China Turns to Privatization Amid Economic Struggles
As China's economy faces mounting pressures, local governments are increasingly privatizing state-owned assets to address their financial deficits. Recent reports highlight a significant shift in strategy, with authorities in various regions selling off essential resources to raise revenues.
During a visit to Laishi, a city in eastern China, local resident Guo Ping discovered that the government had sold off several state-owned assets, including water tanks, reflecting the dire financial situation many cities are experiencing. According to The Economist, local government revenues have plummeted, exacerbated by a decline in tax revenues and a real estate crisis that has severely limited the ability to sell land use rights, a traditional source of income. In 2023, land-related revenues accounted for only 26% of total local authority revenues, down from 36% in 2020.
In response to these challenges, local authorities have begun exploring alternative revenue streams, including imposing new fees and fines. In Wuzhou, for instance, traffic fines now constitute about 50% of the city's revenue, a stark contrast to the less than 8% seen in most other cities.
To alleviate financial pressures, the central government has urged local authorities to 'revitalize' their assets, prompting a wave of asset sales across the country. In 2022, China’s State Council instructed 12 provinces burdened by debt to take drastic measures, including selling off assets. Notably, Guangzhou raised approximately $50 million by permitting water and bus companies to sell land plots, while Chongqing announced plans to sell assets to tackle its debt crisis.
In Qingdao, state-owned asset sales reached 5.9 billion yuan (about $832 million) last year, more than double the previous year, including long-term contracts for reservoir usage. However, the privatization process is fraught with challenges, including difficulties in establishing asset ownership, especially for older assets lacking documentation. The consolidation of cities over the years has further complicated ownership determinations.
Legal risks also loom over these transactions, with potential buyers wary of future investigations into corruption or undervalued sales. Critics argue that many of these sales do not represent genuine privatization, as evidenced by transactions in Laishi where state-owned companies were the buyers, raising concerns about transparency and effectiveness. Guo expressed his dissatisfaction, stating that these sales illustrate a 'gradual economic deterioration.'
While these asset sales are part of a broader strategy to generate revenue amid economic turmoil, it remains uncertain whether they will adequately address China's ongoing financial challenges.
