China land sales income hits decade low, widening budget deficit
The government’s spending push has been key in shoring up the domestic demand this year
[BEIJING] China’s revenue from selling land plunged to the lowest in a decade, contributing to the widening of the budget deficit as the government ramped up spending in support of the economy.
Land sales revenue slumped 14.6 per cent on year to 194.1 billion yuan (S$35 billion) last month, the lowest since May 2015. The figure, based on Bloomberg calculations from the Ministry of Finance (MOF) data released on Friday (Jun 20), reversed a 4.3 per cent growth in April, which had been the first increase in three months.
The contraction contributed to a decline in overall government income, which reached 11.2 trillion yuan in the first five months of the year. The MOF only releases combined figures for January and February, which are averaged for comparing monthly land sales values.
Meanwhile, total expenditure jumped to 14.5 trillion yuan as authorities increased spending at the fastest pace in three years to bolster economic growth, pushing the budget deficit to 3.3 trillion yuan.
The slump in land sales underscores the persisting weakness in the property market, a major domestic drag on the Chinese economy, which is also contending with higher US tariffs on exports. This has also strained local government finances, limiting their ability to expand investment to aid growth.
“We maintain our forecast that government land sales revenue may decline further this year by 5 to 10 per cent, and continue to believe property construction and investment have not yet hit the bottom,” Lisheng Wang, an economist with Goldman Sachs, wrote in a note after the data release.
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Revenue from real estate-related levies, including deed tax paid on property purchases, fell 8.6 per cent on the year in May, deepening from a 0.9 per cent drop the previous month.
Total tax income increased 0.6 per cent for the month, decelerating from a 1.9 per cent gain in April.
The government’s spending push has been key in shoring up the domestic demand this year. Its consumer goods trade-in programme, for instance, boosted purchases of electronics and home appliances with subsidies funded by special sovereign bond issuance.
The programme was so popular that some provinces temporarily suspended subsidies after exhausting national government allocations, prompting Beijing to assure consumers that more funds would be provided in the third and fourth quarters.
Goldman’s Wang expects further fiscal expansion in the second half to mitigate deflationary pressures in some sectors and bolster market confidence. A budget revision later this year remains possible, he said, though not urgent given that economic growth appears on track to exceed 5 per cent in the January to June period. BLOOMBERG
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