What gave rise to China’s land finance?

Nannan Xu

Land Use Policy, 2019, vol. 87, issue C

Abstract: Land finance, or tudi caizheng, is a phenomenon unique and critical to China’s urban development. Its genesis, however, has not been seriously addressed. This research questions the widely accepted conventional theory that the 1994 tax-sharing reform resulted in land finance. This theory assumes that the reform created a deficiency in local fiscal income; As an expediency, land finance was formulated when local governments sold land usufructs to increase revenue. This research demonstrates that local governments after the reform neither experienced a plunge in revenue nor owned the capacity to create the institutional framework that enables them to increase land revenue. Instead, the combination of rigorous fiscal management, monopoly of land supply, strict land use control, and market mechanism of conveyance, this paper argues, is the primary cause of land finance, and only national institution building can actualise these conditions. The efforts regarding institution building were driven by the party state’s idea of ‘land as resources and asset.’ Otherwise, localities would have to compete to loosen their regulation to attract investments and, therefore, capture much less land value increase, and land finance would be impossible.

Keywords: Land finance; Fiscal reform; Land value capture; Institutional change; Urban development; China (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:lauspo:v:87:y:2019:i:c:s0264837718313863

DOI: 10.1016/j.landusepol.2019.05.034

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