A stabilizing macro economy and property market will help local governments improve their fiscal situations this year, said global ratings agency Moody’s.
In a research report released Monday, Moody’s said the first quarter tax and non-tax revenue of local governments rose 11% year over year and will continue rising. With the real estate market stabilizing in many provinces, house prices and land sales have increased, providing a major source of revenue for local governments, said the report.
After cooling down for more than a year, government intervention in the form of interest rate cuts, transaction tax reductions and lower down payment requirements, helped the housing market post growth in the second half of 2015.
During the first quarter, 22 of 31 province-level regions on the Chinese mainland reported increases in residential and commercial real estate construction on a year-over-year basis. In April, the prices of new homes increased in 65 out of the 70 large and medium-sized Chinese cities surveyed, up from 62 in March, official data showed.
More monetary and fiscal stimulus will spark faster economic growth, which will also support local fiscal revenue, Moody’s said.
In the first quarter, 14 provincial regions reported gross domestic product growth accelerated, with more than half of 31 regions showing higher debt and equity credit growth, according to the report. However, fiscal positions will vary widely among local governments, with regions heavily exposed to excess capacity industries such as steel and coal lagging behind, Moody’s noted.