As fiscal income growth loses momentum in China, local governments across the country are starting to squeeze non-tax sources of revenue to shore up their strained budgets. The central government needs to take note of this phenomenon now before it produces series problems for the country.

China's fiscal revenue grew by 11.2 percent between January and October to reach 10.1 trillion yuan ($1.62 trillion), down from the 28.1 percent growth seen during the same period last year, according to the Ministry of Finance. The slower pace can be attributed mainly to a decline in tax revenue as the slowing economy eroded business growth and thus cut into turnover taxes, which account for some 60 percent of the country's total tax income. At the same time, the promotion of tax cuts on value-added and other services dealt a further blow to local governments' balance sheets.

But while fiscal revenues are shrinking nationwide, many local governments are also spending more, especially on affordable housing and large-scale public works projects meant to revive economic growth. To compensate, local governments are now relying more than ever on collecting from non-tax income sources. In October alone, non-tax incomes grew by 25.5 percent year-on-year. During the first three quarters, some local governments saw their non-tax revenue growth exceed fiscal revenue growth by 40 percentage points.

If this trend continues unabated, the results could be disastrous. Generally, non-tax income sources include fines, administrative charges and land leasing fees. Considering that land leasing fees shrank some 40 percent year-on-year in the first 10 months, it is obvious that fines and administrative charges are rising at meteoric rates. During October, for example, government income from fines increased by 20.2 percent compared to the same month last year.

As businesses across the country struggle to survive in these hard economic times, obviously higher fines and administrative expenses present a major financial hurdle. Unfortunately for some enterprises - and their employees - these hurdles may be too high and could drive them to close down their operations altogether.

For the sake of both local governments and China's business community, fiscal expenditures need to be eased. China is quickly approaching a point where it can no longer rely on investment to fuel economic growth and local governments should be encouraged to explore more efficient methods to expand their economies. At the same time, central leaders should enhance the examination and supervision of local governments' annual budgets and accounts to eliminate waste, corruption and abuses of power.

The author is an economic commentator. ygy7906@sina.com