2014-08-25

¥8.7 Trillion in Land Finance At Risk

The anti-corruption freight train is barreling down the tracks and ahead of it is the oncoming land finance freight train.

A strict audit of ¥15 trillion in land sales is going to uncover dirt in many Chinese cities. Already, according to the article below, 9 cities have been found to have violated regulations governing land finance, including Shangluo, Hengyang, Neijiang, Xingtai, Huzhou and Suqian. Recall how land finance works:
Chinese local governments sell land to developers who build homes and commercial centers. The revenue from land sales pays for development of supporting infrastructure, everything from roads and subways to schools and parks. Land sales also finance local government debt which exploded after 2008. In the post-2008 economy, developers rushed to build property amidst a real estate bubble and when the government moved to restrict activity in first- and second-tier cities, developers poured into third- and fourth-tier cities and repeated the model. However, developers have run ahead of many local governments. In areas where there are true ghost cities, support infrastructure such as schools and hospitals have not been built. If the real estate bubble bursts and land sales fall, local governments will need to find another revenue source or they may be unable to finance the infrastructure that generates GDP growth and supports the local real estate market, and they may even face a debt crisis in some of the worst hit areas. This ignores all the potential issues with indebted developers, plus overproduction and bad debts in other sectors of the economy.

84 major Chinese cities have borrowed ¥8.7 trillion, backed by revenue from land sales. If cities have violated regulations or violated the law in their use of land finance, things could quickly come to a head in areas where the governments are borrowing to survive, which is already the case in some cities.

The conclusion to the article is a good summary:
"Mortgage financing using state-owned land, borrowing money to promote urban development and stimulating economic growth, this economic growth model is not sustainable, it can very easily bring about hidden volatility in the capital markets and macroeconomic development." Wang Jianwu told reporters, the key to solving the problem is for the local government to gradually adapt to the "new normal," get rid of "land hormone" stimulus, while local governments also need to shift from the dominant role of economic development to servicing economic development.

Yet again, the anti-corruption probe lines up with the leaderships vision of economic reform. By squeezing local governments' ability to borrow through land sales, the shift towards a rabalanced, market-based economy can proceed more quickly.

84城土地抵押融资达8.7万亿 地方热衷借钱过日子
Land violations since the end: disaster from the city involving the amount of mortgage financing 84 Super 8 trillion

Experts said the local government is keen to "borrow money to live", need to get rid of the "land hormone" stimulus

Terence Chang

Excessive growth of land mortgage finance financial debt behavior is giving land mortgage financing of local government in land use and management of illegal hardest hit.

It is understood that since the end of July this year, the State Land Inspector of each branch of total cases of illegal land projecting nine cities warning interviews. Among them, Shangluo, Hengyang, Neijiang, Xingtai, Huzhou, Suqian six city was clear that the presence of illegal use of land mortgage financing has become a common problem of illegal land areas.

Ministry of Land, an insider told the "China Business" reporter, said, according to the latest statistics, as of the end of June this year, the total amount of land mortgage finance 84 major cities has reached 8.7 trillion yuan, including enterprise mortgage financing, but the city voted government, construction investment and other financing platforms accounted for the majority.

Reporters wrote to the Ministry of Land verify the data and want to learn more illegal use of land nationwide mortgage financing the overall situation, but as of this writing, has not been back.

84 city land mortgage financing amounted to 8.7 trillion yuan

Recently, the Ministry of Land, an insider told reporters, according to the latest statistics, as of the end of June this year, the total amount of land mortgage finance 84 major cities has reached 8.7 trillion yuan, including mortgage financing companies, but the government City investment, construction investment and other financing platforms accounted for the majority.

But these experts also said that the data is only preliminary MLR data systems, present the relevant data have been submitted to the State, to be further confirmed.

According to the data, "2013 China Land and Resources Communique" disclosure at the end of 2013, 84 major cities in the state of mortgage for 403,900 hectares of land area, the total amount of mortgage loans 7.76 trillion yuan, the annual land area and mortgages are mortgages a net increase of 53,300 ha and 1.77 trillion yuan.

"2012 China Land and Resources Communique" is displayed at the end of 2012, 84 major cities nationwide mortgage state in land area 348,700 hectares, the total amount of mortgage loans 5.95 trillion yuan, an increase of 15.7% and 23.2% respectively.

"Total loans and mortgage financing major cities with more than 20 percent of land is probably an annual growth rate last year, the growth rate reached 30.4 percent, more than 8 trillion yuan is the basic certainty." The insider told reporters.

In this context of rapid growth, the use of land for violations of mortgage financing has become a common problem in the place of illegal land issues.

Deputy Commissioner of State Land Supervision Bureau 赵毓芳 Shanghai municipal government during interviews Huzhou main person in charge pointed out that mortgage financing Huzhou land violations, illegal approval of temporary land use issues more prominent, with strong representation in East China. Interviews At the meeting, Vice Governor of Zhejiang Province, Xu-Ming Huang reminded cadres at all levels, Zhejiang, do not suffer in silence, do not have luck, and just on land use and management issues do not make the "uncorrectable errors, earth-shattering mistake."

