China’s local governments have spent the past four years grappling with the fallout from the property market collapse. Land sales have dried up, fiscal pressures remain intense, and officials across the country are still searching for sustainable new sources of revenue.
On this week’s Trivium China Podcast, host Andrew Polk is joined by Trivium’s Head of Markets Research Dinny McMahon to discuss one of the most important — and least understood — developments in China’s fiscal landscape: asset revitalization.
The two unpack how local governments are increasingly turning underutilized state-owned assets into new revenue streams, and why the strategy may become a key pillar of Beijing’s broader effort to stabilize local finances.
Their conversation covers:
Why local governments remain under severe fiscal pressure after the collapse of the property market
What “asset revitalization” actually means in practice
How provinces are monetizing everything from mining rights and industrial land to transport hubs and public facilities
How several local governments are already generating meaningful new revenue from the strategy
The role asset revitalization could play in easing local government austerity and supporting domestic demand
The risks of self-dealing, hidden leverage, and unsustainable one-off transactions
Whether asset revitalization can become a durable solution to China’s local government debt and revenue challenges
While asset revitalization is unlikely to solve China’s fiscal problems on its own, Andrew and Dinny argue it may be emerging as one of the most important pieces of the local government finance puzzle — and a development investors and China watchers should be following closely.
Transcript
Andrew Polk: Hi everybody, welcome to the latest Trivium China podcast, a proud member of the Sinica Podcast Network. I’m your host, Trivium co-founder Andrew Polk, and I am joined today once again by Trivium’s Head of Markets Research, Dinny McMahon.
Dinny, how are you doing?
Dinny McMahon: I’m doing good, mate. Good to see you.
Andrew: Yeah, great to see you as always. It’s been a bit of a quieter week, at least on the news front and the geopolitics front, and even the policy front out of China. So, we’re going to step back a little bit today and talk about a bit of a broader issue. Often when we do that, it’s fiscal reform or fiscal issues. Today is no different really, but we’re going to talk about a subset of that which is a bit more interesting than just the China’s fiscal challenges. It’s specifically what’s happening at the local government level and an interesting new revenue stream. Specifically, it’s asset revitalization or state asset monetization.
Basically, it’s ways that states are using their assets to get new cash flow. And this is something Dinny’s been looking at closely, and we think it’s a pretty significant piece of the fiscal equation. I’ll give a little bit more of an intro here in a minute. But anyway, that’s why we have Dinny on today to talk a little bit more in depth about this issue, which we’ve been writing and thinking a lot about for clients. So, it’ll be a good discussion. I’m sorry to do a step back, which, you know, because of the news flow, we often don’t have as much of a chance to do.
But of course, before we get into the meat of it, Dinny, we have to do the customary vibe check. How’s your vibe today?
Dinny: I’m a bit frazzled. Me and the family got three weeks to go before we up stakes and moved to North Carolina. So, I’m just running around. Everything that’s been broken or I’ve been meaning to fix in the house for the last five years is sort of getting done in like a two-week period. I’m sort of stepping back. I wouldn’t mind actually staying here. But that’s me at the moment, between work and the kids finishing school and starting the school holidays, and just getting the house ready. Man, I just feel like I’m being pulled in all directions at once.
Andrew: Yeah, man, I hear you. I actually sort of am on the back end of it. We just moved houses over the weekend. And so, we did all the packing and stuff last week. We’re in our new house. There’s just boxes everywhere. It’s great to be here, but I think it’s just way more exhausting than I think I expected it to be. Maybe that was naive of me, but I am very tired. And then also, again, so I just went for a long run. I’m not going to say how long it was because when I talked about my last long run on the pod with Cory, it was by far our most controversial vibe check people have talk to me about.
There’s a lot both positive and clear negative. So, anyway, I went for a long run, whatever that means to you, is how long it was, and so with a combination of the move and this exercise has got me a little low energy. But we are going to pick it up for the podcast or the pod listeners today. So, don’t think that we’re not going to bring our…
Dinny: Bring the thunder.
Andrew: That’s right. So, excited to have you on and get into it today. But also, Dinny, quickly, we got to go through the housekeeping. A quick reminder, first, that we’re not just a podcast here. Trivium China is a strategic advisory firm that helps businesses and investigators navigate the China policy landscape. That, of course, includes domestic policy in China, but also policy towards China out of western capitals like D.C., London, Brussels, and others. So, if you need any help on that front, please reach out to us at hq@triviumchina.com. We’d love to have a chance to talk to you about how we can support your business or your fund.
Otherwise, if you’re interested in receiving more Trivium content, again, check out our website, triviumchina.com. That’s where you can find our subscription products. These are mostly email products that give daily updates in most cases on key developments out of China. So, just updates and analysis. It’s more than just a newsletter. It’s really our take on what’s happening that you really need to know whether you’re an investor who needs to know market stuff or a policymaker who needs to know key developments, whether that will affect businesses or the tech sector, or you’re a business executive.
