Central authorities have seized up to 1 trillion yuan ($157 billion) from local governments that failed to spend their budget allocations, Reuters reported on Monday, citing unidentified sources.
The news came as China's fiscal income slumped again to single-digit growth in August after two consecutive months of double-digit growth.
The country's fiscal revenue in August rose by 6.2 percent year-on-year, according to a Finance Ministry statement on Tuesday. Growth in July was 12.5 percent, and in June it was 13.9 percent.
While the ministry declined to confirm the Reuters report, there were signs that Beijing is increasingly concerned with the scenario that, while the government must bolster fiscal spending to counter a cooling economy, considerable funds sit idle in the bank.
In June, the National Audit Office unveiled in its half-year audit report that a total of 1.19 trillion yuan was unspent by the 18 provincial governments that it audited by the end of last year, and another 149.5 billion yuan was idle in the central ministries it had audited.
It was not clear whether the 1.19 trillion yuan reported by the audit office was what had been confiscated, according to the Reuters report, which said the seized money was to be used for other investments, as growth for the year looks increasingly likely to fall below 7 percent.
One trillion yuan is equivalent to about 6 percent of China's projected total government spending for this year.
In a meeting in July, Premier Li Keqiang said various levels of government have repossessed more than 250 billion yuan in idle funds and spent the money in areas that urgently need funding.
The problem of "dormant" government funds is a long-standing issue that exposes vast inefficiency in the government budget system.
Treasury savings by various levels of government hit 4.44 trillion yuan by the end of August, and savings of other government-affiliated institutions (such as universities, hospitals and research institutes) exceeded 20 trillion yuan by the end of June, according to People's Bank of China. These deposits have a very limited investment scope that usually reaps a return of less than 3 percent.
Zhang Bin, a researcher with the National Academy of Economic Strategy of the Chinese Academy of Social Sciences, said a portion of the unspent money is "special-purpose governmental funds" that could not be spent in any area except that for which they were dedicated, even if other areas badly need money.
Another portion of the unspent money is earmarked for specific projects, but due to various factors, the projects haven't started so the money is waiting. Yet another portion is the result of a lagging pace of budget implementation.
"We're not able to track which specific part of money is unspent and for what reasons. Even if the 1 trillion yuan of unspent money is true, I'm not sure if recouping it and spending it at the central level is a wise option," Zhang said.
"On the one hand, it might not be fair to recoup money that was meant to be spent on one project that hasn't been spent just because preparation work is not done. On the other hand, how can you know that other projects to which the money was transferred are a more worthwhile investment?" Zhang said.
He added that it is understandable that dormant funds are mobilized at a time when greater government spending is needed, but policymakers should reflect on the root cause of why so much in funds was idle in the first place.
