Lincoln Institute of Land PolicyUniversity of Maryland

Land Taking for Local Public Financing

Chengri DingChengri Ding

Associate Professor and Director of China Program at University Associate Professor and Director of China Program at University of Marylandof Maryland

Workshop on Land Policies and Legal Empowerment Workshop on Land Policies and Legal Empowerment World BankWorld Bank

Nov. 2-3, 2006Nov. 2-3, 2006

Contents

• Introduction

• Practice of Land Taking

• Fiscal Reality for Sub-national Governments

• Land Taking for Local Government Financing

• Issues and Challenges

Introduction

• Rapid Urban and Industrialization

• Rapid Urban Spatial Expansion

• Land Ownership in China: Urban vs. Rural

• Dichotomous Urban-Rural Structure

Dichotomous Structure

By Hukuo Urban Rural

Subsidied Agricultural Goods Y N

Access to well-Provided Urban Services Y N

Retirement and Pension Y N

Health Insurance Y ?

Wages H L

Social Welfare/Status

• Non-land market leads to adoption of compensation package in land taking

• The package includes compensations for land, resettlement, and land attached investments

• Job offering, urban hukou granting, provision of social security funds may also be part of the package.

Practice of Land Taking

Practice of Land Taking

• Land requisition/taking is predominant way in providing land supply for urban development

• Roles of land taking in China

• Derived demand

• Used as a policy instrument to induce investment

• Financing local governments (after 1994)

• Non construction except for farmer residency is permitted in rural/farmland

• Construction is allowed only on state owned land

• Land Taking (Requisition) in which land ownership changes is mandated priori to land development

Mandated Land Taking

Fiscal Difficulty for Local Governments

• Centralized power of tax policy after 1994

• Increasing fiscal deficits after 1994

Fiscal Difficulty of Local Governments

Fi scal Bal ance (RMB 100mi l l i on), 1978-2003

-8000

-6000

-4000

-2000

0

2000

4000

6000

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Central Government Sub-Nati onal Governments

Figure 1: Fiscal Reality of Governments (Modified from Xie, Long, and Ding, 2005)

1993/4 Fiscal/Tax Reform

Figure 1: Performance of “Two Rates”(Zhang and Liu, 2003)

Reasons

• Strong fiscal need for local governments to find alternative revenue sources after 1994

• Unchecked “policy power” in land taking for local governments

• Monopolized “first-level” land markets---Land Use Rights System

• Controlled total amount land supply (farmland protection, tough approval procedure of land development in rural areas, and limited quota of land conversion etc.)

“cheap in” “pricing out”

Land Acquisition/Taking

• “Only” legal way to increase land

supply in urban areas• Both the Chinese Constitution and the

1999 Land Administration Law (LAL)

specify that the state, in the public

interest, may lawfully requisition land

owned by collectives compulsory

land acquisition

• No-market data compensation package for land acquisition

• It is composed of • compensation for the land; • resettlement subsidies; • compensation for attachment to the land

and for crops growing on the requisitioned land; and

• Job offering and/or hukou granting• No-worse off of living standard required

Land Acquisition

• Amount of compensation• Land: 6-10 times • Resettlement: 6-10 times• The two combined: up to 30 times

Land Acquisition

Fiscal Impacts

• In one village in Fujian province, LG paid about

10,000 RMB per mu to farmers and resold to

developers for 200,000 RMB per mu if zoned

industrial or for more than 750,000 RMB per mu if

zoned residential

Land AcquisitionPositive Impacts

Fiscal Impacts• In the Jianggan district of Hangzhou, land

compensation and resettlement subsidies were

120,000 RMB per mu from 1997 to 1999 and then

were raised to 160,000 RMB per mu after 1999.

The average price of land use rights for housing

projects was 2 to 4 million RMB per mu.

Land AcquisitionPositive Impacts

Land Revenues for Financing Urban Expansion

Shaoxing Jinhua Yiwu

Investment Proportion Investment Proportion Investment Proportion

Investment from Financial

Revenue and Government

Fund

2.48 4.13%

Leasing of the Use Right

of State-owned Land 19.2 32% 20.77 51％ 17.38 22.3％

Loans by using land as

collateral 38.32 63.87% 20 49％

Social Investment and

Investment from

Property Owner

60.62 77.7%

Total 60 100% 40.77 100% 78 100%

(From Liu, S., 2005, in Li Guo’s AAA project, 2005)unit: 100 million RMB

How does this happen?

Impacts on Industrial and Economic

Development• By the summer of 2004, there were 6866 zones

across the country, covering more than 38,600 km2

(Cao, 2004)• The average national GDP growth rate in these ED

zones was 25.7% in 2001 (45 zones) and 29.4% in

2002 (49 zones), respectively. Their growth rates

were two to three times the national average growth

rate.

Land AcquisitionPositive Impacts

Impacts on Urban Spatial Development• Urbanization 3.15% and urban built-areas 7.1%

from 1986-1996

• Both grew around 5% from 1996-2005

Land AcquisitionPositive Impacts

Impacts on Urban Spatial Development• Shenzhen: <3 km2 in 1979 >140 km2 in 1999.

• Chongqing’s urbanization: 18.99% in 1996

28.5% in 2000 and urban built-up areas

increased from 158 km2 in 1994 to 175 km2 in

2000.

Land AcquisitionPositive Impacts

Impacts on Urban Spatial Development

• Beijing’s urbanized areas increased nearly 30%

in the 1990s, and per capita construction space

rose by two-thirds.

• Guangzhou expanded by 7 to 8 km2 per year in

the second half of the 1990s.

Land AcquisitionPositive Impacts

Scope and justification of land acquisition• Definition of public interest• Capital projects are subject to different

compensation specified by the State CouncilFair and just compensation of land acquisition

• Non-worse off standard• Not concrete measures to ensure non-worse off

standard• Prevalent in unfair practice of compensation• Horizontal vs. vertical justice• Different uses, different compensation

Farmers’ rights and interests • What they are

Land AcquisitionInstitutional Problems

Issues in Land Taking

• Fiscal dependency on land is risky• Rising social tension and conflict between

farmers and Gov. • Source for corruption• Possibility of depriving farmers to benefit from

urbanization • Myopic behaviors of LG in land development

and land use• Long term impacts on inefficient urban form

Questions?

• What justice compensation means

• 30 times is not sufficient? if so, what are

problems?

• Who are entitled to the compensation:

• Farmers vs. governments (which?)

• commune vs. individual farmers

Challenges in Land Taking Reform

• To make it work, should be linked to

fiscal/tax reform that redefines

intergovernmental fiscal relation• How best to divide land revenues among

stakeholders?• Long term security provision for lost-land

farmers due to land taking

Land Development

Summary/Recommendation

Land taking contributes substantially to urban economic advance

Positive impacts make it difficult to reform land taking (implementation issue

Radical/fundamental reform may be needed, that alone may be risky and problematic too

Market development in rural areas is needed

Lincoln Institute of Land PolicyUniversity of Maryland

Thanks