So, check out our site, triviumchina.com. You will definitely find the China policy Intel option that you need. And then finally, as always, please tell your friends and colleagues about Trivium. It really helps us to grow the business and to grow our listenership so that we can keep bringing you this free content. All right, that’s it. Dinny, you ready to get into it? That energy up? Are you ready to bring the thunder?
Dinny: Absolutely, mate. Let’s get into it.
Andrew: That’s what I like to hear. All right. Everybody will be ready for this. Okay. We are going to talk, as I said, about something called asset revitalization. What we’re going to talk about, or the framing for this comes from a report that we published about a month ago. When I say we, primarily Dinny and his team, again, on this concept of asset revitalization, or as Caixin financial reporting or financial media in China, as they call it, state asset monetization.
So, on a very basic level, this is really taking unused, underutilized or mispriced state assets, whether that’s land or a factory or mineral or fishing rights, concession rights, whatever, concession rights to run like train station, for example, all kinds of different assets that a state would own, especially that are revenue-driving, and redeploying them in a way that allows the state to extract greater value from them. So, it’s not privatization of assets, but it’s a way that the state can actually retain ownership and generate income.
The State Council now first started encouraging local governments to do this kind of thing back in 2020. And at that time, as often, when the new policy directive comes out, we were a little cynical, a little skeptical about it because you never know how much energy the State Council is going to put behind a new effort, but we’ve really kind of changed our tune, I would say, especially based on your report Diny, on this whole process. And we now see it as really a major and highly significant, even you would say, I would believe, game-changing development towards the financial quagmires that local governments have been in really since the collapse of the housing market it in 2021, right?
So, everyone knows local governments are in desperate need of new sources of income. And in 2025, for a few provinces, this asset revitalization push has absolutely been. And one of the reasons we want to talk about now, even though we wrote about a while back, is that we’re seeing more references to this program in the Chinese press and Chinese commentariat. And so, we know that it’s starting to get on folks’ radar, even among Western analysts. So we thought it was a good moment to kind of jump in because not only have we been thinking about it for a while but the scale and the exact process of what’s going on isn’t really well documented or well understood.
So, we thought we’d take the chance to really get into this significant fiscal local government debt and local finances development. Yeah, like I said, it has the potential to be a game-changer. So, Dinny, why don’t you do a little bit of scene setting for us. Give us context about why local governments so desperately need new sources of income, which some listeners will generally be aware of, but it’d good to kind of set the stage before we dive into this new and pretty complex topic.
Dinny: Yeah, absolutely. So, this stuff’s going to sound pretty familiar to a lot of people out there, but here’s a basic rundown of the problems facing local government finances. So, local governments have been chronically underfunded for decades. And so, the way that they traditionally made up the difference was by taking land from farmers and rezoning it and then selling it to property developers for much higher prices.
And they sort of walked away from that, well, with profit, right? So, they use the money in four key ways. The first was well that the land that they took needed to be cleared, you need to compensate the farmers, the land needed to be leveled and connected with road and power and sewer infrastructure. And that was a much bigger expense than it sounds because a relatively small portion of the land that local governments were taking from farmers was actually being sold to developers.
In any given year, maybe it was 25%, maybe it was 30% in a big year. Most of the land was being sold cheaply or sometimes just given away for free to manufacturing and industrial firms to build factories. So, effectively, it was a subsidy. And those land transactions really weren’t generating revenue for local governments as well, but they were still involved these costs of compensating farmers, clearing the land, leveling the land and whatnot.
So, that was one way that the money was being used for. The money they earned from selling the land was being used really to clear the land or prepare the sort of the next generation of land to be sold. The second source of the revenue was it allowed local governments to build infrastructure. So, typically, you’d have like a local government financing vehicle would build public works with debt, and then the local government would pay them some sort of management fee or operating fee, some sort of subsidy.
There’d be some sort of arrangement where the government would provide income to the local government financing vehicle. But ultimately when you stripped all that back, what was happening is that you had infrastructure funded with debt and the local government was using revenue from the land sales to service that debt. Even though the servicing was ultimately being done by an LGFV, the money was coming from land sales.
The third thing the money from land sales was being used for was servicing explicit government debt. So, since 2015, local governments have been able to issue their own special-purpose bonds to fund infrastructure. Well, that’s what the money was being used for as well. And then finally, a portion went toward paying for government services. And so, this is where things get a little bit confusing because the Chinese government, pretty much at all levels of government, they have four different budgets.
And one of those budgets is called the government fund management budget. And this is where all the revenue from land sales and funds raised from issuing special purpose bonds, that’s where it goes. And they go into this budget to effectively ring-fence the use of these funds to make sure that they are used for funding public works only. But if there is a surplus, if there is kind of money left over that they don’t need for servicing debt or building public works or whatever, there’s a surplus, it gets transferred into the general public budget, right?
