When the real estate sector catches a cold, the taxation
department sneezes.
This is especially true for Shanghai, where real estate has
developed into a key industry in the last few years, becoming a
major source of the city's revenue.
But the momentum of high revenue has been abating fast since the
central government took steps to cool down the property market in
the last two years.
The growth rate of Shanghai's income declined by more than 9
percent last year, largely caused by the negative impact on the
real estate sector and the steel industry.
Revenue has been hit particularly hard in some local districts
where the property sector once contributed as much as 40 percent of
the gross domestic product and 20 percent of the income.
"Land-dependent revenue is expected to suffer prolonged pain as
real estate and related industries make up a quarter of the city's
income," the 21st Century Business Herald said, quoting a
report from the Shanghai Academy of Social Sciences (SASS).
Before 2006, land-driven taxes, such as land leasing tax,
value-added tax, income tax, property transaction tax and stamp
tax, propelled Shanghai's revenue growth by more than 20 percent a
year. But that growth dropped to 11.6 percent last year.
At the just-concluded National People's Congress, local
governments' over-reliance on land income received sharp
criticism.
The habit of making a pile from land leasing has been blamed for
pumping up property prices. Many believe higher property prices
make local governments happy as they mean more income for their
coffers.
With a sluggish property market, Shanghai has been reportedly
looking for new ways to make up for the revenue shortfall. The city
government is now banking on the advanced manufacturing and modern
service industries, both now listed as priorities in Shanghai's
11th Five-Year Plan (2006-10).
But that switch won't be easy, considering the huge role of the
real estate sector in the local economy at the moment. Besides,
other major cities in the Yangtze Delta are also targeting advanced
manufacturing and modern service industries, touting their much
cheaper labor and land costs.
(China Daily March 28, 2007)