China’s local governments boosted revenues through a number of bogus deals last year, the nation’s national audit office revealed.
Some 70 regions were found to have sold land and state-owned assets to themselves, effectively moving money around to create the appearance of more revenue.
By doing so, these governments inflated overall revenue performance by at least $12 billion, the national auditor found, according to the Wall Street Journal.
That means China’s real estate slump hit municipalities even harder than initially thought. With the fake sales included, local governments saw property-linked income decline by about 23% in 2022.
The country’s property sector not only accounts for a major source of GDP growth in China, but land sales are a key source of income for local governments.
However, heavy debt burdens and the sharp decline in demand have brought down the property market, putting pressure on regional officials, who could no longer rely on private-sector developers for land deals as they withdrew from the scene.
To prop up sales and get around limits on official borrowing, local governments set up special funding vehicles to finance projects. Many were created days before land auctions were announced in order to buy property, the Journal previously found.
Auditors also found that local governments issued unjustified fines, misused money from Beijing, and extended guarantees to companies that boosted regional debt burdens.
Some governments have already warned on their debt risks, which were made worse by increased spending related to zero-COVID policies.
Though the country lifted these measures at the end of last year, the country now faces sputtering growth, while unemployment among youth rises. Most recently, this has led to the S&P Global to downgrade its forecasts on China.
To help accelerate the economy, Beijing officials are discussing a stimulus package that could boost local infrastructure spending. However, some analysts have noted that this may not be enough, while unsatisfied investors continue to withdraw from China’s markets.