So, that’s another one of these four budgets. And that’s the one where all the tax revenue goes. It’s the one that’s used for education and funding the police and health, and public services. And so there was an incentive for local governments to sell more land than was needed for infrastructure so that it could top up public spending.
And certainly, in the years before 2021, when the housing market hopped, this became a marginal but an increasingly important source of revenue for local governments. And so then, of course, the housing bubble popped in 2021, and all of this unraveled. So, land sales collapsed, which meant there was less revenue to service the debt and less revenue to transfer into the general public budget. The problem wasn’t just coming from a collapse in land sales.
Tax revenue fell as well because so much tax revenue that was being collected by local governments was either directly or indirectly linked to housing construction or sort of the property market more broadly speaking. Now, the consequence of all this has been austerity. And I think we’ve talked about this a little bit before, but austerity that we’ve been seeing with Chinese local governments is not quite in the same form as we’re used to from Greece and the UK, although there are similarities.
So, in Greece and the UK, the central government, when they had excessive debts and they needed to ensure that, you know, they decided to prioritize debt repayment, that resulted in cutting funding to public services. So, there was less money for education and for the police and whatnot. But in China, those types of expenditures on public services at a local level have typically gone up.
So, in 2025, provincial expenditures from the general public budget were typically 15% higher than they were in 2021. Now, there’s a big range. Some provinces have done better than others. But broadly speaking, spending from the main budget for local governments has increased over the last four years. Instead, austerity turned up elsewhere. It turned up in local governments not paying their bills — to contractors, to suppliers, to what they owed to LGFVs.
And that doesn’t show up in the general public budget, but it would probably show up in one of the other budgets, the government fund management budget, if only we had more transparency on what was sort of going on inside it. So, the consequences of these unpaid bills, these unpaid arrears, are, in many ways, far more consequential for the economy than an unpaid loan to a bank.
With a loan the bank takes the hit, but it has capital put aside for that right, and it can always raise more capital. It can exercise forbearance if the regulators permit it, but more or less life goes on, but unpaid arrears, they ricochet through the local economy. When firms don’t get paid by the local authorities, that firm then can’t pay its own suppliers, which then can’t pay its suppliers, and so on and so forth. And the money isn’t there for bonuses or for firms to take on new staff or even to keep their existing staff.
And so just as land sales supercharged local economies, the collapse in land sales sent it into reverse. And this is one of the key reasons why domestic demand in China is so weak. We constantly hear, “Domestic demand is weak. How do we revive it?” This is one of the reasons. And you’re not going to revive that domestic demand until you fix local government finances, until you can reverse these sort of austerity practices.
Now, austerity is turning up elsewhere as well with pay cuts to state employees, with arbitrary fees and fines. But the big one is arrears. So, local governments need a solution. And often when people talk about what needs to be done, the conversation always comes back to the central government. Well, the central government has helped out to a certain degree. It helped out in 2022 and 2023 when it increased transfers to local governments by about 20%.
Now, that helped plug the fiscal hole. The money that wasn’t ending up in local government budgets anymore because of lower land sales because of lower tax revenue, Beijing stepped in and helped plug that hole at least partially. But over the last couple of years, those transfers have actually declined. Now, it’s also often argued that the only way out of the whole local government debt thing is if Beijing takes over the local government debts.
But then again, that’s incredibly unlikely to happen because Beijing has been adamant that it’s not going to do it and has repeatedly said that responsibility for the debts must be resolved at the local level. Beijing’s not transferring as much money as it used to. And it’s saying, “No, we’re not going to bail anybody out.” So that’s where we are. The collapse in land sales has left local governments chronically short of funds, which has resulted in austerity.
The central government has helped out a bit, but it’s been explicit about no bailouts. And that means the only solution left for local governments is to raise more revenue. Now, they can’t raise taxes. That right resides almost exclusively with the central government. And even if they could, in this economic environment, higher taxes would probably do more harm than good anyway.
Andrew: Just a different form of austerity.
Dinny: Yeah, exactly. This is the other thing that they’re doing. They’ve been imposing arbitrary fees and fines. Exactly the same thing. It’s effectively a deflationary practice in this sort of constrained demand environment. Now, the thing about fees and fines is that it’s such a tiny part of local government’s overall revenue that it’s not meaningfully moving the needle anyway. Now, there’s a couple of other things that it can do. SOE profit remittances, you know, they can ramp that up. And that is an area we’re watching very closely. And Andrew, we should really talk about that over some other podcast in the future.
Andrew: For sure. Yeah, yeah, yeah. I know you and the team have been doing good work on that.
Dinny: Yeah, absolutely. We’re all over this. But then the big one, the one that’s already helping plug that fiscal hole, at least in a number of provinces, is asset revitalization.
