most likely inevitable.

If platforms regulate less, regulators may think Section 230 is providing to much protection and platforms are not doing enough for their social responsibility.

If platforms regulate more, regulators might think they have too much power, which is also risky. And as they moderate more, it costs more and they may be challenged more often on their decisions.

“Public square” is not easy. “Digital living room” is where Facebook may find more flexibility in contents.

Paying for news might be one of the solutions to navigate some content risk, e.g. fake news, misinformation. However, fake news or misinformation might be the traffic driver that Facebook values.

PBOC’s Draft On Payment Regualtion

The most important clause is the definition of “dominant position” in the national e-payment market – over 50%, or over 2/3 for two companies, or over 3/4 for three companies.

The new regulation is only for nonbank payment service providers, like AliPay, WeChat Pay, etc.

The the most obvious outcome?

1/ In offline markets, it’s time for Meituan payment to grow.

2/ Meanwhile other internet companies will first grow their payment services within their ecosystem online. To name a few: JD payment, Pinduoduo payment, ByteDance’s payment, Kuaishou’s payment, Baidu’s Duxiaoman, Bilibili’s payment, etc.

3/ Traditional banks will be benefited. They can partner with internet companies and grow users. Related services can be provided via those internet companies, such as credit card, small loans, etc.

「News of the Week」Luckin Coffee Fraud

On April 2, the company’s board announced that a preliminary investigation indicates that the “aggregate sales amount associated with the fabricated transactions from the second quarter of 2019 to the fourth quarter of 2019 amount to around RMB2.2 billion ($314 million).” Luckin’s stock price crashed.

Luckin Coffee Press Release

WSJ – Luckin, Rival to Starbucks in China, Says Employees Fabricated 2019 Sales; Stock Plummets

FT – Luckin Coffee apologises for alleged fraud

TechCrunch – Luckin Coffee’s board initiates investigation into $300M potential fraud

WSJ – Ernst & Young Says It First Found Accounting Issues at Luckin

Dots to connect: more scrutiny for US-listed Chinese companies, investigations into underwriters / lawyers / equity research analysts / auditors, trust issues, the need for Citron & short-sellers, fundamental value of this coffee chain business, internal governance for corporates in China, etc.

Delivery System (1): Manpower, Horsepower & USPS

When the current coronavirus (COVID-19) hit the world and people prepare to stay at home for weeks, some of the social infrastructures are receiving increased attention.

The delivery system is a very good one to start. As uber not only provides uberEATS but also grocery delivery, Walmart / Target / CVS increasingly focus on delivery, etc., I will try to review the development of US delivery system recently and what is implied for the future.


Pre-industrialization: The Origin And Natural Power

The origin of United States Postal Service (USPS) can be dated back to 1775 when Benjamin Franklin was promoted as the first postmaster general.

In 1778, the US Constitution, Article I, Section Eight, known as the Postal Clause, says “The Congress shall have Power to establish Post Offices and post Roads”. This explains the importance of the postal system and its position as a government branch nowadays.

In 1792, the Postal Service Act was signed into law, which established the United States Post Office Department, the predecessor of the USPS.

In the early days, mails were mainly carried by manpower and horsepower. In 1785, the Continental Congress authorized the Postmaster General to award mail transportation contracts to stagecoach operators, in effect subsidizing public travel and commerce with postal funds. Despite their higher costs and sometimes lower efficiency, stagecoach proposals were preferred over horseback.

The Philadelphia Stage Coach (about 1800) | Source: https://peterpappas.com

 

to be continued…