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Decline of land sales adds pressure on local governments in China

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Staff writer ▼ | February 13, 2016
The fiscal performance of China's local governments could be pressed by the decline of land sales, a Fitch Ratings report said.
China land
Asia   Sales of land-use rights in China fell by 21.4%
Sales of land-use rights in China fell by 21.4 percent in 2015, the most substantial shrinkage since a 14-percent decline in 2012, according to the report.

"Land sales, representing around 27 percent of local governments' aggregated revenue in 2015, play a critical role in funding Chinese local infrastructure projects," said the report, adding that land is also a major collateral for local governments to borrow from banks.

The stagnant land sales or dwindling prices could either result in a reduction of capital expenditures or in higher deficits, it said.

However, thanks to recovery in property sales, a deceleration trend in the decline of land sales -- from a 36.2 percent year on year decline in the first two months of 2015 to 21.4 percent by the year end -- has been shown to relieve the pressure.

In 2015, Chinese local governments issued nearly 600 billion yuan ($91.43 billion) in new bonds and converted another 3.2 trillion yuan in outstanding debts to low-interest bonds under a bond-for-debt swap program.

The central authorities have introduced the swap program and put a cap on new debts to defuse risks, and are trying to increase the incomes of local governments.