Cities in China brace for financial drought

Cities in China brace for financial drought

Staff Reporter

2013-08-08

Many municipalities in China are feeling the squeeze on their finances, and it is not just because of the economic slowdown. A decrease in disposable funds, administrative approvals leading to lower fee income, transferred payments by the central government, as well as the maturity of municipal bonds has gotten their buttons close to popping. According to the country’s Ministry of Finance, in the first half this year the financial income of the central government inched up 1.5% year-on-year to 3.2 trillion yuan (US$523 billion). That of municipal governments reached 3.6 trillion yuan (US$588 billion), up 13.5%, but down by 0.9 percentage points from the growth rate during the same period last year. The central and western provinces fare worse than other municipalities. In the first half this year, the financial incomes of Guizhou, Hunan, and Jiangxi, for instance, advanced 18.5%, 16.2%, and 19% year-on-year, respectively, much lower than the growth rates of 36.36%, 29.1%, and 32.3% in the same period last year.The situation is especially serious for provinces whose economies are based on natural resources. In the first half, Shaanxi, for instance, scored a 12.62% growth rate in financial income, down 3.86 percentage points from the growth rate in the first quarter. The provincial government racked up financial income of 23 billion yuan (US$3.76) in the first half, only 46.42% of the annual target, according to the Chinese-language National Business Daily.

The financial income of Henan province advanced 16.7% year-on-year in the first half, 3.2 percentage points higher than the national average, but Qian Guoyu, director of the financial department of the provincial government, is still on edge about H2 performance. Government income has shown signs of slowing, evidenced by lower income growth rates in the first half when compared with the growth rates in the first four months and first five months.

During a teleconference on Aug 3, Luo Jianguo, director of the financial department of Anhui province, admitted bluntly that 2014 will be a “most difficult year financially for Anhui.”

In addition to financial growth woes, reforms on the business income tax and removal of administrative approvals has affected the incomes of municipal governments, reports the paper. In Anhui, trial areas and the scope of reform on business income tax will expand from Aug. 1, further eroding the provincial government’s tax income. The pledge to cut items needing administrative approval by a third will also cut into non-tax income of the provincial government.

Moreover, the financial income of the central government inched up 1.5% year-on-year in the first half, reducing the transferred payment by the central government.

On the other hand, municipal outlays are on the rise. The outlays of Anhui will increase by 80 billion yuan (US$13 billion) this year and daily expenses of Qinghai jumped 21.8% in the first half to US$35.6 billion.

Furthermore, 53% of municipal bonds will mature by the end of this year, forcing many municipalities to refinance their debts by issuing new bonds.

About bambooinnovator
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.

One Response to Cities in China brace for financial drought

  1. Pingback: News-Alerts Digest: Real Estate & Other Links, Aug. 12, 2013 | PropertyPak™

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