On September 18th, the Ministry of Finance announced the fiscal revenue and expenditure for the period of January to August 2026. The general public budget revenue was 15.66 trillion yuan, a year-on-year increase of 5.7%, tax revenue increased by 6.6%, and the stamp duty on securities trading increased significantly by 82%. However, the budget data of government funds shows another picture: from January to August, the revenue from the transfer of state-owned land use rights was 1.3753 trillion yuan, a year-on-year decrease of 28.6%.

At the end of January this year, the Ministry of Finance released the full year data for 2025, which showed that land transfer revenue was 4151.8 billion yuan, a year-on-year decrease of 14.7%, and the decline from 16% in 2024 had narrowed. At that time, many market institutions predicted that the decline in 2026 was expected to continue to narrow. However, eight months have passed and the decline has nearly doubled; In the first half of the year, the year-on-year decrease was about 30%.

A person in charge of the finance department of an eastern county told reporters that the continuous decline in land transfer revenue this year is mainly due to two factors: first, state-owned enterprises' "land auctions" are increasingly restricted and regulated by relevant departments; Secondly, there have been changes at the institutional level, such as the requirement in Document No. 38 that newly added construction land should not be used for commercial real estate development in principle.

Document No. 38 refers to the "Notice on Further Ensuring Natural Resource Elements" jointly issued by the Ministry of Natural Resources and the State Forestry and Grassland Administration on March 5th this year, which puts forward new constraints and requirements for the construction of new land.

Many officials and experts from the county and district finance departments have a clear feeling that "land finance" may undergo fundamental changes.

Wang Zhenyu, Dean of the Institute of Local Finance at Liaoning University, believes that China has entered the era of stock housing. Similarly, as a product of the era of flow and increment, "land finance" is inevitably facing the challenge of diminishing marginal returns. Therefore, to meet the objective requirements of the stock era, studying the transition from "land finance" to "real estate finance" is also a topic of the times.

The decline continues to steep

The strict definition of "land finance" is land transfer revenue, including revenue from the transfer of state-owned land use rights, state-owned land revenue funds, agricultural land development funds, etc. Due to the high proportion of revenue from the transfer of state-owned land use rights, the other two types of revenue are often ignored. Therefore, in reality, "land finance" generally refers to the revenue from the transfer of state-owned land use rights.

Previously, "land finance" was almost the main source of budget revenue for local government funds. Taking 2025 as an example, the revenue from the transfer of state-owned land use rights will account for 77.6% of the budget revenue of local government funds.

The decline in land transfer revenue has been going on for many years, and this year is the steepest period of the trend.

According to data from the Ministry of Finance, in 2020, the revenue from the transfer of state-owned land use rights in China reached a peak of 8.4 trillion yuan, followed by four consecutive years of negative growth. In 2025, this revenue will be 4151.8 billion yuan, a year-on-year decrease of 14.7%, which is about 4.3 trillion yuan less than the peak, shrinking by more than half.

In 2025, there were signs of stabilization in the "land finance": the revenue from the transfer of state-owned land use rights decreased by 16% in 2024 and narrowed to 14.7% in 2025. Therefore, previous researchers have predicted that land transfer revenue will continue to decline in 2026, but the decline is expected to narrow.

However, expectations were completely dashed.

According to data from the Ministry of Finance, from January to August this year, the revenue from the transfer of state-owned land use rights was 1.3753 trillion yuan, a year-on-year decrease of 28.6%.

It is almost impossible to achieve the goal of 4 trillion yuan by 2025 for the whole year, "said Wang Zhenyu.

The coldness of the land market has also spread to the tax side. From January to August this year, deed tax revenue was 258.5 billion yuan, a year-on-year decrease of 14.2%; The land value-added tax was 256.2 billion yuan, a year-on-year decrease of 13.6%. This means that upstream real estate companies are acquiring less land, midstream new house sales and project settlements are slowing down synchronously, and downstream transaction tax bases such as deed tax and land appreciation tax are shrinking. The realization chain from land to housing is gradually shrinking.

Wang Zhenyu believes that there is no sign of "recovery" in the short-term of local state-owned land revenue nationwide, and the trend from January to August this year further confirms the judgment that land finance may fulfill its "historical mission".

Behind

This round of land revenue is accelerating its decline, which is different from the previous four years. The first four years were mainly due to the pressure brought by changes in the real estate market; This year, the demand side has not fully recovered, and there have also been significant changes in the supply side.

