Sara Hsu
Sara Hsu

President Xi Jinping anti-corruption drive has opened a new front as land sales by local governments are surveyed by the central government, notes financial analyst Sara Hsu in TripleCrisis, and she applauds the move. Much of the social unrest in the past years has been caused by those transaction, where citizens often lost from greedy officials.

Sara Hsu:

Local governments receive a portion of value added and corporate taxes collected in their region, as well as all personal income and business taxes, but this has proven insufficient to generate a steady rate of GDP growth.  In order to combat this problem, officials have used rural residents’ land both as a source of revenue and as collateral in taking out loans via local government financing vehicles.  In this way, they have access to a major asset, unimproved land that promises to gain in value.

After the initial impact of the global financial crisis, the growth of local government financing vehicles (LGFVs) increased, and land takings, land collateral, and land development played a major role in for various localities in securing credit. Local government financing vehicles are entities at an arms’ length from the local government, but that receive an implicit guarantee from local governments for receiving land revenues.  Land was used as collateral in obtaining loans from financial institutions, and land taken from farmers was used in large property and infrastructure development projects.  Due to the sudden surge in LGFV indebtedness and the associated money flowing from the use of land as collateral and property in development, it is likely that corrupt activities with respect to land also increased.

Land takings by government officials have had a highly negative effect on rural residents.  In the past decade, the practice of rural land grabs and resales worsened the predicament of farmers, whose only asset is land.  This issue has ignited protests throughout China in recent years, even leading in some cases to self-immolation.  Rural residents who have lost their land in this process have found themselves plunged into the ranks of the urban unemployed, with even lower standards of living and a bleak future.

More in TripleCrisis.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´ request form.

Are you looking for more trends in China for 2015? Check out our 7 China trends for 2015.

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