China's fiscal revenue grew by a modest 8.8 percent in the first half of 2014 while its expenditure surged upon accelerated spending on key projects, the Ministry of Finance (MOF) said on Monday.

Fiscal revenue rose 8.8 percent year on year to 7.46 trillion yuan ($1.21 trillion) from January to June, with 3.43 trillion yuan collected by the central government, up 6.2 percent from a year ago.

The 6.2 percent growth was slower than a budgeted increase of 7 percent set during the annual legislative meeting in March.

In June alone, central government revenue stood at 547.7 billion yuan, up 5.8 percent year on year, while local government revenue amounted to 798.4 billion yuan, up 10.9 percent from the same period last year.

June's total fiscal revenue increased 8.8 percent year on year to 1.35 trillion yuan, accelerating from a 7.2 percent rise in May, according to the ministry.

It explained that revenue received by the central government last month continued a trend of slow growth due to a decline in value-added tax (VAT) and increasing tax rebates for exports.

Revenue from the transfer of land use rights for state-owned land, a source of revenue for local governments other than taxation, rose 26.3 percent from a year ago to 2.11 trillion yuan in the first half, but logged a meager 7.3 percent growth in June, the ministry added.

However, fiscal expenditure maintained double-digit growth. In the first six months, total national fiscal spending expanded 15.8 percent from a year ago to 6.92 trillion yuan. For June alone, the figure surged 26.1 percent to 1.65 trillion yuan.

Local governments spent 1.45 trillion yuan in June, drastically up 28.3 percent year on year, while the central government spent 201.7 billion yuan, up 12.3 percent.

Spending on key projects in housing security, transportation, urban and rural development, and grain and oil reserves reached as high as 20 percent or more, the MOF said.

The combination of a modest growth in fiscal revenue and fast fiscal spending posed a challenge for governments at various levels, especially as the country tries to push forward across-the-board reform amid downward pressures.

China's economy grew 7.4 percent year on year in the first quarter, the highest of all major economies but below the full-year target of 7.5 percent. Data for the first half is expected to come out on Wednesday.

As part of the grand reform plan, China has vowed to build a comprehensive, transparent and efficient fiscal and tax system, pointing to fiscal revenue and spending of higher quality, as indicated in a statement released after a central leadership meeting in late June.

One of the highlights of the reform is a program to replace business tax with VAT in some service sectors, which analysts said may reduce tax revenue to some degree in the short term.

China aims to fulfill key tasks in the new round of fiscal and tax reforms by 2016, and establish a "modern fiscal system" by 2020.