China debt: local government ‘land grabs’ raise concerns amid tumbling fiscal revenues
- Local governments’ budget deficits have been growing as a result of rising spending and a slump in land sales and tax revenues
- Regional authorities have begun to aggressively acquire land though local government financing vehicles (LGFVs) created to aid off-budget financing
A liquidity crisis is brewing in some local governments in China due to falling revenues and aggressive land purchases, analysts said, as Beijing steps up its efforts to control mounting debt risks.
Regional authorities have also begun to aggressively acquire land through local government financing vehicles (LGFVs), raising concerns that they are using debt to inflate government revenues.
LGFVs were created to aid off-budget financing, especially for infrastructure spending, but disclosure requirements are weak in China, which adds to wariness over the risks of so-called hidden debt.
Things that can’t last, won’t. In our view, land purchases by LGFVs could strain their cash flows and increase leverage
But despite the problems faced by public finances, LGFV land purchases among China’s top-100 land buyers rose sharply in the first nine months of 2022 to more than 200 billion yuan (US$28 billion), compared to a 51 per cent decline in total land spending by the top-100 land buyers over the same period, according to industry body, the China Real Estate Information Corporation.