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China’s Provinces: Addressing the Discrepancies at the Local Level

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Understanding China’s Real Estate Markets

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Abstract

As China embarks on a path of economic rebalancing, regional differences in dealing with slowing growth, volatile property prices, and changing investment and consumption patterns have moved into focus. It is often local challengessuch as Zhengzhou’s coping with a fading housing boom or Hainan’s growing debt burden—that shape the perception of China’s economic health. In fact, while all 31 provinces are affected by China’s transition, regional differences remain substantial. Not only is there huge variation in the provinces’ ability to stem China’s planned shift from investment-driven growth toward more sustainable and consumption-led development. But provincial risks are often at the root of China’s current reform trends, also, notably with regard to fiscal reform and the recent push to establish a functioning local government bond market.

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Notes

  1. 1.

    The basis of this article is a Deutsche Bank report of China’s provinces—see Levinger (2015).

  2. 2.

    The 31 provinces referred to include 22 provinces, 5 autonomous regions and 4 self-governed municipalities.

  3. 3.

    See Dyck and Levinger (2010) for a more detailed discussion of provinces’ structural changes in the early 2000s.

  4. 4.

    For an overview of China’s and other Asian countries’ infrastructure financing challenges see also Hansakul and Levinger (2016).

  5. 5.

    The authors’ definition of economic and political importance is based on nominal urban GDP as of 2010 with Tier 3 and Tier 4 cities up to RMB 120 billion.

  6. 6.

    See, for example, Zhang (2016) and Frieden (2016) for a broader view on China’s rebalancing process and its implications.

  7. 7.

    According to official sources, the retail sales growth rate in 2018 was 9%; however, our own calculations with the underlying data indicate a growth rate of slightly above 4%.

  8. 8.

    Defined by NBS as construction projects and purchases of fixed assets (incl. fees) with a total planned investment of min. RMB 5 m in urban and rural areas but excluding rural households.

  9. 9.

    Data available until 2014 only.

  10. 10.

    Given China’s crude steel capacity of roughly 1130 MMT in 2015, this cut equals a reduction of about 13.3%.

  11. 11.

    Chinese cities are typically divided into four categories. Tier-1 cities include Beijing, Guangzhou, Shanghai, and Shenzhen. Tier-2 cities comprise of Beihai, Changchun, Changsha, Chengdu, Chongqing, Dalian, Fuzhou, Guiyang, Haikou, Hangzhou, Harbin, Hefei, Hohhot, Jinan, Kunming, Lanzhou, Nanchang, Nanjing, Nanning, Ningbo, Qingdao, Sanya, Shenyang, Shijiazhuang, Suzhou, Taiyuan, Tianjin, Urumqi, Wenzhou, Wuhan, Wuxi, Xiamen, Xi’an, Yinchuan, and Zhengzhou. Smaller cities are grouped into Tier-3 and Tier-4 categories.

  12. 12.

    LGFV borrowing costs are on average twice as high as government bond yields. See also Zhang and Barnett (2014).

  13. 13.

    For example, implementation challenges occurred during the initial kick-off of the swap plan, when Jiangsu and Anhui provinces had to postpone planned debt auctions amid weak investor demand and limited ability to use local government paper as collateral—until the central government determined their eligibility as collateral for central bank lending.

  14. 14.

    Augmented fiscal data expand the perimeter of government to include local government financing vehicles and other off-budget activities.

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Levinger, H., Braun, C. (2021). China’s Provinces: Addressing the Discrepancies at the Local Level. In: Wang, B., Just, T. (eds) Understanding China’s Real Estate Markets. Management for Professionals. Springer, Cham. https://doi.org/10.1007/978-3-030-71748-3_5

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