Land finance in China: Analysis and review

Joseph Gyourko, Yang Shen, Jing Wu () and Rongjie Zhang

China Economic Review, 2022, vol. 76, issue C

Abstract: China's land finance system has been a key contributor to the country's “economic miracle” over recent decades. While there is much existing research on different components of the land finance system, this paper, based on both an academic literature review and data analysis, provides an integrated understanding of how these parts function in tandem around the pivotal role of profitability in the system. First, we summarize the essentials of China's land finance system by providing a framework to understand the self-reinforcing cycle between local governments' financing and spending activities based on urban land-use rights (LURs). We also quantify the magnitude of profits generated by the cycle and its contribution to China's urban development. Second, we investigate the institutional underpinnings of the system, which empower local governments as the monopoly supplier of urban LURs. We also document the rising temporal trend in land prices in most cities. Both these institutional and market factors facilitate the profitability of land finance. Finally, we shed light on the sustainability of the system. Local governments' strong incentives to maximize the profitability of land finance have resulted in increasing economic and social costs/risks. Meanwhile, the feasibility of the system increasingly is coming into question, as both ongoing institutional reforms and recent urban land market cooling raise potentially fundamental challenges to the profitability of land finance.

Keywords: Land finance; Local government; Infrastructure financing; Local government debt (search for similar items in EconPapers)
JEL-codes: H54 H72 H74 O23 R14 R30 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:76:y:2022:i:c:s1043951x22001262

DOI: 10.1016/j.chieco.2022.101868

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