According to a news report by the Wall Street Journal, the Chinese local government inflated its revenue by around USD 12 billion last year. It did this through fake land sales, according to the national auditor.
This was done in around 70 regions of China. Here, the land owners would sell their land and state owned assets to themselves, which made it appear as though the money moved around, implying that there was more revenue that earlier estimated.
It has come to light that China’s real estate market downturn has hit municipalities even harder than initially estimated. Including fraudulent sales, local governments experienced a decline of approximately 23 percent in property-linked income in 2022.
China’s property sector not only contributes significantly to the country’s Gross Domestic Product (GDP) growth but also serves as a vital income source for local governments through land sales.
However, the property market’s downfall, fueled by mounting debt burdens and a sharp decline in demand, has placed immense pressure on regional officials. These officials can no longer rely on private-sector developers for lucrative land deals, as these developers have withdrawn from the market.
In an effort to boost sales and circumvent restrictions on official borrowing, local governments established special funding vehicles to finance projects. It was discovered that many of these vehicles were created shortly before land auctions were announced to purchase properties, as reported by the Journal.
The latest developments have prompted S&P Global to revise its forecasts for China downward. According to new estimates from S&P Global Ratings, China’s property sales witnessed a sharper decline in 2022 than during the 2008 financial crisis.
National property sales are believed to have plummeted by over 20 percent in 2022. Adding to the complexity, a growing number of Chinese homebuyers have refused to pay their mortgages since June, demanding that developers complete construction on several hundred unfinished projects, as reported by Inside Over.