Amid a prolonged economic transition, China’s growth engine is shedding its old gears. The heyday of real estate expansion is over. Urban home prices have lost their relentless upwards march and local governments, once flush with land revenues, are confronting fiscal strain.
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It is tempting to declare this the end of the land finance era, a long-anticipated turning point that will force Beijing to adopt a more sustainable fiscal model.
Yet such a conclusion would be premature. For all the structural reform rhetoric and policy experimentation, the uncomfortable truth is this: land finance and property-driven growth remain the quiet scaffolding of China’s economic system. Their dominance is diminished but their function remains indispensable.
This is not due to a lack of reform ambition. Beijing has signalled its desire to shift towards a new growth model centred on industrial upgrading, consumption and social welfare. To steer the property sector away from speculation, the authorities have introduced policies promoting affordable housing, more efficient land allocation and property tax pilot programmes. Meanwhile, scholars and officials alike have repeatedly warned of the risks tied to local government debt and land finance.
Yet none of these efforts has offered a viable replacement for the entrenched reliance on land and property to anchor local economic development.
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At the heart of the issue lies a structural legacy. While its share of government revenue has declined significantly in recent years, the economic reach of the land and construction ecosystem remains vast. The construction sector alone employs over 50 million people, many of them rural migrant workers with few alternatives.