Andrew: All right. Excellent table setting. Now that you’ve gotten us to this point, the obvious next question, of course, is what is asset revitalization?
Dinny: In its sort of purest form, you kind of want to sum up the idea. It is about turning state assets into a recurring revenue stream. In particular, it’s not just any state asset. It’s assets that aren’t being utilized to their full potential already. And the idea isn’t unique to China. I mean, throughout the developed world, we’ve seen variations of municipal governments really doing this everywhere.
I mean, you see it particularly with old derelict industrial sites, you know, old ports, abandoned piers, unused train yards, they get turned into cafe and shopping districts or into new office space or new housing. Sometimes you see cities dredge old industrial canals and harbors to create more valuable shorefront. Developments like the High Line in New York City as well, same sort of thing.
It’s about taking something that was an eyesore and revitalizing them and turning them into a source of economic vitality. Now, China’s done the same sort of thing with these sort of historic and abandoned industrial assets, turning them into art galleries and shopping districts and whatnot. But China differs from developed economies in the sense that many underutilized assets are owned directly by government agencies and institutions such as hospitals, schools, regulators.
You’ll have the NDRC or the People’s Bank of China. They actually own assets, physical assets on a scale that you wouldn’t expect in any other economy.
But so often the assets that these sorts of institutions hold, they were never really intended for commercial purposes in the first place. And so, they might be underutilized or they might not be used at all. And certainly, no one has really thought, no one in sort of a staid bureaucracy has ever really thought creatively about putting them to different uses, certainly not to a commercial use because there was no incentive there to do it.
And so, that’s kind of what this is all about. And in the Chinese context, what we’re kind of seeing is the way that they’re sort of pushing forward with this, it broadly falls into four buckets. It is things like selling concessionary rights and generating royalties from allowing firms the right or the exclusive right to perform a service or access a resource. So, for example, many local governments, they own mining or forestry rights. They own the rights to billboards along municipal roads, or they own the rights to all the stores at a train station or an airport, or they generate fees from water companies. And they have the right to charge fees for entrance into like popular scenic spots, right?
There is all these sources of potential revenue generation over which local governments have the right, and then can sell those rights to other firms. And so local governments are looking to deploy these sorts of concessionary rights, these existing assets in creative new ways that might generate revenue. So, for example, that might look like taking a small piece of land that isn’t being used, like perhaps under an underpass, and turning that into a for-free parking lot or an EV charging site.
Or in some parts of the country, I mean, we’re seeing this a bit in Chongqing, or authorities are selling rights to manage affordable housing, either in return for like an annual fee or an upfront sum. But ideally, authorities are looking to sell concessions for assets that haven’t previously been monetized or for assets that have changed in some way, either because the authorities themselves have made a certain investment or because technology has changed or some sort of asset consolidation has made them more valuable, right?
So, for example, one local government we’ve been reading about, you know, amalgamated all the fishing rights in a local lake and sort of took them away from small-scale fishermen, consolidated the rights, sold them to a large firm, which is far more efficient, has greater capital investment. It’s generating more revenue and it’s paying more to the local government and fishing rights. Or elsewhere, we saw a local government sold the rights to an advertising company to advertise on light poles around the city.
Now, traditionally, that advertising may have looked like banners, but the company installed LED screens, which generated more revenue and also allowed the local government to charge more for the concession. So, that’s one way that local governments are generating more revenue. It’s all about concessions and royalties and trying to think creatively about what they have the right to sell and how they can extract greater value out of it.
Andrew: 1Can I ask a quick question on that?
Dinny: Yeah, shoot.
Andrew: When they’re selling these rights, it sounds like the mechanism is they’re not selling them outright for a one-off fee. They’re sort of, I guess, must be that the purchaser is purchasing the right to sort of manage the asset, but then some slice of the revenue still goes back to the local government. How is it that this isn’t just a one-off in some of these that you’re just describing? Does that make sense?
Dinny: Well, and sometimes it is. I mean, that’s kind of one of the big concerns about this. And we can get into that a little bit later. But the best structured deals are the ones where what you’re selling is a concession for 10 years, 15 years, maybe even 20 years. But as part of those concession rights, you have sort of baked into it an enduring ongoing revenue stream. So, every year, the concession holder promises to pay a certain amount.
Some of the deals we’ve seen, it’s a combination between upfront and recurring fees. But ultimately, there’s also a sense of trying to get who gets to buy the concession. Typically, these are done through an auction. So, the concessions are marketed publicly sold publicly and they’re done over online auctions. So, there is an expectation or a hope that by doing it that way, local governments will be able to get the highest price for them. But you’re right, a lot of it comes down to how it is structured.
If there isn’t a recurring revenue stream, and it’s just an upfront payment, then that certainly raises a few questions.
