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Economy

China's latest lockdown is on expenses by local governments

As land revenue ebbs, authorities cut back on everything from dining to paper

Land is state-owned in China, meaning developers need to buy land-use rights from the local governments.   © Reuters

BEIJING -- As a slowing real estate sector squeezes a key revenue source for China's local governments, many are cutting costs to try to live within their reduced means.

Anhui Province at the end of March issued detailed new rules for its cities and counties, aiming to slash spending by 180 million yuan ($27 million) in 2022. The list spans from the mundane, like requirements for double-sided printing and close monitoring of air conditioners, to more unusual measures such as a ban on officials bringing aides to meetings.

Officials are also strictly banned from entertaining locals. When they do entertain, they may only use restaurants in government buildings and may not gather in groups of over three.

In the Jiangxi Province city of Fuzhou, some government agencies have stopped all purchases of computers, desks and other supplies. Other local authorities are no longer distributing notebooks and pencils to civil servants at government and Communist Party meetings.

These moves come as President Xi Jinping takes a hard line on belt-tightening in party and government organizations. Though the pressure is partly intended to tamp down corruption and other improprieties ahead of the twice-a-decade party congress this fall, it also reflects local governments' increasingly strained finances.

The site of a planned condominium complex in the city of Nanchang. Many developers can no longer afford to buy land-use rights amid President Xi Jinping's crackdown on the real estate sector. (Photo by Iori Kawate)

Economic stimulus measures in response to the U.S.-China trade war and the coronavirus pandemic have undercut tax revenue in recent years. As a result, governments have grown increasingly reliant on sales of land-use rights for state-owned plots, which came to the equivalent of around 50% of total tax revenue in 2021.

But China's leadership has cracked down on real estate financing in an attempt to deflate a housing bubble. Many developers no longer have the cash to buy new land-use rights.

Revenue from such transactions fell 30% on the year in January to April, the biggest drop for that period in seven years. Provincial governments have already begun cutting and delaying bonus payments for their workers.

The condominium market, a major contributor to local revenue, continues to cool. Many would-be homebuyers are holding off as China's zero-COVID lockdown policy weighs on the economy and their hopes for higher resale prices fade.

An economic downturn would further squeeze sales of land rights as well as tax revenues, even as governments continue to spend heavily to restrain the spread of the coronavirus. Premier Li Keqiang on April 25 said frugality needs to become a new norm for government.

Many lower-tier cities are economically reliant on public works and property development. Meanwhile, decreased pay for civil servants, who generally make more than private-sector employees, threatens to undermine consumer spending.

Ordinary Chinese have expressed frustration with the current situation on social media. "Corruption is wrong, but will government cutbacks help regular people lead a better life?" wrote one user on the social media platform Weibo.

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