1/7
According to Caixin, as local governments find it increasingly hard to sell land to property developers, and because they need to sell land to meet their revenues needs, they are turning instead to local-government financing vehicles to buy the land.
caixinglobal.com/2021-11-30/loc…
According to Caixin, as local governments find it increasingly hard to sell land to property developers, and because they need to sell land to meet their revenues needs, they are turning instead to local-government financing vehicles to buy the land.
caixinglobal.com/2021-11-30/loc…
2/7
The scale isn't small, and it seems to be rising: "From July to Nov. 15, LGFVs bought 13.38% of land parcels by value across the country, up 4.38 percentage points from the January-to-June period."
The scale isn't small, and it seems to be rising: "From July to Nov. 15, LGFVs bought 13.38% of land parcels by value across the country, up 4.38 percentage points from the January-to-June period."
3/7
These LGVFs are controlled by local governments and borrow under their guarantees, so that this effectively means that local governments are borrowing from the banks and treating the proceeds as if they were revenues.
These LGVFs are controlled by local governments and borrow under their guarantees, so that this effectively means that local governments are borrowing from the banks and treating the proceeds as if they were revenues.
4/7
I am surprised this is allowed, but I guess local governments have little choice if they can't otherwise sell enough land to meet revenues needs. But this represent a doubling down on the property sector.
I am surprised this is allowed, but I guess local governments have little choice if they can't otherwise sell enough land to meet revenues needs. But this represent a doubling down on the property sector.
5/7
Why? Because if the property market revives, and prices continue to rise, the LGFVs can then sell the land on and make a profit. But if the property sector doesn't revive, the LGFVs will be sitting on losses on which local governments will have to make good.
Why? Because if the property market revives, and prices continue to rise, the LGFVs can then sell the land on and make a profit. But if the property sector doesn't revive, the LGFVs will be sitting on losses on which local governments will have to make good.
6/7
It is structures like these that make it so hard to deflate the property bubble. By making it ever more costly, they increase opposition to policies that might lead to a much-needed adjustment in the property market.
It is structures like these that make it so hard to deflate the property bubble. By making it ever more costly, they increase opposition to policies that might lead to a much-needed adjustment in the property market.
7/7
I am currently re-reading a book by Akio Mikumi and R. Taggart Murphy on Japan, and it is alarming to see how many structures and practices we saw in Japan in the late 1980s that similarly increased the vulnerability of local governments and banks to property.
I am currently re-reading a book by Akio Mikumi and R. Taggart Murphy on Japan, and it is alarming to see how many structures and practices we saw in Japan in the late 1980s that similarly increased the vulnerability of local governments and banks to property.
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