Rule of Law

Official Chinese land grabs

(October 19, 2011) Local governments in China typically fund themselves by land sales and property taxes. This article, from Economic Observer, surveys how the economies of Beijing, Shaanxi, Tianjin and Hubei fared over the past year. Notably, Beijing’s economy slowed due to restrictions on real estate and vehicle purchasing – major parts of local consumption and tax revenue.

Slowest Growth: Beijing

Beijing’s economy grew by 8% between January and June, which was well below its average rate of 11% during the 11th Five-Year Plan, and one of the lowest rates across China.

Officials attribute the slowdown to restrictions on the real estate and automobile vehicle purchases and the departure of Shougang Group (中国首钢集团) from Beijing.

“Revenue from land” is usually the main source for all local governments, Beijing, however, is beginning to reduce its dependence on this source. Beijing’s land revenue for the first half of 2011 decreased 18%, and business tax on real estate fell by 36 percentage points.

Real estate investment had previously accounted for half of the total investment in Beijing, while tax revenue from real estate accounted for 20% of local revenue. But since the launch of restrictions on property purchases, the growth rate of business tax in Beijing’s real estate industry fell from 41.5% to 5.5%.

Cars were another main part for Beijing’s consumption. However, due to the implementation of restrictions on cars purchases this year, sales on automobiles fell 50% in the first half of the year.

As Beijing began enters a period of the economic transition and structural adjustment, Guo Jinlong, mayor of Beijing, has called for the city to be more determined and proactive in adjusting the structure and method of its economic development.

With rapid economic growth each year, “metropolitan problems” have become increasingly obvious among Beijing’s 20 million residents. Population expansion, traffic jams, the shortage of water resources, heavy pollution and rubbish disposal are just a few of the issues forcing Beijing to change its development strategy.

“There is a price to pay for change. There’s a quote from a movie, ‘temporary retreat is advancement in the future,’ which suits the current Beijing well,” said Du Deyin, the Chairman of the National People’s Congress’s Standing Committee.

Read the full article here, or at Economic Observer.

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Categories: Rule of Law

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