In March of this year, the Ministry of Natural Resources and the State Forestry and Grassland Administration jointly issued the "Notice on Further Ensuring Natural Resource Factors" (Document No. 38), which includes 13 policy measures. The two most concerned measures are: firstly, establishing a linkage mechanism between newly added construction land and existing construction land, and the annual increase in urban and rural construction land should not exceed the area of activated existing land. The head of the relevant department of the Ministry of Natural Resources later explained that "activating one acre is necessary to add one acre"; Secondly, priority should be given to ensuring the construction of major projects and the development of people's livelihood undertakings for newly added construction land, and it should not be used for commercial real estate development in principle.

The head of the local finance department mentioned above stated that the core constraints of Document No. 38 lie in two aspects: the "increase deposit linkage" for newly added construction land (activating one mu of existing land can only add one mu), and the principle that newly added land should not be used for commercial real estate development. In the opinion of the person in charge, this policy has little direct impact on the land transfer revenue of that year, but has a significant impact on the platform company. The urban investment platform used to undertake the function of land auction as a bottom line, accumulating a large amount of existing land assets that have been basically mortgaged. If it is not possible to obtain new land in the future, it will be difficult to add effective assets for financing.

At the county level, the rapid contraction of the land market is also related to the enhancement of compliance. Previously, local governments had the motivation to "increase" land revenue through state-owned enterprises, but with the strengthening of regulation, this behavior has been subject to stronger constraints.

The person in charge of the county finance department mentioned above said that the channels for state-owned enterprises to participate in land auctions have been substantially tightened. Local platforms need to obtain land through multiple levels of approval, and if the funding exceeds a certain scale, it needs to be reported to the provincial level for approval. In actual operation, it is almost difficult to obtain approval. This road is basically impassable, "he said.

After the blockage of the state-owned enterprise market support channel, the land market can only rely on industrial land, but the price of industrial land is relatively low and cannot be compared with commercial land. The person in charge said, "Now we rely on industrial projects to hold on and sell for hundreds of millions of yuan a year, which is considered good.

The role of land finance

For a long time, 'land finance' has been one of the main sources of funding for urban construction. Land finance plays an important supporting role in local finance in three aspects: firstly, it helps cities complete the accumulation of original capital; secondly, it becomes the core source of local debt repayment; thirdly, it becomes an important supplement to general public budget revenue.

At its peak in 2020, the national general public budget revenue reached 18289.5 billion yuan, while the revenue from the transfer of state-owned land use rights reached 8414.2 billion yuan.

The general public budget is the 'food money' that guarantees wages and transportation. The real money for work, such as road construction, building, and repaying old debts, all points to the income from land sales. Now that the land cannot be sold, how can this hole be filled? No one can answer this question at the moment, "said the person in charge of the county finance bureau.

Now, the support capacity of "land finance" for the above three aspects has significantly weakened, especially the urgent ability to repay debts.

Previously, local government debt was mostly repaid through land transfer income, and the decline in income directly increased the pressure of repaying principal and interest. According to the data of the Ministry of Finance, the national debt interest payment expenditure in 2025 will be 1349.1 billion yuan, an increase of 4.8% over the previous year.

Of particular concern is the impact on the solvency of special bonds. In December 2019, Wang Kebing, then inspector of the Budget Department of the Ministry of Finance, stated at the "Seminar on the Construction and Development of Local Debt Markets" that in terms of debt repayment sources, the current source of special debt repayment is relatively single and highly dependent on land transfer income.

In 2021, the website of the Ministry of Finance published an article titled "Fujian Supervision Bureau of the Ministry of Finance: Policy Discussion on Special Bonds Using Land Transfer Fees as Project Income", which mentioned that the Fujian Supervision Bureau conducted on-site research on the allocation, issuance, and use of special bonds in 2020, and analyzed the projects received over the years based on feedback from grassroots finance and issuance guidance institutions.

Research has found that most of the special bond projects declared by local governments do not have stable and reliable sources of project income. By using land transfer fees to increase project income, the principal and interest coverage ratio can be achieved. This phenomenon is particularly prominent in the declaration projects at the county and city levels.

Deeper changes are reflected in the revenue sources of government funded budgets.

The head of the county finance department mentioned above analyzed that in the past, the budget revenue of government funds mainly came from land finance and was self owned income. At present, special bonds have become the main source of funding for fund budgets, which means that local infrastructure investment is increasingly relying on borrowing rather than self owned income. This brings two problems: first, the financial pressure of repaying bond interest is increasing, becoming another major expenditure item in addition to the "three guarantees"; Secondly, once the scale of bond issuance brakes, the impact on grassroots "three guarantees" and local fiscal systems will also be relatively significant.

In recent years, an important role of "land finance" has been to increase the denominator of the debt ratio.

