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. ”

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. ”

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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