2015-03-16

Land Sales Revenues Sink 30% in First Two Months

Update: Land revenues are falling in 2015 due to land sales that were falling in 2014. Background: Deutsche Bank Says Land Sales Slowdown Only Started Hitting in Q4

前两月土地出让收入降3成 地方官直言财政紧张
By the real estate market adjustments on state-owned land use right transfer income 455.3 billion yuan, up by 257.9 billion yuan, down 36.2 percent. There are local financial system to the "Daily Economic News" reporter, said the future revenues and expenditures or conflicts will become more prominent, and the need to further cut costs.

China fiscal revenue rises 3.2 pct in first two months
Fiscal revenue rose 3.2 percent year on year to reach 2.57 trillion yuan (417.5 billion US dollars) in the first two months of 2015, the Ministry of Finance announced on Monday.

This was a sharp slowdown from the 8.6 percent gain seen in 2014, as downward pressure on the economy continued.

During the January-February period, the central government collected 1.16 trillion yuan in fiscal revenue, down 1.7 percent year on year, while local governments saw fiscal revenue expand 7.5 percent to 1.41 trillion yuan.

In particular, revenue related to the property sector slowed sharply. Real estate business tax fell 1.6 percent year on year to 96.5 billion yuan, and deed tax decreased 12.5 percent to 54.3 billion yuan.

In contrast to the slowing revenue, fiscal expenditure maintained double-digit growth. In the first two months national fiscal spending expanded 10.5 percent from a year ago to 1.89 trillion yuan, with spending on transportation surging 52.5 percent.

"This shows China's proactive fiscal policy is gaining momentum," said a research note by China International Capital Corp..

Update 2: Deutsche Bank comments on the fiscal news:
This fiscal shock came in worse than we had expected. The shortfall in land sale is in line with our expectation. What surprised us is that budgetary revenue also weakened quickly. In retrospect, we should have seen this coming. We expected growth to slow sharply in Q1, and cut our GDP growth forecast to 6.8% yoy on 5 January (Q4: 7.3%, Consensus: 7.2%). Indeed growth slowed quickly in Jan-Feb (see our report China – Economy slows in Jan-Feb as fiscal slide kicks in), but we did not expect the knock-on effect on fiscal revenue to happen so quickly (Figure 1).

[...]

We believe the government has been keeping its policy stance tight. This is true from a fiscal, monetary, as well as exchange rate perspective. The PBoC cut interest rates but the real rates remain high due to lower inflation. Moreover, the short-term interest rates such as a seven-day repo stay elevated. In other words, the policy easing cycle has not yet started.

We believe the government will start easing policies in April. This shift in policy stance will likely happen on both fiscal and monetary sides. On the fiscal side, we may see more fiscal spending, through the central government as well as policy banks. On the monetary side, we expect to see a cut of RRR by 50bp in early April when March economic data become available to policy makers. We also expect another interest rate cut in May.

A big question going forward is how the government will fill the financing gap and avoid a fiscal-driven hard-landing. We continue to expect the government to take many initiatives to fill the gap, including privatization, raising taxes and introducing new taxes, issuing more debt, and opening up domestic capital market to foreign investors… We have doubt on the effectiveness of the “public-private partnership” initiative, and we believe the PBoC will have to allow M2 growth to rise significantly above the target of 12%.

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