The local government debt ratio is a core indicator for measuring the risk of local government debt, defined as the ratio of local government debt balance to comprehensive financial resources. The Ministry of Finance has classified local debt risk levels into four levels: red (debt ratio ≥ 300%), orange (200% ≤ debt ratio<300%), yellow (120% ≤ debt ratio<200%), and green (debt ratio<120%)

Among them, if entering the red zone, local governments will be subject to certain restrictions in economic development and investment and financing. Therefore, in order to avoid red alerts, some places will increase general public budget revenue or government fund budget revenue through state-owned enterprise circulation, idle operation, and expanding land transfer revenue, in order to expand the denominator.

But in 2026, with the tightening of "top-down" constraints, the possibility of such "big" revenue is also decreasing.

The heads of the county-level finance departments mentioned above are still very anxious about how to stabilize the local debt ratio as land transfer revenue has significantly declined this year.

Cannot leave, cannot go back

Land finance is so important to local governments, will it go back to the past with the deep adjustment of the real estate market and the construction of new models?

The judgment of the head of the county finance department mentioned above is that "land finance" will not disappear, but will shrink and transform. In the future, it will still be a part of local financial resources, but no longer the dominant source.

Wang Zhenyu put this issue into a long-term cycle of over thirty years. In his view, the tax sharing system in 1994 focused on the division of revenue within the government budget. The central government transferred off budget revenue, including land differential rent, and the rigid mechanism was able to operate smoothly. "Without the financial supplement and financing function of 'land finance', it would be difficult to achieve the prosperity of local finance in the past 30 years

However, due to multiple factors such as limited land supply and demand for real estate development, "land finance" as a unique term must inevitably exit the historical stage in a timely manner; At the same time, the objective existence of the binary land system determines that it is not realistic to completely eliminate it.

In the short term, although the level of local financial contribution to the revenue from the transfer of state-owned land use rights has been decreasing year by year, and after deducting various compensation costs, its pure financial contribution is limited. However, its key significance lies in expanding the cash reserves of local governments to meet the current expenditure needs. This is still very important for local finance at present. The key to solving local financial difficulties at present is to effectively inject liquidity.

As for the various "alternative solutions" popular in the market, grassroots financial professionals are not convinced.

I have watched many short videos saying that the government can create more income by activating asset resources; some say that the government can purchase high-quality enterprise equity to generate income and turn to 'equity finance'; and some say that the government can purchase a batch of low rent housing and then resell it for profit... These experts are really talking nonsense, "commented the person in charge of the county's finance department.

A local government investor and financier also agrees with this viewpoint. In his opinion, the general direction of fiscal transformation is not wrong, but the specific methods online are indeed "unreliable".

Taking the government's purchase of affordable housing and subsequent rent collection as an example, the essence is to exchange new fiscal expenditures for future cash flows. In the current situation where local financial resources are generally tight, it is difficult to balance the cost of funds with the rental return rate. What money will you use to buy it? Can you recoup the cost after buying it? "He retorted.

The logic of "equity finance" also cannot withstand scrutiny. In the current market environment, there are only a few enterprises that can truly bring profits, and most local governments do not have the ability to participate in high-quality enterprise investment. Occasionally encountered, it is most likely to be "taking over the plate for others" and "buying it back is also a burden

But he believes that revitalizing the stock is not a dead end, the key lies in the path selection: exchanging the stock for increment, rather than spending money to leverage. Direct leasing, pricing injection into state-owned enterprises, introduction of cooperative partners through operating rights, and bundled financing can all activate and deposit resources without adding additional financial burden.

He said, "Use what you have first, don't always think about spending money to buy it

In the view of researchers, the transformation of "land finance" not only requires local governments to make changes themselves, but also relies on the promotion of the entire fiscal and taxation system reform.

Wang Zhenyu said that the responsibility and mission of "land finance" have undergone significant changes now. In the era of stock housing, as a product of the flow and increment era, "land finance" will inevitably face diminishing marginal returns. "Studying the transition from 'land finance' to real estate finance is also a proposition of the times.

Wang Zhenyu said that since this year, various fiscal and tax reforms at the central level, such as the issuance of ultra long term special treasury bond, the reform of local implicit debt, the reform of local surtax, and the pilot program for the overall and integrated use of special transfer payment funds, have also focused on injecting liquidity in the short term and endowing local governments with necessary financial power in the medium and long term. Development is the ultimate principle. Only by expanding the fiscal and economic cake and accelerating the construction of national taxation can we effectively solve various contradictions and problems caused by "land finance" and other factors.