In fact, the illegal use of land mortgage finance financial debt problem has become an annual national land inspectors found the hardest hit. March 12 this year, the Ministry issued a "Notice of State Land Supervision" shows, where some of the city and county governments dominated by repeated illegal acts, land management situation is still more severe. Among them, the illegal use of land mortgage finance financial debt side, there are inspectors in the routine presence of 48 cities in 19 cities illegal land mortgage financing behavior, involving a total of 1361 projects, land area of ​​14,233 hectares, the amount of 118.379 billion yuan mortgage.

"In the Land of mortgage financing process, local governments can issue warrants dominant state-owned land use, land valuation, land allocation and other procedures, which is the main cause of illegal-prone." Land and Natural Resources Law Center Research Associate Jianwu said.

The Working Group has been set up a comprehensive inventory of Hengyang rectification land violations

"Local government financing platform to land by way of mortgage financing debt financing is compelling choice, especially in some provinces and cities in central and western regions to rely on maintaining a high investment-led economic growth." Jianwu said, there is another important reason is that Local governments in developing economies keen to "borrow money to live" to promote urban infrastructure with land mortgage financing to the money quicker and easier the achievements.

Reporters learned that, in order to enhance their own government financing platform management capabilities to enhance the city voted, built the company's total assets and net assets, thereby successfully finance, local government, without exception, the company chose to inject a lot of land in the platform the way.

A Case Study of Hengyang Hengyang city government to enhance Urban Construction Investment Co., Ltd. (referred to as "Hengyang Construction Investment") is operating capability in 2008 by the "Office of Hengyang Municipal People's Government approved the transfer of land on the consent" of approval Shek Kwu District will assess the value of 2,530,641,400 yuan of 32 commercial and residential land injection; 2010 turn Yanfeng District 14 is located in the assessed value of 3,002,854,600 yuan of commercial and residential land injection.

Construction Investment is subject Hengyang Hengyang investment in urban infrastructure construction and urban assets, operations and management of the main body, including the operation of state-owned assets operations authorized by the government; land purchasing and storage, land development, real estate development. September 25, 2012, Hengyang built using the land use right to vote the way collateral issue "12 Value City voted" corporate bonds to raise funds 1.8 billion yuan, of which 1.08 billion yuan for the construction of affordable housing in Hengyang City project, 720 million element is used to support affordable housing in urban road construction projects.

It is understood that 12 city voted to provide collateral value of inventories in liquidity with strong three state-owned land use rights for the bonds debt service, to assess the value of land was 3,065,915,300 yuan.

According to the Ministry of Finance, Development and Reform Commission, People's Bank, China Banking Regulatory Commission jointly issued four departments "for the suppression of the financing of local government illegal acts notice" clearly states that "local governments should not be injected into the reserve land as an asset financing platform companies not committed to reserve land transfer revenues expected debt financing platform as sources of funding. "

Land mortgage financing has also been the Wuhan Bureau of Land Inspector attention. Deputy Commissioner of Wuhan Bureau of Land Inspector stone row in Hengyang City in 2014 notified cases of land inspectors noted the presence of Hengyang rights of landless farmers to maintain the implementation is not in place, land revenue and expenditure management issues more land mortgage finance irregularities involving large amounts of illegal land occupied a prominent problem, the government introduced the policy documents and national conflict with existing laws, regulations and policies, such as five outstanding issues.

It is understood, deputy director of the Wuhan Bureau of Land Inspector Don Sai force of the serious problems in interviews in Hengyang City in land use and management exist in the work raised serious criticism, and alert the government is mainly responsible to deeply understand the seriousness of the situation of illegal land , deep ideological roots, troubleshoot common land management weaknesses in accountability mechanisms, to prevent "re-development, light protection," "heavy landing, sparse Management" and "because of the public offense, extenuating circumstances," the idea, as well as "fragmented, there is no force "situation.

However, Hengyang Construction Investment relevant person in charge, said in an interview with reporters, Hengyang built using the land use right to vote the way the issue of collateral "12 Value City voted" corporate bonds "As far as I know and the Board of Land and land violations inspectors mortgage financing It does not matter, we do not exist irregularities. "

Hengyang City, the status quo for the land law and corrective measures, the reporter wrote Hengyang Municipal Propaganda Department and Land Resources Bureau, its reply said that after "the Department of Homeland Wuhan inspectorate Hengyang City, the main person in charge of interviews, the municipal government attaches great importance has been established Working Group, a comprehensive inventory of the problems rectification During the interview should not be a comprehensive inventory of rectification. "

"Mortgage financing through state-owned land, borrow money to promote urban development, stimulating economic growth, this economic growth model is not sustainable, it is very easy to capital markets and macroeconomic developments pose potential risk of ups and downs." Jianwu told reporters, solve this The key issue is that the local government to gradually adapt to the economic growth of the "new normal," get rid of "land hormone" stimulus, while local governments also need to shift from the dominant role of economic development services to economic development.

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