As predicted, real estate slowdown hits local government coffers

Governments in a Hole as Land Sales Plummet
For example, in the Shandong Province capital Jinan, not a single developer bid for nine of the 11 plots offered by the city in early November. The two plots that sold went for bottom-line prices.
A city with a serious land market crash is Guangzhou, where in November some 32 plots failed to sell. In some cases, auctions were suspended by the city government, which blamed poor market conditions.
These plots were supposed to generate about 18.7 billion yuan for Guangzhou's city government, representing some 29 percent of the planned land sale revenues written into the 2011 fiscal budget. Asking prices averaged 5,584 yuan per square meter of floor space.
How bad is the situation in China? They cannot even pay teachers' salaries:
A source at a state-owned property firm in one provincial capital told Caixin that local agencies don't have enough money to cover basic healthcare costs or pay teachers. "City officials are coming to us and asking us to buy land to bolster the land market," said the source, who declined to be identified because of the issue's sensitivity. He said his company in November complied with a local officials' order to buy a 900,000 square-meter site "whether we wanted to or not."
No doubt the inability to pay teachers' salaries is similar to the inability to pay in America. When American local governments lose money, they don't cut administration and wasteful spending, they go straight for teachers and cops to manipulate public opinion and it almost always works. In China, fleets of imported German automobiles are just the tip of the iceberg that is wasteful spending. The government still has ways to force the market though:
Of course, Chen said, government-owned property developers can be pushed by local officials to buy land, whether or not they want it, especially in second- and third-tier cities. The provincial capital developer source, for example, said if his company has the money "and it's within our power, we'll still acquire land. If we don't buy, the local government will be hard to hold on financially.
"After buying land, the government will take care of you in other ways (such as) special treatment for future land transactions," he explained.
And so the bubble blows......

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