The Age of Land Finance Is Over

In the first quarter, land finance only made up 32% of government revenue (as Chinese media reports it), down from 60% in 2013. The 32% figure is equivalent to about 25% of total government revenues. This has serious implications for local government finances, since some local government debt is backed by land sale revenue and land sales fuel development projects. It also heightens the need to speed the development of the muni bond market.

Land sale revenue fell 38.2% in Q1, while land sales spending fell 22.3%. Local government revenues rose only 2.1%, with revenue growth weighed down by the drop in land sales. As one auditor put it, "Land is the chicken, revenues are teh egg, the share of land finance in local revenues will of course decline."

Over the past 10 years, land sales have been a major source of local government revenue. According to data released by the Ministry of Finance, land sales as a share of local government revenue peaked in 2013 at 59.8%, and in 2014 fell to 56.2%.

The latest Treasury data shows that in 2014 Jan-Apr, the state-owned land use right transfer income was 901.6 billion yuan, down 557.2 billion yuan or 38.2 percent.

In Q1 2015, land sale income was 690.5 billion yuan, a decrease of 36.1%; Q4 2014 saw a decline of 21.5% year on year.

...In the 20 provinces with data, there are 12 where land sales was more than 50% of fiscal revenue. Among them, Hainan and Jiangxi in 2014 saw land sales reach 75% of revenue, the largest proportion. Land sales in Tianjin, Anhui, Shandong, Jiangsu came to between 60 and 70% of fiscal revenues.

Among cities, according to the same research, financial dependence on the land in 2013 in Hangzhou, Foshan, Nanjing and Changsha, and other four cities of more than 100% higher dependence; Sanya, Hefei, Fuzhou, Kunming, Jinan, Xuzhou Ningbo, Wenzhou, Chengdu, also over 80%.
The land dependence ratio compares land sales to other revenue, not total revenue, so a ratio above 100% is more than 50% of total revenues. While that makes the numbers less shocking, in many cases the overall number is still significant enough to cause financial trouble for the local government:
If the land revenue decline causes local government revenue to decline, local governments that rely on land sales to repay debt will face enormous pressure.

Prior to the "China Economic Weekly" has reported that the data are available 23 provinces, land debt in the government is responsible for accounting for the debt repayment obligations, Zhejiang Province ranked first with 66.27%; ranked second in Tianjin, 64.56%. In other words, Zhejiang, Tianjin, the two governments bear the responsibility to repay the debt, the share of two-thirds of all have to rely on land sales to repay.
That report was covered here: Analysis of China's 23 Provinces Shows Housing Bubble Laden Provinces Are Most Reliant on Land Sales to Repay Debt; Zhejiang Tops the List

iFeng: 卖地时代结束:土地出让金一季度仅占地方财政收入32%

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