Chinese Local Governments Face Greater Financial Risks as Land Sales Drop; “A significant amount of local government debts are maturing this year, as debt due in the last two years are transferred to 2013 through re-financing. This year could be a peak of debt repayment. ”
April 3, 2013 Leave a comment
Chinese Local Governments Face Greater Financial Risks as Land Sales Drop
04-02 15:36 Caijing
Declining land sales and squeezed house transactions under property regulations are adding increasing financial pressures to local governments as their debt repayment is coming to a peak in the following two years.
Chinese local governments could face an unprecedented financial challenge in 2013 as the country’s land-selling activities have showed signs of cooling down and a large amount of debts are maturing this year, according to a study by eHouse, a leading real estate services provider in China. China collected 2.69trillion yuan from selling land in 2012, a remarkable 15% drop from a year earlier, contributing to 31% of local government’s total revenue, 7 percentages lower compared with the previous year, but still at historical high, the report said.Land sales in China have been growing steadily, contributing increasingly to local governments’ revenue in recent years.
Revenue contribution to local governments from land sales jumped to 42.1% in 2012 from 19.7% in 2001, reflecting the high dependence of land sales revenue for local governments.
Property tax and land sales have become two major sources of local governments’ revenue since 2003, said Liu Weiwei, researcher at eHouse.
Property tax totaled 1.01trillion yuan in 2012, 23.2% higher than the previous year and almost 20 times the level back in 2001 as its revenue contribution to local governments went up to a record-high of 16.6% last year.
Declining land sales and squeezed house transactions under property regulations are adding to financial pressures to local governments as their debt repayments are coming to a peak in the following two years, Liu said.
Meanwhile, local government deficit has been widening and reached 4.58 trillion yuan in 2012, as expenses grew by 1.45trillion yuan compared with that in the previous year, far exceeding the growth of their revenue.
“A significant amount of local government debts are maturing this year, as debt due in the last two years are transferred to 2013 through re-financing,” said Liu, “This year could be a peak of debt repayment. ”
About bambooinnovator
Bamboo Innovator 