China’s local government debt crisis adds chill to success of Harbin’s ‘ice city’ tourism boom

by Amanda Lee at

As China’s northeast province of Heilongjiang counts on more visitors flocking to the “ice city” of Harbin to drive up consumer demand, its prospects are trapped with a debt overhang and weak industrial growth, analysts said.

Reducing local government debt risks continues to be a policy priority for Beijing, as highlighted in the government work report during the annual National People’s Congress this month.

The economy of China’s northeast region, which also includes the provinces of Liaoning and Jilin, have underperformed in recent years.

The region has struggled with declining industrial profitability and a net population outflow, while its revenues – mainly generated from land sales – have taken a dive to exacerbate its financial problems.

“Property has also become a lifeline for government finances, particularly at the provincial level. At the market’s peak in 2021, almost half of total local government revenues came from land sales to developers; this revenue is used to deliver government services, fund infrastructure projects and service debt,” Moody’s Analytics said on Friday.

Dwindling sales and falling property prices saw land sale revenues fall by almost a quarter in 2022, and by a further 13 per cent in 2023, Moody’s Analytics added.

A slowdown of fixed-asset spending by local governments, especially those financially weak, could affect their construction related earnings, according to an analysis by Fitch Ratings.

The US rating agency’s analysis on the 2024 budgets of 12 regions in China, that have been reportedly instructed by Beijing to postpone or suspend certain state-led infrastructure projects to curb debt risks, showed that their planned capital expenditure would decline by 23 per cent from 2024.