Wen Tiejun: Debt crisis and land transactions under the influence of the epidemic

At present, from the macro background, the three "difficult brothers and sisters" of the real estate bubble, the debt bubble and the financial bubble have been tightly tied together, which has become the biggest risk exposure of the "extensive quantitative growth" caused by the investment of urbanization in the past 20 years, and will face the risk of bubble bursting under the pressure of the crisis caused by the epidemic.

On the one hand, the real estate bubble, the debt bubble and the financial bubble form a "three-bubble crisis".

First, the real estate price bubble is difficult to estimate. According to the "2019 Survey of Assets and Liabilities of Urban Households in China" released by the central bank, the housing ownership rate of urban households in China has reached 96%, the proportion of families with one house is 58.4%, the proportion of two houses is 31.0%, the proportion of three or more houses is 10.5%, and the average household owns 1.5 sets of housing. China's real estate market has formed a huge bubble.

Second, local debt is growing too fast. At the end of 2018, the top five regions in terms of debt balance were Jiangsu, Shandong, Zhejiang, Guangdong and Sichuan. Under the epidemic situation, the resources for disease-bearing growth in developed areas have been exhausted, the economic downturn has superimposed on tax and fee reductions, and the local government expenditure pressure is large and the available financial resources are insufficient. In 2018, local finances have already lost revenues, and this year the central budget deficit has increased significantly. At the same time, old topics such as "deficit monetization" and "land sales finance" have become the focus of public opinion, although the central government wants to "live too tightly", but governments at all levels are still "budget soft constraints"!

Third, financial bubbles are expanding rapidly. Hidden deficits and debt burdens over the past decade or so have been highly correlated with bank credit risk. Financial institutions must not only implement the policy requirements of serving the real economy, but also meet the market requirements of the main income; in fact, driven by the latter, on the one hand, a large number of funds are idling, and on the other hand, a large proportion of the scale of credit assets is real estate. Businesses rely on mortgages on property and land; local governments rely on selling land for debt service; and household indebtedness is mainly derived from real estate. Once the Chinese-style "subprime mortgage" bubble bursts with property prices, it will trigger a financial crisis.

On the other hand, in order to ensure growth, all localities have rushed to the project, and I am afraid that there is a risk of debt heating up.

At present, in order to cope with the epidemic and accelerate the resumption of work and production, various localities have accelerated the launch of projects, although the leaders of the CPC Central Committee have made serious criticisms of "extensive quantitative growth" in 2018, but under the condition of lack of "new momentum", all localities are still trying to continue the "old infrastructure" investment to drive growth. In the first quarter, local development and reform commissions have announced key construction project plans for 2020, and the scale of investment plans is considerable, according to public information, Guangdong ranks first, followed by Yunnan and Sichuan. The total number of planned investment projects in Shandong is 1021.

The impulse of local governments to borrow large-scale debt to ensure growth under the impact of the epidemic is obvious. Moreover, "funds follow the project", and all localities can enjoy national policies on the project. More importantly, new investments will be good for implicit debt swaps. It can be seen from this that when local governments run policies, grab projects, and attract investment and financing, it is the risk of debt heating up, worsening the "land sales finance", and causing group events!

In 2019, all provinces and regions entered fiscal losses, highlighting that it is impossible to repay debts by their own financial capabilities, and there is no specific implementation of measures to "live too tightly". According to the 2019 China Statistical Yearbook, all provinces and regions in China entered fiscal losses in 2018, with total fiscal revenue of 9,790.338 billion yuan, while the total fiscal expenditure was as high as 18,819.632 billion yuan. The crisis's severe fiscal losses can be traced back to the 2008 Wall Street financial tsunami that caused a decline in global demand in 2009 and evolved into China's import-based deflation in 2010. That round of large-scale debt investment not only increased fiscal debt, but also the source of the industrial supply-side reform proposed in 2014. If the 14th Five-Year Plan continues to work hard and fast, it can only be that the financial losses at all levels will become more and more serious and the debt pressure will be heavy.

Debt, finance, real estate, these "three bubbles" combined, has created a serious crisis situation. However, in order to cope with the crisis, it is still necessary to invest in these debt-increasing construction projects, and objectively maintain a variety of "running and dripping" practices to generate gray benefits for grass-roots cadres. This reflects a huge risk in grass-roots governance, and I am afraid that it is still necessary to reconstruct a new type of collective economy in order to form good governance in rural areas and consolidate the foundation of comprehensive national security.