In the first half of 2012, China's GDP growth rate slumped to 7.8 percent. For the government, it also means a slowdown in the growth of fiscal and tax revenue.

According to the National Bureau of Statistics, in the first half of 2012, fiscal revenue was 6.38 trillion yuan ($1 trillion), up 12.2 percent year on year, 19 percentage points lower than the growth of a year earlier. Tax revenue hit 5.49 trillion yuan ($862.43 billion), up 9.8 percent year on year, 19.8 percentage points lower than that of the same period last year.

For many years, with the Chinese economy growing at high speed, the government has seen its fiscal and tax revenue increase by the rate of 20-30 percent. It is rare to see the growth rate in single digits. Meanwhile, fiscal expenditure increased much faster than revenue, which is most evident when it comes to local governments.

Fiscal and tax pressure seems more severe in certain regions. Take Beijing for example. In the first half of this year, Beijing registered 174.24 billion yuan ($27.36 billion) in budget revenue, up 5.3 percent year on year. But the growth rate was 22.7 percentage points lower than the first half of 2011. According to the goal set at the beginning of the year, Beijing should see its fiscal revenue increase by 10 percent. But the fact is the city even witnessed negative growth rates of -3.1 percent and -2.2 percent in the first two months of this year.

Most local governments, even those in the developed east coastal regions, experienced a significant slowdown of fiscal revenue in the first half of this year. Shanghai saw a 6.8-percent year-on-year increase. The growth rate of Zhejiang Province was only 4.4 percent. Jiangsu Province's 12.9-percent increase was far lower than the previous year's 31.1 percent.

Unlike GDP growth, fiscal and tax revenue growth can directly affect the operation of governments at all levels. Without a doubt, it has become a concern of both central and local governments. Poor performance of enterprises aside, strict control on the real estate market has had a profoundly negative impact. For instance, Beijing made 163.9 billion yuan ($25.73 billion) from land-transferring fees in 2010, almost equaling its total fiscal revenue in the first half of 2012.

Both the central and local governments have felt the pains caused by revenue growth slowdown. Local governments have too many investment projects in hand, and capital shortages may force them to suspend or even call off these projects.

Governments should quickly draw lessons from the current slowdown: Overdependence on the so-called "land economy" is infeasible. Governments of all levels are not nearly prepared enough and need to diversify revenue sources.

The downward pressure on fiscal revenue has become increasingly conspicuous, leading to the question: What's the best solution to alleviating these burdens? There is no effective cure for the time being. It is a wrenching change both the central and local governments must deal with.

This is an edited excerpt of a report by Anbound, a Beijing-based research company, published on the website of Caijing Magazine