Chinese local government finances improve but provincial imbalances still pose significant risk, says Moody’s

The fiscal position of Chinese local governments improved in the first half of the year, and the positive trend is expected to continue, according to Moody’s Investors Service.

Nicholas Zhu, a vice president and senior analyst at the ratings agency, said monetary and fiscal stimulus continued to support GDP growth during the period, and grew at a faster pace in nine provinces versus seven last year at the same stage.

The latest Moody’s statistics show debt and equity financing at local government level grew at a faster pace in 13 provinces, growth in industrial production accelerated in 12 provinces, while fixed-asset investment growth increased in nine.

Local government revenues, including tax and non-tax revenues, rose by 11 per cent compared with a year earlier, its figures show, and land sales, another major source of revenue, increased by 10 per cent.

Those revenues will continue rising in upcoming quarters, said Moody’s, because of a stabilisation of the Chinese economy, and in the real estate market in many provinces, particularly.

In the six months, 22 provinces reported increases in new residential and commercial real estate construction starts on a year-on-year basis.

The price of land also continued to rise in most large cities, especially for residential plots, as did the price of newly developed residential properties, although the increase was slower in the first-tier cities, Beijing, Shanghai, Guangzhou and Shenzhen.