President faces an uphill battle to undo a system that has led to a bloated property sector
Xi Jinping’s to-do list has seen a lot of ticks in recent months: more flights into Taiwan’s defence zone; suppressing dissenting voices in Hong Kong; clipping the wings of tech barons; outlawing the out-of-school tutoring industry. The list goes on, reports the Guardian.
However, one key initiative – introducing a local property tax – has attracted fewer headlines but is apparently so controversial within China’s ruling Communist party that even Xi is still only able to deal in trial schemes rather than wholesale change.
The decision to pilot the tax on all types of property in selected regions for five years – most likely important cities such as Shenzhen and Hangzhou– was taken last month. It is seen as vital to reforming the country’s bloated property sector, a concrete-and-glass divide between China’s haves and have-nots which has been personified by the woes of the heavily indebted developer China Evergrande.
The property tax is controversial because local governments rely on land sales for at least 40% of their revenues. This has encouraged an aggressive sales policy, aided and abetted by property developers happy to take on massive debts to buy the land and build ever more apartment blocks for buyers convinced the market is a one-way bet.
This decades-long party saw China’s property developers build a debt mountain of around $5tn, according to analysts at Nomura, before Beijing called time by restricting what they could borrow. When the music stopped, Evergrande was stranded on the dancefloor with $300bn of debt, and it faces its latest pay-up-or-default deadline on 10 November.
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