A squeezed China is trying to wring more from its state assets

Its latest campaign won’t solve its debt woes, but inches in the right direction

YUEYANG, A CITY in Hunan province, is famous for its tower, an elegant three-story pavilion immortalised in millennium-old prose still memorised by schoolchildren. But these days it is the streets around the tower that matter more, at least for those concerned with Chinese governance. They feature an ambitious project to revitalise the city. More than that, they represent a new turn in China’s economic management, as officials try to ease fiscal straits by squeezing more out of state assets.

Land sales accounted for about 40% of total revenues for Chinese local governments in 2021, the high-water mark for home prices nationally. (AP FILE)

The physical transformation is stunning. The area covers three square kilometres—roughly the size of New York’s Central Park—and until recently featured dilapidated buildings, messy markets and a run-down harbour. Crucially, these properties were almost all owned by local authorities and many lay unused. The city has converted streets into attractive pedestrian spaces, renovated the buildings and spruced up the waterfront. Restaurants, shops and hotels have opened up in the new digs, generating rent for municipal coffers. On a recent summer evening, tourists and locals flocked to outdoor tables. A local official who has helped oversee the project told Chaguan that his mission was far from accomplished: “The next big challenge is to make money.”

Cities throughout China need cash as the country’s property market remains in a tailspin. Land sales accounted for about 40% of total revenues for Chinese local governments in 2021, the high-water mark for home prices nationally. Since then the value of those sales has fallen by more than half. That has blown a hole in local budgets, with some debt-saddled cities cutting wages for teachers, doctors and other public-sector workers. Everywhere, officials have been looking for new ways to raise cash.

Some efforts have been almost comical. Several municipal governments engaged in “deep-sea fishing” expeditions in which local police reached across provincial lines to seize assets from entrepreneurs in wealthier provinces. Many have also become more zealous in slapping fines on restaurants for hygiene violations or doling out parking tickets. Other efforts to deleverage have been more in line with textbook economics: local governments have swapped the high-interest, short-term debt of their subsidiary entities for lower-rate, longer-term official bonds.

Yueyang points to another angle of attack. Officials there are trying to get more from what they already have in their hands, especially by putting under-used assets to work. As one manager for state-owned companies explains, the tighter fiscal environment has changed calculations. “It’s like looking through your closet and seeing a shirt that you only wore a couple of times in the past year,” he tells Chaguan. “You can sell it second-hand or give it to someone who needs it, but either way you try to make use of it.”

This closet-rummaging exercise was formally launched by the central government in 2022 when it declared that provinces and cities should “revitalise existing state assets”. As is often the case in China, the top-down directive was general, leaving it to lower levels to work out the implementation. One thing was clear: it was not about selling off state assets, a style of reform far out of step with Xi Jinping’s preferences for economic management. The goal instead was to breathe more life into them.

Before long, people started talking of the “Yueyang model”. Yueyang was not doing anything particularly radical, but it had a few ongoing projects that fitted the central government’s bill. In one, it reclaimed operating rights to a series of lakes in the Junshan district—previously divided up and poorly managed—and consolidated them in one new state entity. That had the effect of raising the value of the fishing rights. In another, it took a failed development, a group of low-lying buildings planned as a tourist destination, and converted them into a human-resources complex. It has attracted about 80 tenants, including recruiters, trainers and back-office companies. Instead of just collecting rent, the municipal company managing the complex sometimes takes stakes in the businesses, hoping to share in their future growth.

What all these deals and projects have in common is a break with the past expansion binge of cities across China. Local officials know that they cannot simply parcel together new land blocks for developers. Instead, they are reviewing what the state already owns, establishing a title to these assets and then figuring out how to make them more lucrative.

Rummaging through the closet

Can this actually move the needle on the economy? Dinny McMahon of Trivium, a China-focused consultancy, has been tracking the numbers and thinks this is a rare area where public finances may be moving in the right direction. “Charges on usage of state assets”—an official budget category that captures these efforts—has become an increasingly important source of local revenues. For the ten most aggressive provinces, such charges account for roughly 10% of their expenditures in 2025, up from 5% in 2021. For one province, Jilin, the extra revenues helped it graduate from the finance ministry’s “highly indebted” blacklist that had previously limited its access to funding.

Even so, monetisation around the margins will not solve China’s fiscal problems, which have built up over two decades of debt. In some cases officials may also be playing shell games, using state-owned entities to pay rent to other state-owned peers. But if the progress in Yueyang and elsewhere is sustained, it could provide much-needed support for local budgets. Mr McMahon reckons that within the next year, the revitalisation campaign could boost Chinese growth.

But the greater significance may lie beyond economics. It is a reckoning with the “extensive” model of development seen in the past decade, as one Yueyang official puts it. That led to endless sprawl as cities swallowed up ever more land for development. Now, the turn is inwards, towards an “intensive” model, with cities examining how they can better use what they already have. It is a more “refined” form of governance, the official says. Others might put it in less grandiose terms: a financially chastened China is trying to get more from less.