I think this story warrants quite a bit more attention than it’s getting.
A few days ago, you may have read that the first-ever audit of China’s local governments determined that they had somehow amassed $1.6 trillion in debt. This is notable and important in and of itself, but in light of where China’s local governments get their money, I think it’s bound to lead to even more forced demolition and land seizures.
Back in January, we published a translation of a summary of a report from a team of Chinese lawyers on illegal demolition in 2010 (Part 1, Part 2). The report said that local government budgets are increasingly dependent on land sales, and with little land available for sale they often turn to seizure:
The total income from all land sales nationwide in 2009 was 1,423,970,000,000 RMB, up 43.2% from 2008. This amounts to about 46% of the total national income for local financial administrations during the same period.
But in 2009, the total spent on land acquisition was 1,232,710,000,000 RMB, up 28.9% from 2008. 498,576,000,000 RMB was spent on land takeovers and demolition compensation, or 40.4% of the total expenditures. 10.7% of total expenditures were spent on land development, 27% on city construction, 3.5% on rural infrastructure, 1.6% to subsidize farmers whose land was seized by the government, 0.7% on professional land sales, 1.5% on low income housing. Land arrangement and basic rural construction got 3.9%, development of farming land 0.9%, disaster relief/reconstruction and bankruptcy bailout 9.7%.
In 2010, land sales deals brought in over 2,700,000,000,000 RMB, an increase of 70.4%, and even more worrying, local finance has taken another step further in relying on land sales profits [to function]; the four major cities all relied on land sales for at least 50% of their funding this year. Before this, land sales income was only 25% of Beijing’s budget. According to statistics, in China’s ten largest cities, income from land sales hit 875,241,000,000 RMB, an increase of over 54% from 2009.
Because of this, local governments everywhere have pushed through “transform the city” and “transform the village” programs with overwhelming force, for the purposes of tearing down housing and selling the land, which makes the demolition of housing even more prevalent. This movement to increase the income of land finance administrations is currently apparently unconstrained by any restrictions or appropriate guidance. This has become the main new source of the intensification of demolition conflicts; we are very confident in this appraisal.
So, in addition to using land sales to maintain their budgets, local governments will now also have to use them to help pay off their apparently massive debts. The Business China article I linked above suggests land sales will likely be used to pay for 40% of the debt payback, or about 2.5 trillion RMB. I have no idea where that number comes from, but given that land sales account for more than 50% of most local government budgets already, it’s hard to imagine land sales won’t play a major role in attempts to pay down this debt.
And whatever rules the central government may have made about illegal demolitions, a rise in land sales means a rise in land seizures, and that means a rise in forced demolitions. Forced demolition is, of course, currently the biggest single cause of social unrest in China.
Keep an eye on this story. Despite efforts to cut down on demolitions through new laws — pause for laughter — I have a feeling that economic realities are going to force another wave of divisive demolitions and, as usual, the poor and weak will be forced to pay for the sins of the rich and powerful by giving up their homes so developers can build luxury apartments no one will ever actually live in.
Happy 90th birthday, CCP.
Related reading: The First Domino? Yunnan Highway Breaches its Financing Platform Contract (Caijing)