Despite unveiling ambitious Rmb17tn investment plans in recent months, a shortfall in income from land sales and bank loans means that local governments lack the funding to support another 2009-style jump in local investments.
A pilot scheme to replace business tax with value-added tax in several provinces could help ease the tax burden for service-sector companies.
A proposed revision to China’s Budget Law that would have enabled local governments to issue bonds directly has been delayed, generating heated debate among economists and academics
A number of Chinese provinces missed their 1H12 fiscal revenue targets, raising concerns about the impact on local government finances and fixed-asset investment
Since late 2011, banks have been quietly rolling over maturing loans to local government financing vehicles (LGFV) in response to recognition from top-level policymakers in Beijing that mass defaults by LGFVs would cause severe shocks to economic growth and disrupt this year’s all-important leadership transition (CC Nov 3 2011, Financial China).
On May 7, the government of Yangzhou, a municipality in Jiangsu province, announced that it will reward citizens who purchase fully furnished housing within a year from July 1 with 0.4% to 0.6% of the housing contract price according to the size of the house. The policy was the latest in a series of housing plans issued by local governments to help local real estate. Many such initiatives by local governments have subsequently been blocked by the central government, but Yangzhou has so far escaped sanction and an official at the Ministry of Housing said there will not be any action against the city.
It is clearly time for China’s policymakers to act to avert what has until now been a gentle slowdown from turning into a slump. In our view, Beijing has options but time is short
The imperative to boost local property sales is a motivator behind city government moves to increase local residency permits, but fiscal constraints may hinder their effectiveness and sustainability.
Despite the slow progress of social housing projects in several cities and some creative accounting, on-the-ground evidence points to a greater buildout this year than in 2011.
Chinese authorities are accelerating financial reform efforts, in particular the deepening of bond markets, in a bid to lessen the local government debt burden on banks and ensure continued credit growth.
Renminbi Compass, a new research service launched by the FT, aims to act as a navigational guide through the expanding universe of renminbi asset classes. With the Chinese currency gaining ever-wider acceptance around the world and Beijing taking steps to open its capital account, we are broadening our research coverage to include not only equity funds but also all other important renminbi asset classes, such as chengtou bonds, dim sum bonds, real estate, trust products, underground banking, art, antiques and several others.