Andrew: Yeah, I mean, I don’t know exactly how they’re doing this. I’ve seen this actually done in the States before, where a private equity company or whatever will come in and buy the rights to manage some utility, for example. And the argument or the pitch from the private equity firm is we can actually make this so much more profitable, not by necessarily raising people’s utility costs, but by cost-cutting, which often means, of course, layoffs and stuff like that.
But that’s their pitch is we can do it so much more profitably that you won’t have to incur the costs. So, your costs go away as a state government or whatever. We will incur the costs and then we’ll give you X amount of money each year as a slice of the revenue. And we’ll still make money on it because we can do it so much more profitably. It sounds like that’s sort of maybe the idea that they’re kind of going for in some…
Dinny: Not quite, I don’t think. I mean, maybe. But in the instances I’ve seen, it’s not necessarily the private sector stepping in to say, “Hey, we can do it more cheaply than the state sector, and everybody wins.” The creation of additional value still seems to be generated or the idea behind how additional value will be generated seems to come from the state itself.
So, the state says, “Oh, we’ve worked out how to make this asset more valuable. We’ve done a certain amount of investment. So we’ve invested in this port.” So it’s been dredged. It’ll take deeper ships. It’s got better facilities. We’ve built this building. We will sell the rights to you, private sector firm, to manage a regional fish market, wholesale fish market. And you have to pay a certain amount up front, we expect certain fees every year. And so it’s not the private sector coming to the local authorities going, “Hey, we see what you’re doing and we can do it cheaper.” It’s more the state going, “Oh, we’ve worked out how to create to take this asset, which is being underutilized and deploy it in a more effective way. Hey, private sector, what firms out there are interested?”
And it’s not just private sector as well. I mean, often it’s state firms as well, which are ending up with the concessions.
Andrew: But still it stands that there are some commercial opportunity for the private sector company to be gained that is large enough, seems, must be large enough that they can also then pay an annual fee for the rights, right?
Dinny: Absolutely. Absolutely.
Andrew: All right. Sorry, I interrupted your flow. Keep going.
Dinny: Yeah, no, no, not at all. Well, I was saying there’s a couple of other ways that local governments are sort of generating value from asset revitalization. One of them, assetization, sort of taking assets and securitizing them, so securitization of assets. So, the idea being in recent years, Beijing’s been trying to encourage firms to take data resources and turn them into a viable financial asset or to take forests and turn them into carbon sinks.
And then you can raise money out of that through carbon credits. That sort of thing is sort of part and parcel of this as well. And then there is taking existing land and either leasing it or repurposing it. So, one example that I think sort of sums it up really quite well, although it’s a slightly older example, is a few years back, the Beijing municipal authorities looked at a sort of a wholesale clothing market, which was across the road from the zoo.
And once upon a time, this market was, it was the wholesale clothing market for pretty much all of northeast China. And yet, as time went on and Beijing became more developed and the city became bigger and bigger, what had been a wholesale market, more or less on the periphery of the city, had turned into a wholesale market on prime real estate. And it was using it as a clothing market. It wasn’t necessarily the most valuable use of the land.
And so, they bought it up, tore it down, not tore it all down. Some of it, they sort of retrofitted the buildings, but they repurposed it all, turned a big chunk of it into a fintech sector. They’ve got a whole lot of fintech clients who’ve moved, firms moved in there that are paying significantly higher rent than was ever possible from wholesale clothing firms. And so that’s kind of part of the idea as well, kind of looking around, looking at land, looking at factories, looking at the physical assets that local governments own, and try and work out if there is a better way to use it.
That also includes taking sort of empty, unused factories, retrofitting them so that they’re better equipped for more technologically advanced, autonomous tech manufacturing firms. We’ve seen this happen in a bunch of places. They update the factories and then effectively they move in ready for firms that are looking to sort of expand. So, that’s kind of the other thing that’s going on here.
And so, yeah, it’s kind of moving in a whole lot of different directions at once. But at the end of the day, it’s really about local governments looking at what assets they own, work out how they can be used more effectively. And that really requires a sort of degree of creativity about how to use them that they’ve never really had to deploy before.
Andrew: So, it sounds like a sort of loosely organized kind of push. We mentioned the State Council has kind of given the directive to at least assess whether or not this is possible in various jurisdictions. But beyond that, where did this idea really kind of germinate?
Dinny: Yeah, I mean, it really did kick off with the State Council in May 2022. It was very explicit about asset revitalization and a bunch of different areas, water conservation and transport, and all sorts of things. But the focus was a little bit different back then. It was very much about creating sustainable funding sources for investment.
So the idea was like, okay, well, investment has been driven by debt for such a long time. Probably not a good idea if that’s the way it goes. Can we use the existing asset base to kind of create opportunities for investment that are sort of, you know, less debt heavy? And so, it was all about project construction. But even then, when the State Council first talked about it, it included this caveat about government funding.
