Generated by Codex with GPT 5.6 Sol XHigh

China’s property slump has forced local governments to rethink a development model that once seemed inexhaustible. For years, cities raised cash by selling land for new construction. With home prices down and developers retreating, that source of revenue has collapsed. Officials are now looking inward: cataloguing public property, repairing neglected sites and trying to earn more from assets the state already owns.

The land-sale machine has stalled

The pressure is severe. Land sales supplied about 40% of Chinese local-government revenue in 2021, when national home prices peaked. Their value has since fallen by more than half, leaving deep holes in municipal budgets. Some heavily indebted cities have cut the pay of teachers, doctors and other public employees.

The scramble for money has produced both conventional and troubling responses. Local governments have refinanced expensive short-term obligations with cheaper, longer-dated official bonds. But some have also relied more heavily on fines or sent police across provincial borders to seize assets from entrepreneurs, a practice known as “deep-sea fishing”. Such measures reveal how urgently officials need replacements for property-related income.

Yueyang offers a different model

Yueyang, a city in Hunan province, illustrates a more constructive approach. Local authorities have renovated a run-down waterfront district surrounding its famous tower, turning neglected public buildings and streets into a lively area of restaurants, shops and hotels. Because the properties were already state-owned, the renewed district can generate rent for municipal coffers without another round of outward expansion.

The city is also reorganising less visible assets. It reclaimed and consolidated fragmented operating rights to local lakes, increasing the value of their fishing rights. A failed tourist development was converted into a human-resources complex that now houses about 80 recruiters, trainers and back-office firms. The municipal company that runs it sometimes takes equity stakes in tenants rather than merely collecting rent, hoping to share in their growth.

These projects fit a national directive issued in 2022 to “revitalise existing state assets”. The policy is not privatisation, which would conflict with Xi Jinping’s preference for state control. Instead, local officials are establishing clearer ownership, combining scattered rights and finding commercial uses for property that had been idle or poorly managed.

Useful reform, but not a fiscal cure

Early results suggest the effort can matter. In the ten provinces pursuing it most aggressively, charges for using state assets covered 10% of local expenditure in 2025, up from 5% in 2021. Better management could support strained budgets and, if widely sustained, give economic growth a modest lift.

The limits are equally important. Monetising assets cannot erase China’s large stock of local-government debt. Some transactions may amount to accounting games in which one state entity pays rent to another, creating the appearance of revenue without adding real economic value. Local officials may also struggle to distinguish productive reuse from another wave of prestige projects.

Even so, the shift marks a meaningful change in China’s growth model. The old “extensive” approach depended on cities swallowing more land and building outward. The emerging “intensive” approach asks them to make better use of what is already on their books. Yueyang does not provide a complete answer to China’s fiscal problems, but it shows how financial pressure can push local government toward more disciplined asset management: a chastened economy learning to get more from less.