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Local Governments Face Fiscal Constraint as Land Sales Slow Down

Since Beijing introduced policies to curb the overheated housing market, land sale activities have also been slowing down. This is happening in Hangzhou, Shenyang, and Hefei where, last week, there was a significant drop in transactions involving the sale of land. According to statistics, in June and July of this year, nearly 500 parcels of land that were for sale in small to mid-sized cities, had no buyers. If this trend continues, local governments, which have been relying on land sales as part of their fiscal income, will face financial constraints.

Since the 1990s, China has embarked on large-scale construction in urban areas. Most of the land resources have come from rural areas. Local governments have benefited the most from it. In 2020, local governments received 8.4 trillion yuan (US$1.3 trillion) from selling land, up 16 percent from a year earlier. However, in June, all local governments were required to transfer the power for collecting land sales revenue to the tax authorities under the State Taxation Administration (STA). This has allowed the central government to take control over local finance.

Source: Radio Free Asia, September 20, 2021