And it said, “For regions with high local government debt ratios and significant fiscal pressure, funds recovered from revitalized public assets may be appropriately used for three guarantee — expenditure, debt principal and interest repayment.” So, the three guarantees is sort of the state’s guarantee to provide funding for people’s basic well-being, to provide public sector wages and run bureaucratic operations.
So, what it was saying is like, hey, you know, for those provinces that are really over-indebted, the money you raise from this can be used to help sort of plug the fiscal hole. And very quickly, that sort of focus on heavily indebted provinces kind of went out the window. So, by the end of that year, Hunan province had a blueprint built around asset revitalization. And it laid out the steps for how they were going to pursue it. I mean, the first step was to identify what assets there were, you know, go throughout the entire province, work out exactly what the state owns, because there are so many levels of government.
It’s not immediately clear at a provincial, head provincial level, exactly what they own. The second thing was to value the assets. Third was to identify which government agency or body actually owned it, whether they were overlapping claims, because it was only once you have a clear idea as to who controls an asset, can you actually do with it? And then the fourth step was to find better ways to utilize the asset.
And the way, sort of the guiding principle of Hunan province was kind of summed up in this sort of pithy one liner, which is use what state assets can be used, sell what cannot be used, lease what cannot be sold and finance what can be financed. And since then, other provinces have gotten on board, a bunch have rolled out their own blueprints. But all of them, whether they’re heavily indebted or not, the big focus, or at least a big element of what they’re doing with asset revitalization, comes back to generating fiscal revenue.
Andrew: Yeah. Well, I said at the top that this is a big deal, and we think it’s one of the major planks and kind of the plan to get little government finances on board. But I said that because you told me to say it. So, why don’t you explain to the listeners why we think this is such a big deal?
Dinny: You’re giving the magic away. Okay, well, so in 2024 and 2025, asset revitalization became a major source of income for a small handful of provinces, specifically Chongqing, Shandong, Jilin, and Hubei. Now, that revenue turns up in the general public budget as a type of non-tax revenue called charges on the usage of state resources.
And in short, that captures revenue generated from the sale or commercial use of state assets that are owned by government institutions and agencies, like, as I said, hospitals, universities, village collectives, or government agencies like municipal finance bureaus. But what it doesn’t capture is assets owned by state-owned enterprises. You know, revenue generated by assets owned by SOEs, that turns up elsewhere in the budget, a completely different budget.
So, we’re talking about specifically government assets that are not owned by SOEs. And those state agencies and institutions, they don’t have to generate the revenue by using the asset themselves. They can sell the rights to use an asset like concessions and royalties, all that sort of stuff, as I was talking about before. So, just how significant is it? So, Chongqing has kind of been the leader with this.
Revenue from charges on the usage of state assets was equivalent to 6.8% of the city’s expenditures in 2021. Four years later in 2025, it was 15.1%. So, when you take into account all the revenue sources that go into funding the Chongqing budget, the taxes, the non-tax revenue like fees and fines, the money earned from land sales, the transfers from the central government, and bonds issued by the city to help fund its budget, when you take all of that together, charges on the usage of state resources, asset revitalization, accounted for 15.1% of those resources, up from 6.4% four years earlier.
And crucially, over that period, it’s not that Chongqing spending stagnated or that it’s flat. Over that period, spending by Chongqing municipality increased 17%. So, charges, this sort of where this asset revitalization revenue was ending up, these charges were rising as a share of a rising budget, and rose to a level, 15%, which is hugely, I mean, that’s a really significant chunk of where all of its revenue was coming from.
Now, in Shandong, in 2025, charges funded, so I’m just using shorthand now. When I say charges, I mean charges on the usage of state resources. So, these charges funded 12.9% of the budget, up from 5.3% four years earlier. And again, the budget was expanding. It was up 13% over that period. In Jilin, charges funded 9.2% of the budget in 2025, up from only 2.4% in 2021. And in Hubei, they were 8% of the budget up from 2.2%. And I think the real standout here is Jilin.
Because over the past four years, the general public budget has grown more strongly than perhaps anywhere else. So, the general public budget in 2025 was 30% higher than it was in 2021. Moreover, Jilin was one of the 12 provinces designated as being heavily indebted a few years back. And that designation imposed certain constraints on borrowing and what else it can do with its finances.
The central government, the Ministry of Finance, dropped Jilin from that list at the beginning of this year. It was only the second province to be removed from the list after Inner Mongolia, which is a very different situation. I mean, it’s having a bit of an economic renaissance at the moment because of renewable energy.
But with Jilin, we don’t think G-Lin could have exited that list without the revenue that it generated from asset revitalization. And there’s one last thing that’s worth mentioning here as well.
