China’s local governments tap less than a fifth of the income they make from selling land to help fulfill their daily spending needs, according to China’s finance minister, who insisted this week that the hit regional authorities have taken from declining land sales is limited.
(Bloomberg) — China’s local governments tap less than a fifth of the income they make from selling land to help fulfill their daily spending needs, according to China’s finance minister, who insisted this week that the hit regional authorities have taken from declining land sales is limited.
The money that local governments pull in from land sales makes up roughly 90% of the revenue in their government fund budget, or the balance sheet keeping track of specific projects. Yet just about 15% of that fund budget income is then allocated to their general public budget, or the main financial book they use to cover education, health care, disaster relief and other public services, Finance Minister Liu Kun said at a Wednesday briefing.
Liu’s remarks provided a rare bit of insight from a government official into how significant — or not — land sales are to local governments on a daily basis.
The sustainability of local government debt and the health of their finances has grown as a concern over the past year, particularly as the income they receive from land sales has plunged. That problem, combined with the massive amount they spent last year on Covid control measures, contributed to a record fiscal deficit.
A majority of regional governments now face a serious funding squeeze, with outstanding borrowing exceeding 120% of income in 2022, according to Bloomberg calculations.
Liu on Wednesday called the impact that declining land sales revenue is having on the spending power of local authorities “controllable.”
If land sales revenue is shown to have fallen by about 2 trillion yuan ($290 billion) last year, he estimated, that would only reduce the amount of fiscal resources that local governments have by some 300 billion yuan.
Liu “was providing some explanations to soothe concerns over the implications of the property downward spiral on fiscal sustainability and government debt repayment capabilities,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc. “‘The impact is not big’ — that’s the idea he was trying to convey.”
While Liu acknowledged that some regions are still dealing with high levels of risk from debt and pressure to make repayments, he still said the overall picture for local government fiscal conditions was “stable” in 2022. He vowed that Beijing would allow them to sell a “reasonable” amount of special bonds to support investment.
“We have urged the relevant local governments to take on their responsibility and resolve government debt risks, and guard against the bottom line of preventing systemic risk,” Liu said.
The amount of funds that the central government has transferred to local regions in recent years has grown quickly, Liu added, effectively making up for budget shortfalls.
Along with reasonably setting a quota for the sale of special local government bonds this year, Liu added that fiscal spending would be expanded moderately. He said the overall level of government investment wouldn’t decline.
Economists surveyed by Bloomberg expect the government to set the special local bond quota marginally higher than the allowance granted in early 2022, as well as raise the official fiscal deficit target slightly from last year’s target of 2.8%.
More will be revealed next week as the annual National People’s Congress kicks off.
Along with reasonably setting a quota for the sale of special local government bonds this year, Liu added that fiscal spending would be expanded moderately. He said the overall level of government investment wouldn’t decline.
Economists surveyed by Bloomberg expect the government to set the special local bond quota marginally higher than the allowance granted in early 2022, as well as raise the official fiscal deficit target slightly from last year’s 2.8%.
More will be revealed next week as the annual National People’s Congress kicks off.
–With assistance from Jing Zhao.
(Updates throughout.)
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