Land Sales Plunge 20% Amid $90T Debt

In the cumulative data for the first five months released by the Ministry of Finance, we observe that local governments have received a total of 1.489 trillion yuan in state-owned land concession fees from January to May this year, which is a significant decrease of 20% compared to the same period last year.

Looking back at 2022, the months of March to April were among the most severe in terms of the national epidemic, which had already severely impacted the land revenue for the first five months of last year.

It is unexpected that there could be a lower point than the lowest, with this year's revenue for the first five months showing a substantial decline compared to last year.

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On the other hand, an incomplete tally of local government and urban investment debts has reached 90 trillion yuan, and the land revenue they rely on has significantly decreased.

How can they address this enormous debt?

Everyone is aware of the land finance system.

Over the past years, land finance has been an indispensable channel for government revenue.

Local governments mainly exchange the use rights of land for funds and then invest them into public infrastructure.

The rise in housing prices is closely related to land finance.

When local governments increase land concession fees, it leads to higher housing prices, which in turn increases the cost for ordinary people to purchase homes.

Land finance revenue is a disadvantage for the general public.

However, land finance has made a certain contribution to economic development.

We can compare this to another Asian country with a population second only to China, India.

It is well-known that India's infrastructure level is relatively low.

This is partly because land in India is privately owned, and if the government wants to purchase it, it faces certain restrictions.

Due to the government's fiscal shortages, India's infrastructure is both short of funds and land, naturally hindering rapid development.

Although local governments in our country have collected a considerable amount of land revenue, our infrastructure has also developed.

Nowadays, issues like electricity and railways are no longer concerns for many places.

However, we cannot evade the problems just because of this.

The current issues are mainly concentrated in two areas: first, there is too much debt, and second, the benefits of continuing to vigorously promote investment, especially in infrastructure, by local governments are continuously diminishing, even leading to waste.

By the end of last year, general debt had reached 14.4 trillion yuan, special-purpose bonds exceeded 20 trillion yuan, and in addition, there are various urban investment debts, approximately 54 trillion yuan.

These figures combined indicate that local governments face a total debt of 90 trillion yuan.

That is precisely why some provinces in the southwest had to admit facing difficulties in resolving their debts locally, and there was also a problem where the cash for a subway in a southwestern provincial capital city was almost completely depleted.

For a long time, domestic GDP growth has been investment-driven.

Local governments have been vigorously developing public infrastructure in their regions, which is also the reason for the good public infrastructure data in our country.

However, there is a term in economics called the law of diminishing marginal utility.

When a region builds its first highway or railway, the economic impact on the region is the most significant.

But when the same region builds its fifth or tenth highway or railway, the economic driving effect is no longer very noticeable.

On the contrary, our country's consumption data development is not very ideal, but if we can stimulate consumption data, it may have a marginal increasing effect on economic growth.

You can see data from some foreign countries, such as New York and London.

These cities' infrastructure construction data are not as good as domestic, but their consumption levels, medical security, and social security expenditures are far beyond those in our country.

Can we consider developing in a foreign model?

Similarly, in this data from the Ministry of Finance, we see the changes in various taxes.

What draws attention is that the revenue from consumption tax in the first five months of this year has decreased by 16.1% compared to the same period last year.

It is also necessary to remind everyone that the first five months of last year included the most severe months of the epidemic, and the consumption data at that time was also terrible.

But it is unexpected that the consumption tax in the first five months of this year would decrease by another 16.1% on the basis of last year.

But this may be a great opportunity for us.

It is obviously a serious shortcoming of the domestic economy.

If we can make up for this shortcoming, it will have a significant impact on the economy.

Nowadays, domestic people are reluctant to consume mainly because they are worried about income issues.

Local governments can try to reduce the expenditure on basic construction investment and increase expenditures on medical security, social security, etc.

This can create a better business environment, consumption environment, employment environment, etc.

It can also allow people to consume and work with peace of mind, fundamentally stimulating the growth of local consumption, and thus driving the growth of GDP.