Now, when talking about the significance of this as a development, I focused on how it’s generating a particular type of non-tax revenue, it’s some charges on the usage of state resources. And that’s because it’s easy to track, right? It is almost exclusively leading to the expansion of charges, this non-tax revenue. But there are plenty of statements from local governments suggesting that asset revitalization is generating revenue that’s turning up elsewhere on the balance sheet as well.
But that’s much harder to track. So, the fiscal implications of asset revitalization might go well beyond the data we’re seeing in the increase in charges. But if it does, it’s very difficult to be able to measure how much of an impact that is.
Andrew: Yeah. Yeah, that makes sense. I guess that brings up the question, especially when you talk about the growth, sort of how sustainable is this expansion of revenue, or how sustainable is this as the solution, I guess, to government funding problems? I mean, the great thing about land sales, which is the big previous funding channel, was that it was replicable, right? Local authorities could do the same thing year after year after year, generating more and more revenue.
This sounds like there’s some one-offs. It sounds like it requires a lot more sort of creativity from local governments, requires looking at their assets and trying to figure out what they can do with them. So, the question is, is this sustainable in multiple aspects? One, outside the four provinces you highlighted, but also even in those provinces, can they continue not only growing it, but even just maintaining it at the current level of as a proportion of spending, as you already kind of laid out?
Dinny: Yeah, it’s a great question because in some ways it’s too early to tell. I mean, as I said, the state council started pushing this in 2022. It started building momentum in 2023. It was only in 2025 that we could step back and go, oh, wow, this is having a really big impact on the budgets of some provinces. There’s two ways to look at it. Firstly, beyond those four provinces I identified, for most of the other provinces, they’ve still got a long runway.
So if they start ramping this up, there’s real potential there for them to kind of increase their revenue. The question then becomes, looking at those four, how much longer can they either maintain growth or maintain these levels? And I worry that maybe they’ve already picked the low-hanging fruit. So there’s no doubt, there’s more potential to kind of look around at their assets and kind of work out how they can use it. But I can’t help thinking, surely it’s going to get harder.
Of course, the other side of the equation is that after, what, three, four years of doing this, they’re starting to get a sense of what’s feasible and what’s possible. So maybe they can kind of take that expertise and leverage it into new ideas. Now that said, Shandong, which as I said, is one of the leaders in this, is certainly worried.
So when it was talking about this in its 2025 budget report, it said, and this is a quote, “The space for revitalizing existing assets and resources is narrowing, constraining fiscal revenue growth.” That’s pretty explicit. They’re starting to worry. So, it is a case of like, okay, watch this space, but we’ll see. It really could go either way, I think.
Andrew: Well, I mean, sort of related question, but, you know, so the sustainability still a question mark, but then also what about the unknown unknowns, right?
Like what are the risks of this path that maybe local government officials and even state council officials aren’t thinking about this? Are there ways that they may be just generating more financial risks that will in the butt down the road? I mean, we’ve seen that movie before, right? In terms of like local government fundraising attempts.
Dinny: Yeah, absolutely. I think one of the things to worry about is we see a repeat of what we saw with land sales to LGFVs after the housing bubble burst in 2021. For the first few years after that, local governments seeing the collapse in land sales, trying to come up with new revenue sources, they sold lands to LGFVs rather than property developers, which meant they were effectively selling land to themselves. LGFVs borrowed money, used the money to buy land, but because they’re not developers and because there wasn’t really any demand for the land, they just kind of warehouse it.
They were stuck with debt. The asset that they bought wasn’t doing anything. And they really had no way of servicing the debt other than sort of hoping the local government kind of came up with the cash. And so, there is a risk that this happens here, that there’s a degree of self-dealing going on, that local governments sell a concessionary right to an LGFV, or another locally owned state enterprise. And that state enterprise borrows the money and makes the purchase and it ends up being a non-performing asset. That is definitely possible, largely because, as you said, I mean, we’ve seen this particular movie before.
Now, there’s other risks here as well. I think it comes down to three things, pricing, sustainability, and management. So, pricing is key. Now, as I said before, it’s great that there’s a kind of an open auction market so that the local governments get the best price. But if a state entity wins an auction and overpays for it, if it underpays for it, that’s fine, right? It ends up with more revenue. Local government might be a little bit disappointed that it didn’t maximize its fiscal gains.
The real problem is if a locally owned state-owned enterprise overpays because then, probably, you know, paid for the rights in debt, and then all of a sudden isn’t able to service its debt, and it ends up as, effectively, a hidden debt that the local government needs to sort of keep afloat. The other issue is something that you raised earlier, and it’s the whole sort of sustainability issue, sustainability of this as a recurring source of fiscal revenue. And that comes down to how the deal is structured.
Now, as I said, we’ve seen a bunch of deals that involve both an upfront payment and a recurring income stream. But I think there have been deals as well, which have just been an upfront payment. Now, that’s great for the government looking for a sugar high now. I’m trying to sort of cover a fiscal hole, you know, it’s like fantastic. We’ve got the money. We desperately need it. Great. But it makes it difficult, then, for asset revitalization to be an ongoing source of revenue. And it could mean that revenue not only just flatlines, but it could actually drop off in a few years if local governments can’t keep coming up with new deals.
