Local governments in some Chinese cities are buying more of their own land at auctions in a bid to prop up prices, a move that is damaging their already weak finances, the Financial Times reported.
A Deutsche Bank analysis of land sales in four provinces shows that the problem is most pronounced in the smallest cities, the report said.
In Changzhou, a city along the Yangtze River, the share of land sales to LGFVs is said to have risen to 70 percent in 2014, from 28 percent in 2009.
Also troubling was the level of cross-guarantees of loans among LGFVs, the report said, citing Zhang Zhiwei, Deutsche Bank’s chief Asia economist.
Several cities, including Hangzhou, have already had to intervene to support rings of local companies propping each other up through mutual loan guarantees.
Although Deutsche Bank only reviewed data for four provinces, concerns about the health of property markets in third-tier cities across China are mounting, the paper said.
A glut of new building combined with tougher credit markets has cooled interest in all but the largest cities, forcing local governments to step in and prop up their own land prices, it noted.
– Contact us at [email protected]