Chinese local government liquidity issues
Whilst we’re looking at China and the fascinating powerplays of the economic superpowers, we read today that many of China’s local governments are struggling to avoid bankruptcy.
It turns out that local governments have been financing themselves by selling off the family jewels:
“Previously, local governments got all their money from selling land. This is not sustainable. Some areas have already sold quotas from the next 30 years.”
A number of large cities are thought to be at risk, including Kunming and Hangzhou, with their funding problems exacerbated by a slump in real estate sales.
Will China look at their neighbour Hong Kong and take on board the revenue raising measures that see it as both number one on the Heritage Foundation’s Economic Freedom index and is highly ranked on the UN’s Human Development Index?
Close to 30% of HK’s revenue is raised from land based charges. This ensures that the community gets a share of the rising land bounty over time as greater public infrastructure is developed and society itself makes improvements through technology, health and other factors. All these improvements are reflected in higher land prices.
HK is respected from both the right and left of the political spectrum on economic matters due to it’s willingness to ensure that land is used for it’s best and highest use.
China’s local governments should adopt a system of local council rates on land only so that a sustainable system of financing activities is possible.