And then the third thing to worry about is the management of the asset. So, even if an asset is potentially highly productive, well, who’s buying it? If it’s a state firm, there’s not necessarily a guarantee that it’ll realize the potential. And where a county outside of Jinan, in Shandong province, sold 30-year rights to the operation and maintenance of a low altitude economic zone for almost a billion renminbi, not only to a locally owned state-owned enterprise, but a state-owned enterprise that was, I think, incorporated the day of or the day before the auction of the rights.
Effectively, it created its own firm to buy the rights to a completely untested business. And we’re not entirely sure where the billion renminbi came from, but it’s got to be leveraged on some level.
Andrew: That smells fishy.
Dinny: It does. I mean, so even if it turns out that this asset is incredibly productive, if the low altitude economy in China turns out to be a real winner, there’s no guarantee that a state firm, particularly one that is formed for this purpose, will be capable of realizing the potential. I mean, where does the expertise come from? So, there are sort of real questions here about self-dealing in terms of the pricing, in terms of the structure, in terms of the expertise about making this work. But for the time being, the numbers are really encouraging.
So, it’s only in the longer term do we see the structure of the deal start to unravel.
Andrew: Yeah. Well, speaking of that, it’s probably a good place for us to look next and to wrap it up, which is we talked about whether or not it’s sustainable. You just kind of highlighted some of the risks, but where do you think this is going? How do you think it evolves in the future as local governments kind of become more creative, pursue this path more aggressively as we think they will?
Dinny: Well, I think it’s pretty clear that Beijing is behind this. Even though the way that it first envisioned asset revitalization wasn’t as a fiscal crutch, I think the degree to which local provincial governments have embraced it and been quite vocal about its fiscal contributions and the degree to which you still see central government documents talk about asset revitalization. You do see the party publications not just talk about asset revitalizations, but also talk about the contribution to sort of fiscal resources. I think Beijing is behind this. That said, this isn’t a full court press at the moment.
We’ve got a handful of provinces which are clearly the forerunners. They are the experiment. Beijing can then look at how things are performing there, how things are being pursued. It can choose what to crack down on and what aspects of it to promote. And other provinces, they can pick and choose what works for them. And so, I expect we’ll see this increase as a source of revenue for other provinces.
Now, that’s going to take a couple more years to build because local governments, as I was saying before, they need to have a full inventory of their assets. They have to have a fair sense of what they’re worth and they need to know who owns the rights. That’s quite an undertaking, particularly for some of these larger, not just physically large provinces, but the ones with large economies, that’s a real effort. So, once that’s cleared up, then I think authorities can work out how to turn those assets into cash. But I think it’s going to spread.
And I think it’s going to become a more important source of revenue elsewhere. And it will help revive domestic demand. It’s not going to happen overnight. But I think we’re going to see it pick up momentum over the next couple of years.
Andrew: Well, we will be watching it closely. Your team will be not only kind of keeping tabs on it, but analyzing whether it’s working, looking at some of the risks. And yeah, I mean, I think we will see more commentary about this in the press. It’s always interesting when you kind of see a thing happening officially early on in the policy space, and then it gets a little traction and people start commenting on it, especially locally in China, usually means it’s getting a little bit of traction.
But certainly like this, and as it relates to local government issues and local austerity more broadly, we will be watching closely and following. And, of course, it all ultimately impacts the macro economy and businesses and investors and all that stuff. So, Dinny, great idea. Also, we should definitely do the SOE remittances thing. I know, like I said, you guys are doing great work and have some really interesting findings there. And that, combined with this, could also, I mean, they’re related issues and could fit in, could make a powerful kind of one-two punch, right?
Dinny: Yeah, absolutely. I don’t think anyone should be looking for a single solution for local government financing problems. It’s the sort of thing where I think you’re right. This asset revitalization will help. SOE dividends potentially will help. In a perfect world, they’ll finally be able to start boosting corporate tax revenue. That would hugely start to help. So, if they can manage to pull a whole lot of different sources of support together, that’s what a solution is going to look like. There’s not going to be a one-size-fits-all bailout, or Beijing reaches down and fixes everything. That’s not how this is going to work.
Andrew: Yeah, for sure. That is how it tends to happen. Well, Dinny, I really appreciate the time. Thank you for bringing the energy today and for walking us through this complex but fascinating and important topic. Always good to get a chance to step back and let you cook a little bit on the stuff you’re really good at. So, thanks, man. I appreciate it.
Dinny: Thanks, man. I appreciate it.
Andrew: Yeah. Thank you. And thanks, everybody, for listening. We’ll see you next time. Bye, everybody.
