In 2021, among the 30 major Chinese cities that received the highest income through land transfers, 12 cities’ annual land transfer fee revenue was higher than their local general public budget revenue. Many local administrations’ expenditures are immensely dependent on the real estate sector, posing a substantial risk to the Chinese economy.
The 1994 fiscal reform and “Land Finance”
The tax-sharing reform of 1994 greatly adjusted China’s tax structure, and the distribution of tax revenue between central and local governments. Since its implementation, local governments in the country have had little tax autonomy and can only receive roughly half of the overall tax revenue generated in the country.
The reform forced local administrations to find new sources of income. As land plots in urban areas are government-owned, they were leased to property developers in exchange for land transfer fees, helping local governments to cover their expenditures.
As China’s real estate market remained prosperous in the past two decades, land transfer revenues also increased significantly. Many local governments are now increasingly dependent on this income, due to a lack of other financial means.
Lower dependency in first-tier cities
Economic hubs with diverse industries in China, including Beijing, Shanghai, and Shenzhen were generally less dependent on land transfer incomes, despite having the most vibrant real estate market in the country and exceptionally expensive land leases. In contrast, many provincial capitals, such as Guiyang, Wuhan, and Xi’an, were among the cities that were the most dependent on land transfer incomes.
Cities with the highest dependency on revenue generated through land transfer fees in China in 2021
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Level of dependency on land transfer revenue
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Dependency on land transfer revenue is calculated by comparing the revenue generated by land transfer fees in 2021 and local general public budget revenue of 2020.
General public budget revenue includes mosty local tax revenue, i.e. value-added tax, business tax, and income tax, etc., as well as other local government incomes such as revenue generated by govenment-owned enterprises, fees, and fines.
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Sohu. (January 10, 2022). Cities with the highest dependency on revenue generated through land transfer fees in China in 2021 [Graph]. In Statista. Retrieved September 01, 2024, from https://www.statista.com/statistics/1311114/china-cities-most-dependent-on-land-transfer-revenue/
Sohu. "Cities with the highest dependency on revenue generated through land transfer fees in China in 2021." Chart. January 10, 2022. Statista. Accessed September 01, 2024. https://www.statista.com/statistics/1311114/china-cities-most-dependent-on-land-transfer-revenue/
Sohu. (2022). Cities with the highest dependency on revenue generated through land transfer fees in China in 2021. Statista. Statista Inc.. Accessed: September 01, 2024. https://www.statista.com/statistics/1311114/china-cities-most-dependent-on-land-transfer-revenue/
Sohu. "Cities with The Highest Dependency on Revenue Generated through Land Transfer Fees in China in 2021." Statista, Statista Inc., 10 Jan 2022, https://www.statista.com/statistics/1311114/china-cities-most-dependent-on-land-transfer-revenue/
Sohu, Cities with the highest dependency on revenue generated through land transfer fees in China in 2021 Statista, https://www.statista.com/statistics/1311114/china-cities-most-dependent-on-land-transfer-revenue/ (last visited September 01, 2024)
Cities with the highest dependency on revenue generated through land transfer fees in China in 2021 [Graph], Sohu, January 10, 2022. [Online]. Available: https://www.statista.com/statistics/1311114/china-cities-most-dependent-on-land-transfer-revenue/