China’s finance ministry on Saturday announced policies for local governments to buy land and housing from property developers, and promised intensive support to help localities with their hidden debts, as Beijing levels up stimulus for a slowing economy.
These highly anticipated fiscal measures are expected to complement a slate of monetary and other initiatives announced by the country’s central bank last month to boost the sluggish economic recovery.
“Countercyclical” fiscal measures are “by no means” limited to those announced Saturday, Finance Minister Lan Foan said at a press conference on the same day, adding that policymakers are studying other policy tools. For example, the central government has a “relatively large” amount of room to increase its deficit and issue more debt, he noted.
Property market salvage
Tools including local government special-purpose bonds (SPBs), special funds and tax policies will be used in tandem to arrest the slide in the real estate market, Lan said.
The central government will allow local authorities to tap their SPB proceeds, mainly used for funding government projects, to buy back undeveloped land from developers, according to Liao Min, a vice finance minister. In some regions, SPB proceeds can also be used to increase the reserve of land for sale, Liao said.
In China, all land in urban areas is owned by the state. The sale of land-use rights to developers has been a key source of revenue for local governments, but such sales have been under pressure since the country’s property market began to slump in 2021.
The measures announced Saturday can reduce the amount of idle land, balance supply and demand in the land market, and alleviate the liquidity and debt pressures on local governments and property developers, Liao said.
Another new measure will involve allowing local authorities to use SPB proceeds and funds from an existing affordable housing program to buy unsold housing units, according to Liao. The units will be used to supply affordable housing.
Hidden debt resolution
China’s local governments have accumulated tens of trillions of yuan of implicit debt in the past few decades as they borrowed off the books to fund infrastructure projects to drive growth. These hidden debts have become a concern for the central government, especially as localities’ capacity to service them has weakened from massive Covid-related spending and diminishing land sales revenue.
Last year, the central government rolled out a package of measures for localities to resolve their hidden debts. One of the main tools was a special type of bond that local governments can issue for paying off implicit debts, essentially bringing them onto the books. Earlier this year, the central government also started allowing local governments to issue new SPBs to repay these hidden debts.
At the press briefing, Lan said that the central government had allowed local governments to use bond quotas of 1.2 trillion yuan ($170 billion) and more than 2.2 trillion yuan in 2024 and 2023, respectively, to resolve hidden debt and pay overdue arrears to businesses.
He added that the central government will step up support for local governments to deal with their debts by expanding the quota for swapping off-the-books for on-the-books debt. This will be a one-time expansion of a “relatively large scale,” the minister said, noting that it can free up more energy and fiscal resources for local governments to develop their economies and improve the welfare of residents.
“This forthcoming policy will be the most significant measure introduced in recent years to support (hidden) debt resolution,” Lan said, noting that it will be detailed after going through legal procedures.
Bank capital injection
The Ministry of Finance (MOF) also pledged to issue special treasury bonds to help major state-owned commercial banks supplement their core capital.
The program is already in the works, Liao said. A cross-department work group, including the MOF, is waiting for banks to hand in their capital injection plans, he said, noting that the lenders will publish their plans according to rules for listed companies.
Supplementing banks’ core capital can enhance their capability for providing credit and supporting the real economy, he said.
Contact reporter Zhang Yukun (yukunzhang@caixin.com) and editors Michael Bellart (michaelbellart@caixin.com) and Lin Jinbing (jinbinglin@caixin.com)
