冯兴元：〝现在的情况，地方跟中央财政负债加起来已经很高了， 我个人比较保守的估计，加起来有（GDP的）86%，很多人估计得更高，这里跟别的国家不一样，我们的财政，没有钢性的制度来约束地方政府的负债，地方领导人，他没有偿债的责任，他只要升迁或调走了， 是下一轮政府 的事情，而且负债也没有真正有地方公民说了算，地方的人大也是空架子。〞
Money Shortage And Huge Debts Force China's Local
Governments To Sell More Land
In the first half of 2013, the number of land sales in
306 cities in Mainland China sharply increased by 60%.
The number has almost reached that of all 2012 sales
in some big cities, or even 27 times some areas in 2012.
At the same time, some local governments have been close
to bankruptcy due to overinvestment.
Financial experts believe that, the local economic crisis
is silently arriving in China.
As the slowdown in revenue growth becomes sharper,
the peak time for local governments to pay their debts is coming. Chinese banks are short of cash.
Land sales have become the most realistic and
quickest way to get money for local governments.
According to Chinese financial media, in the
first half of 2013 there were 15,493 land deals completed in 306 Chinese cities.
The total value of sales is 1.13 trillion Yuan,
60% more than during the same period last year.
In Beijing, Shanghai and Guangzhou, the sum of financial
land trades was over 173.9 billion Yuan.
This almost reached the level of the whole of last year.
Hangzhou has the biggest increase of 410% in land sales,
and Guangzhou ranks second with an increase of 368%.
Another report revealed the city of Ordos
in Inner Mongolia,
known as “the biggest ghost town in China”,
is in huge debt of 200 to 400 billion Yuan.
The authority has forcibly borrowed 1.5 billion from local
businesses to pay the salary of governmental employees.
Shanghai ‘s Xinmin Weekly estimated at least 16 local
governments are on the brink of bankruptcy.
Jian Tianlun (Senior economic analyst, USA):
Local governments are more dependent on land sales as a resource of revenue.
As bad economy leads to a drop in tax revenues,
governments are willing to sell more lands.
After all they have a complete control over the price
of land and how much land they can sell per year.”
In the past, land sellers were mostly private enterprises.
However, extremely wealthy state-owned companies
in the oil or electric power industry have recently joined this group.
This has resulted in surge of land value and inflation
of a “housing bubble”.
Jian Tianlun believes that this is also a cause of
China ‘s money shortage as many companies invested their profits in property.
Also both the surge of land value and the
real estate bubble are results of the policy of “enriching the state prior to its people”.
Jian Tianlun: ”When there are excess capacity issues,
lenders may not be able to get their money back.
About one-third of local debts are used to pay off old debts,
and this directly relates to the money shortage.
All these years export and investment have been two
major driving forces of China ‘s economic growth.
Now that both of them display a downward trend,
the economic outlook is definitely not optimistic.”
APAC Regional Chief Investment Officer at
UBS Wealth Management, Pu Yonghao believes
there is no sign of any future economic stimulus
from the central authority under slowdown
of China ‘s economic growth and the credit squeeze.
Probably the Chinese Communist Party (CCP) wants
the market to undergo some self-regulation.
Pu speculates a bankruptcy boom in some industries
in the second half of 2013, possibly involving state-owned companies.
Feng Xingyuan, deputy director of Beijing Tianze Institute
of Economics: ”When some says that the crisis will come
this year, this has to be based on the assumption that
the government won ‘t change the current economic policy.
Three possible crises may break out. The first one
is whether the real estate market will collapse.
The second is whether the debts of local government
will result in a large-scale debt crisis.
The third is about changes in the political situation,
which is the most difficult to predict.”
Feng Xingyun further commented that local crises
have been taking place in China.
For example, the manufacturing industry crisis in
the East is already there,
many local governments have breached contracts.
Exports have been constantly dropping.
The problem is very serious as the money shortage
still broke out even after the CCP printed money of 200% of China ‘s GDP.
Now many Chinese iron and steel enterprises
e.g. Chongqing Special Steel Factory, Xi ‘an Iron and Steel factory,
Hubei Danjiang Steel factory and
Jiangxi Pingte Iron and Steel Co. Ltd, have been bankrupted.
This is due to excess capacity, breakdown in the
financial chain or corruption.
Feng Xingyuan: Currently the debts of China's local and
central governments have reached a very high level.
According to my conservative estimate,
the debts total 86% of China's GDP.
Many people have made even higher estimates.
Here China is different from other countries.
There is no formality in regulating the debt limit
of local governments.
Local leaders are not responsible for paying back the debts.
As long as the leader is promoted or transferred elsewhere,
all the troubles are left to his successor.
Local citizens have no power in this issue.
The local People's Congress is also simply an ornament.”
Feng said that the local People's Congress only serves
to pass the party's decision on procedure.
It is a tool of legitimizing whatever the Party wants to do.
Vice executive of China ‘s Haitong Securities,
Li Xunlei recently said China urgently needs to “enrich its people before the CCP”.
However, once the price of properties drop, there will be
a huge impact on banks and revenue of local governments.
The CCP's 4-trillion stimulus package once induced
rapid development of industries through transportation, building materials and raw materials.
However, latest official financial statistics show a
significant drop of benefit rate in these industries.
Li Xunlei commented that, more problems will emerge
as huge state-owned companies continue to struggle.
The deficits they generate will directly result in
surging bad debts of Chinese banks.