(Yicai Global) Sept. 24 -- China recently issued a circular directing local governments to allocate at least 8 percent of their land transfer income to agriculture and rural areas. Total funds used for agriculture and rural areas last year would have been up to CNY580 billion (USD85.2 billion) if roughly calculated by 8 percent of land transfer revenue last year.

The agriculture and rural areas investment must be over half of land transfer proceeds after deducting costs and related taxes by the end of 2025, per the document China’s cabinet the State Council released.

Local financial departments at all levels must set aside at least 15 percent of their land transfer proceeds for arable land development, 10 percent for farmland water conservancy project construction, and 10 percent for education, especially in basic rural education, per China’s current policies.

China's annual land transfer revenue has lain between CNY6 trillion (USD880.8 billion) to CNY7 trillion over the past two to three years. It was CNY659.6 billion (USD96.8 billion) in 2018, and CNY721.7 billion last year. Income from land sales in Hangzhou and other hot cities has topped CNY200 billion annually over recent years.

Spiraling Expenses

Land acquisition and demolition costs have surged over the years, and this has reduced the take on land transfers and therefore the proportion of agricultural and rural expenditures in the land transfer income.

Revenue from land transfers was CNY3.15 trillion in 2011. Calculated by the minimum 8 percent figure, agricultural and rural expenditures that year should have been CNY250 billion, but this may be twice the actual outlay. Only CNY123.4 billion was spent in that area in the first 10 months of 2011, data show.

Some local governments may include many other costs such as ambient greening, urban infrastructure and road construction to make land transfer net income lower because the central government has set the ratio of land transfer income for designated usage, a land expert told Yicai Global.

The document issued this time strictly sets forth the costs of land transfers, which may not include disbursements for construction of infrastructure and public welfare projects unrelated to pre-development of land.

Local governments in Beijing and Shanghai, where income from land transfers is high and the demand for agricultural and rural inputs is small, can raise the ratio according to their actual needs, the guidelines advise.

Editor: Ben Armour