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Stricter shadow finance regulations, a series of targeted easing measures by the central bank and market participants’ increasing acceptance of bonds as risk-based investment assets have contributed to a sharp rebound in bond issuance in recent months.
We continue to believe that Beijing retains the policy options to avert a local government debt crisis, but it will be harder for the authorities to prevent one in 2014 than in 2013 or 2012.
A Chongqing tax official has revealed that the city’s pilot property tax scheme only contributes a tiny proportion of the city’s fiscal income, sparking debate about the effectiveness of such schemes in reining in speculative property investment.
The risk profile associated with local government debt in China has risen so sharply that a GDP growth slowdown, a cooling property market and shrinking financing available from trusts could trigger a crisis.
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.
11 Sep 2014
