Has Land Finance Increased Local Financial Risks in China

Whether land finance has increased local financial risks has always been a hot topic in society and in the academic circle. This article firstly describes the overall characteristics of the development of local finance in China. By establishing a matrix containing 16 indicators for local financial risks, it has analyzed the characteristics and overall development trend of financial risks at the provincial level in China as a whole. Furthermore, it explores the casual effect of land finance on local financial risks by ordinary least squares (OLS) and two-stage least squares (2SLS) models on the basis of panel data covering 178 prefecture-level cities from 2009 to 2017. The results show that from 2017 to 2019, there still existed great risks in local finance in all provinces and cities across the country, and the local financial risks of all provinces and cities showed an upward trend and were mostly related to the high dependence on land finance. By analyzing the data of the last decade, we can find that the government’s dependence on land finance had increased, along with the increasing financial risks which it faced. In particular, they exerted a more prominent impact on the eastern regions and other regions with a low urbanization rate in China.