ASSESSMENTS

China: No Easy Cure for Local Governments' Addiction to Real Estate Revenue

Oct 16, 2015 | 09:02 GMT

Buildings under construction near the People's Bank of China office building in Chongqing.
Buildings under construction near the People's Bank of China office building in Chongqing.

(CHINA PHOTOS/Getty Images)

Summary

As China's economic slowdown ravages domestic property markets, Beijing is implementing supportive policies to ease the pain on China's local economies, as well as its overall national economy. Yet these policies do not resolve the underlying structural problem: local governments' financial dependence on real estate markets. This dependence has made local governments reliant on Beijing, giving the central government significant influence at the local level. Thus, as Beijing revisits its fiscal relationship with local governments, it will have to determine how much control it is willing to give up to rectify inefficient economic practices. To preserve its primacy, Beijing will seek to control the regulatory framework governing the financing of local governments while it pursues economic and fiscal reforms.

As China's economic slowdown ravages domestic property markets, Beijing is implementing supportive policies to ease the pain on China's local economies, as well as its overall national economy. Yet these policies do not resolve the underlying structural problem: local governments' financial dependence on real estate markets. This dependence has made local governments reliant on Beijing, giving the central government significant influence at the local level. Thus, as Beijing revisits its fiscal relationship with local governments, it will have to determine how much control it is willing to give up to rectify inefficient economic practices....

Keep Reading

Register to read three free articles

Proceed to sign up

Register Now

Already have an account?

Sign In