Asia in Focus China Property Downturn Keeps Straining Local Government Finances

Economics Research 7 September 2026 | 7:33AM HKT

China: Property Downturn Keeps Straining Local Government Finances

n Local government funding conditions have deteriorated substantially since the Lisheng Wang | property downturn began in 2021, due mainly to weaker land sales revenue, Goldman Sachs (Asia) L.L.C. which has fallen 70% from its mid-2021 peak. Including both off-budget land sales and on-budget property-related taxes, property-related revenue declined from 37% of gross local government revenue in 2020 to 20% in 2025, and may fall further to around 16% this year. n Tighter local government funding has created multiple headwinds, including weaker fiscal support for final demand, rising corporate arrears, delayed civil servant salaries, stricter tax and fee collection, and higher LGFV credit risks. These pressures have weighed on local investment and consumption and reinforced a negative feedback loop. n Recent property policies that require local authorities to steadily shift commodity housing sales to a completed-property sales model could further weigh on land sales and deepen the property construction downturn over the next few years. We now expect land sales revenue to fall by 30% or more this year, much faster than the 17% annualized decline during 2022-25. We believe the downturn will likely extend into 2027 or beyond, with revenue ultimately falling 80-90% from its mid-2021 peak. n Overall, at the national level, falling property-related revenue would have reduced gross local government expenditure by roughly one quarter in 2025 compared to a counterfactual scenario without the property downturn, while other channels offset around 80% of the drag, based on our estimates. n The combined fiscal impact of falling property-related revenue and other offsetting factors differs sharply across provinces: Jiangsu, Zhejiang, and Guangdong — which are among more developed, coastal provinces — experienced some of the largest drags, while higher central transfers and other offsets more than absorbed the decline in Tibet, Ningxia, and Inner Mongolia which are among less developed, inland provinces. Less developed provinces with still-high fiscal exposure to the property sector may face greater fiscal pressure if land sales revenue declines further and offsets remain limited, in our view.

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China: Property Downturn Keeps Straining Local Government Finances

Local government funding conditions have deteriorated substantially since the unprecedented property downturn began in 2021, due mainly to weaker land sales revenue. Escalating fiscal challenges have weighed on local investment and consumption, and reinforced a negative feedback loop. Policymakers have responded by increasing central government transfers and raising funds through other channels, but these measures have only partly offset the fiscal drag from falling property-related revenue at the national level, with significant variation across regions. In this note, we analyze recent land market dynamics in China, discuss major factors that affect land sales revenue, and estimate the impact of falling property-related revenue on local government spending at the national and provincial levels.

The property downturn has weighed on local government finance for over five years… Despite continued local housing easing in recent years, land sales revenue has continued to fall, declining 31% yoy in the first seven months of this year and by a cumulative 70% from its mid-2021 peak (estimated based on quarterly data for different land sales measures; Exhibit 1). Combining off-budget land sales revenue with on-budget property-related tax revenue1, we estimate that property-related revenue accounted for 37% of gross local government revenue in 20202, but this ratio dropped to 20% in 2025, and may decline further to around 16% this year (Exhibit 2)3.

Tighter local government funding has created multiple headwinds, including weaker fiscal support for final demand, rising corporate arrears and…