In the first half of 2026, according to data from the Chinese Ministry of Finance, the income from the transfer of state-owned land use rights was only 977.8 billion yuan, a decrease of 31.5% compared to the same period last year, shrinking by more than 70% from the peak in the first half of 2021.
The rapid contraction of land finances has not only intensified the financial pressure on local governments but also forced them to seek new sources of revenue, shifting from relying on land expansion in the past to revitalizing existing assets.
However, some analyses suggest that the stock management by some local governments is mainly cashing out assets in advance through methods like Real Estate Investment Trusts (REITs), potentially overdrawing from the future.
Since the promulgation of the “Regulations on the Bidding, Auction, and Listing for the Transfer of State-owned Land Use Rights” by the Ministry of Natural Resources of the Chinese Communist Party in April 2002, China’s urbanization has accelerated, leading to significant changes in the local financial system.
Starting from 2002, the Chinese Communist Party implemented a comprehensive system of land bidding, auctioning, and listing (collectively known as “PTA”), which made the land resource market more market-oriented. Local governments gradually became highly reliant on land transfer income and real estate-related taxes and fees, raising funds for fiscal and urban construction through land transfer and land mortgage financing. This model is commonly known as “land finance.”
In 2021, the income from the transfer of state-owned land use rights reached a historic peak of 8.7 trillion yuan.
From 2022 to the first half of 2026, China’s land transfer income has seen a substantial decline year after year, dropping to 6.69 trillion yuan in 2022, 5.8 trillion yuan in 2023, and 4.87 trillion yuan in 2024.
In 2025, it further decreased to 4.15 trillion yuan, significantly lower by 4.55 trillion yuan compared to the peak of 8.7 trillion yuan in 2021, with a decline of over 52%.
According to a report by “First Financial” in 2025, industry insiders in China predicted that the land market would improve in 2026. However, based on the latest data from the Chinese Ministry of Finance, land transfer income in the first half of 2026 not only did not improve but instead saw a significant decline, falling below 1 trillion yuan. To achieve the expected 3.8 trillion yuan for the whole year, an additional about 2.8 trillion yuan in land transfer income would be needed in the second half of the year, which may be challenging to achieve.
The downward trend in land use rights revenue has directly impacted the local government’s land finances, leading to a significant decrease in their fiscal revenue, further widening the fiscal deficit.
Mike Li mentioned to the media that local governments, which have been highly dependent on “land finance” for over two decades, are forced to find new sources of revenue and seek new ways of operation amidst this predicament, transitioning from expansion through increments to stock management.
Incremental expansion involves growing the economy by adding new resources, scale, space, or output, commonly seen in cities expanding their scope through constructing new land and buildings, with the core goal of increasing the total quantity and scale.
Stock management refers to revitalizing existing assets by securitizing them through REITs. The main assets may include various types of land, industrial parks, commercial real estate, urban infrastructure, etc. REITs stand for “Real Estate Investment Trusts.”
Mike further explained that essentially, assets such as highways, commercial buildings, urban parking systems, are packaged as funds and sold to investors in the capital market. Over the past few decades of urbanization, a vast amount of infrastructure and various land-related assets have accumulated, with assets totaling over trillions of yuan, but only less than 3% of them have been securitized.
Mike emphasized that unlike one-time land sales (selling 70-year land use rights), asset securitization means cashing in on future returns in advance, increasing short-term cash flow but entirely overdrawing on the future.
On June 18, 2026, the first batch of commercial real estate REITs were listed for trading on the Shanghai Stock Exchange.
The four products listed include Huatianfu Shanghai Real Estate Commercial REIT, Citic Construction First Agricultural Commercial REIT, Guotai Haitong Sand Ship Commercial REIT, and China Jin Vipshop Commercial REIT, with a total fundraising scale exceeding 20 billion yuan.
According to Mike, local governments have started selling off assets to get rid of what they can sell as quickly as possible. Not only are local governments trying to sell assets, but state-owned enterprises and private enterprises are also selling off assets.
According to a report by “21 Finance,” by mid-August 2026, 93 products had been listed on the REITs market, but the market performance was poor. Year-to-date, the overall yield index fell by more than 7.77%. More than 80% of the 93 products listed have experienced declines this year, with half having declines exceeding 10%, and many products falling below their initial offering prices.
Mike analyzed that since the beginning of the year, industrial parks, warehouse logistics, facing increased supply, declining rental rates, and rent pressure have been the most affected. The gap between investors’ returns and government bond yields is narrowing, resulting in declining returns and increased risks.
Overdrawing future returns will reduce future cash flow, and local governments are no longer concerned about future economic benefits. As long as they can sell assets, local governments are rushing to package their liquidatable assets for listing, leaving investors with significant uncertainty and high risks.