China’s Ministry of Finance news, January-March, the cumulative national general public budget revenue of 5,711.5 billion yuan, an increase of 24.2% year-on-year. National tax revenue was 4,872.3 billion yuan, up 24.8% year-on-year; non-tax revenue was 839.2 billion yuan, up 20.7% year-on-year.
Among land and real estate-related taxes, deed tax was 203.8 billion yuan, up 68.2% year-on-year; land value-added tax was 206 billion yuan, up 40.5% year-on-year; property tax was 55.1 billion yuan, down 9% year-on-year; arable land occupation tax was 29.5 billion yuan, down 0.5% year-on-year; and urban land use tax was 39.3 billion yuan, down 16.9% year-on-year. The cumulative growth of the five items was 52.09% year-on-year.
In addition, from January to March, the cumulative national government fund budget (another income in addition to the general public budget revenue) income of 1,860.5 billion yuan, an increase of 47.9% year-on-year. Among them, the revenue from the transfer of state-owned land use rights was RMB 1,646.7 billion, up 48.1% year-on-year.
In the first quarter of 2021, the nominal GDP growth rate was 21.2%. In the first quarter, land and real estate-related taxes and government revenue from land sales both exceeded the nominal GDP growth rate by more than twice.
At the critical moment, it’s still the house that picks the big one ……
1 Investment is the king
After 2008, one of the biggest features of the global economy is the government-led economy, and the economic development model is top-down. The difference between government-led models is nothing more than active monetary dominance (central bank money printing) or active fiscal dominance (government investment).
A top-down economy, whether it is (central bank money printing) financial resource allocation, or (government investment) the shadow behind the power, changes the distribution, both concentrating income in the upper reaches and making it difficult to boost income at the ends.
How can the economy be boosted when income at the end is depressed and demand is sluggish?
Income is not enough, borrowing to make up; insufficient demand, investment on the line. The central bank working paper points out that to boost economic growth, investment is the king.
How to stimulate investment?
1) the referee directly down the field, the government directly invest.
2) cattle on the wind will fly, when the stock price soars, unprofitable enterprises can gain by listing cash, which will tempt enterprises to increase investment.
3) The big killer, real estate.
Government direct investment generated by the demand, through the multiplier effect can stimulate upstream enterprises to increase investment in debt, but it is difficult to attract residents to invest in debt; rising stock prices can attract enterprises to invest in debt, but it is also difficult to attract residents to invest in debt; only real estate, can stimulate both residents (buy a house belongs to investment rather than consumption) and corporate debt investment.
Real estate, is the nuclear weapons to stimulate the economy.
2 land sales hunger
The formation of local government land dependence has both historical reasons and practical temptations.
1) In the 1980s, the local and the central government adopted the package tax system, some localities intercepted the fruits of economic development, resulting in a crisis in the central finances, during which there were also two occasions when the central government borrowed money from localities, each time about two or three billion. The lack of central finance also increased the problem of deficit monetization, and indiscriminate printing of money to supplement the fiscal gap led to the frequent occurrence of hyperinflation in the late 1980s and early 1990s. In order to solve the central fiscal problem, the tax sharing reform was born. When the tax sharing reform was carried out, the central government demanded more financial power than the matter power when dividing the central tax and local tax in order to control the dispatch of funds among different regions and to strengthen centralization. This led to a mismatch between local affairs and financial powers, and revenue from land sales became an important means for local governments to make up for the lack of revenue.
(2) One of the important assessment tools for local officials is to judge the hero by GDP, and there is income from land sales, and there is investment capacity when there is income, and there is investment to boost regional GDP, and there is GDP to facilitate performance assessment. How to sell more income ≈ political performance assessment.
Local land sales hunger is the root cause of the formation of the real estate economy.
From the first quarter land sales revenue growth of nearly half year-on-year, the land sales hunger continues ……
3 printing money to push the wave
After 2008, the world is in the big printing money. As the U.S. subprime mortgage crisis just burst, the U.S. residents of the property investment palpitations, funds flow into the stock market, the U.S. stock market rose to stimulate enterprises to increase investment to boost the economy.
The Chinese stock market has more historical problems, the stock market is not in place to protect investors, counterfeiting is rarely punished, which stimulates the continued inflow of funds into the housing market, and the local government’s hunger for land sales, which continues to this day.
