The end of local government land finance in China?

The Ministry of Finance has begun an investigation into local government land revenues, with speculation that it could lead to the end of local government land revenues. (财政部着手摸底地方土地收入 或为土地财政终结信号) It comes as there's speculation that Hangzhou will become the first city in China to miss its finance targets, as it is reporting negative revenue growth. Hangzhou saw land prices rise 10-fold in the previous decade and its land sales revenue surpassed those of Shanghai and Beijing in 2009.

Hangzhou's target for 2012 land revenue is ¥43 billion, but they've only collected ¥10.6 billion through June. (Three years ago, they recorded a national record with ¥120 billion in land sale revenues.) Hangzhou government revenue was only¥46 billion in the first half of 2012, down 2.7% from 2011. The linked article says the government needs to see revenue grow at 29% to hit its ¥86 billion target for the year. I assume that Chinese government revenues are lumpy and front loaded, since they have achieved over 50% of their target with half of the year gone, but revenue growth will slow over the rest of the year. Even Beijing and Shanghai are running below their targets, but the faster growth rates needed aren't as wild as Hangzhou's 29%. Chinese bureaucrats like to collect more taxes in the first half of the year and then push the receipts into the second half as a cushion. If they have excess revenues in the second half, they push them into the next year. This is not unlike a publicly-listed company that shifts revenues and earnings in order to smooth their earnings numbers.

Nation sees fall in land revenues
China posted significant declines in land sale revenues in the first half of this year, according to data from the Ministry of Finance released on Saturday, but the government has vowed not to relax tightening measures imposed on the property sector.

Revenues from land sales tumbled 27.5 percent year-on-year to reach 1.14 trillion yuan ($180.24 billion) in the first six months, ministry data showed.

However, income from land sales still contributed to about 17.8 percent of the country's total fiscal revenue in the first half of this year, which stood at 6.4 trillion yuan, up 12.2 percent from a year earlier.
A year ago revenues were about ¥5.7 trillion, with land revenue about ¥1.6 trillion, or 28% of the total.

For those looking for a stimulus package, the drop in land sales revenue is running at half a trillion yuan, or nearly $80 billion. That much stimulus would need to go to local governments just to keep their spending on target.

China Local Government Finances Are Unsustainable, Auditor Says
About 60 percent of revenue raised last year by 54 counties investigated by the National Audit Office wasn’t derived from taxes, Liu Jiayi, the head of the agency, told a meeting of the legislature yesterday, according to a transcript of his speech on the audit office’s website. Total fiscal revenue at those counties rose 17 percent to 112 billion yuan ($17.6 billion) last year, Liu said.

China shelved a plan earlier this week to allow local governments to sell bonds directly amid concern that the companies they set up to borrow money will default on some loans. Debt racked up by local governments and their entities stood at about 10.7 trillion yuan at the end of 2010, with 17 percent maturing this year and 11 percent next year, according to an audit office report released last year.

“The proportion of non-tax income in fiscal revenue is relatively high at county-level governments, pointing to relatively poor stability and sustainability,” Liu said, without specifying the other sources of revenue.
One can see why the central government may be thinking of reforming the way local governments finance their operations.

No comments:

Post a Comment