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In 2021, among the ** major Chinese cities that received the highest income through land transfers, ** cities’ annual land transfer fee revenue was higher than their local general public budget revenue. As land transfer revenues declined significantly after the property market peaked in 2021, many local governments have been forced to reduce their reliance on land transfer revenues and turn to debt and other funding sources.

The 1994 fiscal reform and “Land Finance”

The tax-sharing reform of 1994 greatly adjusted China’s tax structure, and the distribution of tax revenue between central and local governments. Since its implementation, local governments in the country have had little tax autonomy and can only receive roughly half of the overall tax revenue generated in the country.
The reform forced local administrations to find new sources of income. As land plots in urban areas are government-owned, they were leased to property developers in exchange for land transfer fees, helping local governments to cover their expenditures.
As China’s real estate market mostly remained prosperous in before 2022, land transfer revenues also increased significantly. Many local governments had become increasingly dependent on this income, due to a lack of other financial means.

Lower dependency in first-tier cities

Economic hubs with diverse industries in China, including Beijing, Shanghai, and Shenzhen were generally less dependent on land transfer incomes, despite having the most vibrant real estate market in the country and exceptionally expensive land leases. In contrast, many provincial capitals, such as Guiyang, Wuhan, and Xi’an, were among the cities that were the most dependent on land transfer incomes.