In terms of pulling the economy, whether it is investment or consumption, it is reflected in increased net cash flow. In terms of cash flow, only when the new borrowing exceeds the debt service, the net cash flow will increase to stimulate economic growth; from the macro point of view, only when the central bank to stimulate the new borrowing, the new borrowing can exceed the debt service, to stimulate economic growth; from the pulling means, only the property economy, to stimulate residents and enterprises at the same time wild leverage, to easily make the new borrowing exceed In order to easily complete the set high economic growth target.
After 2008, the real estate economy has been the main force pulling China’s economy to maintain high growth, driven by money printing.
4 The Fate of the Gasbag
From the perspective of PPI and CPI, PPI represents the upstream enterprises, CPI represents the end demand, and bridging the two are the downstream enterprises.
PPI (upstream) rises dramatically, while CPI lags badly (below). The only reason for this phenomenon is the overcapacity in the downstream. The upstream supply is more concentrated (with monopoly), the downstream prints money to preserve capacity (there is demand for the upstream), so the upstream price increases; the downstream overcapacity, the residents’ demand is depressed, and the downstream price increases are difficult.
PPI (upstream) rose dramatically, while CPI seriously lagged, forming a scissors (author’s blog)
Tide of price hikes in upstream enterprises and loss-making in downstream enterprises. Once the downstream price increase, but also to invite people to scold, the downstream is a gasbag.
For real estate, the party selling land (government) is the upstream, housing prices represent the end demand, bridging the two is the real estate business. Land supply is concentrated in the hands of the local government (there is a monopoly), the land rose; terminal selling prices are subject to policy regulation, strictly controlled price increases.
For the entity, the downstream enterprises are the gasbag; for real estate, real estate enterprises are the gasbag; when flour is more expensive than bread, the gasbags have no other way out than to
1) Count on the price of flour to fall, the cost of falling.
(2) monetary easing, you can borrow debt to renew life.
3) regardless of the price increase directly. For the real downstream, the price increase will annihilate demand, the real enterprise more difficult to raise prices. For financial assets such as property, the price increase will create demand, real estate companies prefer to ignore the direct price increase. 2020 to date, although house price regulation and control has been repeatedly strengthened, but the first-tier cities school district house speculation has been rising and falling.
Upstream land supply and terminal property prices, are subject to government regulation. Let the land rise but not let the price of housing rise, real estate companies in the quagmire; once the price of housing rose, real estate companies still have to be scolded –
The fate of the gasbag.
5 The significance of abolishing export tax rebate to real estate economy
China’s Ministry of Finance and the General Administration of Taxation also issued the “Announcement on the Cancellation of Export Tax Refunds for Some Steel Products” on the 28th, specifying that since May 1, 2021, export tax refunds for 146 steel-related products will be cancelled. Stainless steel and other products tax rebate rate from 13% to 0%.
In terms of the impact of the reduction of export tax rebates for steel categories on real estate.
(1) Steel products are more related to the real estate economy, and reducing export tax rebates is good for suppressing domestic steel prices, thus reducing the cost of a little flour. Conversely, when the price of bread remains unchanged, lower steel prices will be more conducive to higher land prices.
2) Lower export tax rebates will reduce the government deficit, thus reducing the pressure on land supply, which is conducive to sustainable price housing (from the government’s perspective, when there is a large fiscal gap, there is pressure to sell more land, which is not conducive to sustainable housing prices).
3) inhibit the export of commodities based on bulk resources as raw materials, which is conducive to depressing inflation and leaving room for monetary policy to support housing prices. on April 21, I think China may limit the export of commodities based on bulk resources as raw materials since the logic, on May 1, the policy of reducing export tax rebates for steel products (i.e. reducing the export of commodities based on steel as raw materials) was landed.
In terms of direct impact alone (which may not be the case in terms of multiple feedback effects), the elimination of export tax rebates for steel-based products benefits the property economy.
When leverage is high, perhaps there is and only the property economy, to continue to stimulate residents and enterprises to increase leverage, to promote new borrowing more than the debt service, to pull economic growth.
At the critical moment, it is still only the house that can pick up the slack.
Summary: One problem is that the potential to buy a home stems from savings, income and borrowing.
Before, the high economic growth since the reopening accumulated generations of savings can be tapped to buy a house, but now it has become a debt-ridden. Relying on more debt to tap into the potential for buying a home will only add more debt and interest. And more debt and interest will eat up the spending potential of the next 30 years.
Why did Japan lose 20 years? ……
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