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China property
EconomyChina Economy

Will China’s proposed property tax be big enough to support struggling local governments?

  • Analysts weigh in on the impact of a newly proposed property tax and how it will compare to revenue pulled in from land sales
  • Cities with high exposure to the property market, such as those in the northeastern rust-belt region, could take a hit

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Without a big new property tax, any revenue raised by local governments in China would pale in comparison with land sales, which have long sustained local governments. Photo: Reuters
Frank Tang
China’s planned property tax reforms could lift revenues for local governments but would not be sufficient enough to support them unless a large tax is imposed nationwide, according to analysts.
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To effectively stabilise local fiscal conditions, Zhang Yu, an assistant professor with Peking University’s Guanghua School of Management, estimated that the tax rate needs to be either 0.5 per cent nationwide, or 2.5 per cent with an exemption for those who own one home.

But while either of those tax rates would help local governments, consumers would end up taking a hit, according to Zhang and other analysts who noted that it will be difficult to strike a balance in who foots the bill as Beijing cracks down on the nation’s overheated property market.

“Both plans would impose a high tax burden on Chinese households. To a great extent, the tax can only be a complementary tool,” he said. “The process of shifting from land reliance to property tax is destined to be difficult.”

But without a big new property tax, any revenue raised by local governments would inevitably pale in comparison with land sales, which have long sustained local governments.

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