China’s state-owned property developers are coming to the rescue of cash-strapped local governments by increasing their activity in land auctions that had previously been dominated by private developers, reports the Financial Times. In the past three months state developers have bought around three-quarters of residential land sold at auctions in 22 large cities by value. Prior to this period they had purchased only about 45% of land plots sold at auctions, which is the biggest source of income for local governments.
A year-long drive by Beijing to reduce leverage across the property sector, which is estimated to account for around one-third of total output in the world’s second-largest economy, has driven Evergrande and other private-sector Chinese developers to the brink of bankruptcy. That, in turn, has dampened buyer demand at land auctions, hitting local government finances hard.
“Local governments are counting on state groups, which have access to cheap credit, to keep land sales from falling off a cliff,” said Chai Duo, a professor at Central University of Finance and Economics in Beijing and a government policy adviser. “Debt-laden private developers are focused on reducing their leverage.”
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