land quota markets in chinese urbanization yuan xiao ph.d. candidate massachusetts institute of...

Land Quota Markets in Chinese Urbanization

Yuan Xiao

Ph.D. Candidate

Massachusetts Institute of Technology

United States

Densification Deep in the Countryside

World Bank Land and Poverty Conference| March 24, 2014

Land Management and China’s economic Growth

• Partial land market since 1990s

• Public ownership of urban land collective ownership of rural land

• Local Governments leverage land to raise fiscal revenues and attract investments

Taking Rural Land for Urban Development

- Rural land owned by rural collective; non-transferrable

- “Taking” granted by law (although controversial)

- Buy low and sell high

Large scale land conversion resulting in farmland loss and social conflicts

Curbing Aggressive Land ConversionCentral

Government

Imposing “Land Conversion Quota”

Social Conflicts Farmland Loss

Land Conversion by Local Governments

Urban Expansion with Quota Constraint

Urban Area

Rural Settlements

New Phenomenon: Land Quota Market

1. Densification of Rural Settlements

2. Reclaiming Old Housing Sites for Farming

URBANFRINGE

RURAL AREA

BEFORE AFTER

Scattered farmhouses

Apartment buildings

Reclaimed farmland

Using Locally Created Quotas

3. Use Local Quota for Urban Expansion

Comparative Case Study

Source: http://www.travelchinaguide.com/map/

Variation in interventions

No. of Cases

Cities with traditional land conversion

600+

Cities with Linking Programs

20+

Cities with quota markets

2 (Chongqing and Chengdu)

1

2

4. Land Quotas are Transacted on the Market

Source: http://news.ifeng.com/gundong/detail_2011_07/29/8035871_0.shtml

Urban Expansion With Local Quota Creation and Trading

• Villages in deep rural areas are affected

Urban Area

Rural Settlements

“De-spatialization” “Re-spatialization”

Chengdu 1st Zone

2nd

Zone

3rd

Zone

Overall Changes: The “Flying Land”Municipality of Chengdu• Land development is transferred from rural

areas to urban areas larger urban built-up area, smaller rural built-up area

• Residential densification increased in remote area (70% land saved = 3.33 times denser)

• A transfer of wealth from urban areas to rural areas

• Increased supply of land for urban expansion and wealth creation

• “growing the pie”, and giving a slice to peasants in remote areas.

Potential Problems

• Quality of agricultural land• Change in peasants’ lifestyle• Change in production mode • Selling quotas = outgoing of important

government resources

Thank you!

Yuan Xiaoyuanxiao@mit.edu

Additional Slides

Quota Generation and Changes in the Rural Areas

Land Use Changes at Village Level

Source: Replication of Figure 7 in Yang 2011, How to Build a New Socialist Countryside. (Unpublished manuscript)

Before

Land Use Changes in Rural Area

Source: Replication of Figure 7 in Yang 2011, How to Build a New Socialist Countryside. (Unpublished manuscript)

After

Changes in the Countryside: Village Level

• Construction land/built-up area reduced (by 70%)

• Agricultural land increased • Reclaimed agricultural land cannot be used for

future development

Changes in the Countryside: Household Level

Changes in the Countryside: New Process and New Business

• Process: construction, demolition, reclamation• New business: quota developers• Costs of quota generation

Compensation to peasant households

70% of total costs ￥ 140,000/mu

Compensation to the rural collective

13% ￥ 26,000/mu

Engineering costs 10% ￥ 20,000/muManagement and financing costs

7% ￥ 14,000/mu

100% ￥ 200,000/mu

Land Quota Certificate

Land Quota Certificate

283.5090 mu= 46.704 acre(1 Mu= 0.165 acre) Reclaim

ed lots: 172 in total

Obtained by original quota generation

(-) in Shima, Kaiyuan villages

(+) in heshan township and Changqiu town

Net (-) in construction land is quota

Right holder: Chengdu Xiangda Corp.

Quota Use and Changes in the Urban Areas

Who Buys Quotas?

Source: http://news.ifeng.com/gundong/detail_2011_07/29/8035871_0.shtml

Who Buys Quotas?

• Quota: originally a government resource

• Developers (commercial and residential projects) are required to buy local quotas

• District/county governments buy quotas for industrial projects

Quota Trading

• Cannot trade privately. Must be transferred in Municipal Rural Property Exchange Center

• Price set through open bidding

Quota and Urban Land Markets

• How does quota price affects land price?

• Who Bears the Cost of Quota

Residential/Commercial Projects

(District)Government

Real Estate Developer Land Use Right

Land Leasing Fee

Land Use Right

Industrial Projects

(District)Government

FactoryLand Use Right

Taxes + Jobs + Economic Growth

Land Use Right

Residential/Commercial Projects

(District)Government

Real Estate Developer Land Use Right

Land Leasing Fee (3 million/mu)

Land Use Right

Residential/Commercial Projects

Real Estate Developer

Land Use Right

Quota Developer

Land Quota

Land Quota

Land Quota Price (￥ 0.3million/mu)

Land Leasing Fee

Residential/Commercial ProjectsReal Estate Developer

Land Price (?)

Quota Developer

Quota Price (￥ 0.3million/mu)

(District)Government

Assertion by Local Governments and Land Developers

Worries of Ministry of Land and Resources

Residential/Commercial ProjectsReal Estate Developer

Land Price (￥ 3 million/mu)

Quota Developer

Quota Price (￥ 0.3million/mu)

(District)Government

Scenario 1: Inelastic/Tight Land Market

(￥ 3 million/mu, the same)

Residential/Commercial ProjectsReal Estate Developer

Land Price (2.7million/mu)

Quota Developer

Quota Price (￥ 0.3million/mu)

(District)Government

Scenario 2: Elastic/Not so tight Land Market

(2.7million/mu, reduced by 0.3million/mu)

More close to the current market trend in case city

Industrial Projects

(District)Government

FactoryLand Use Right

Taxes + Jobs

Land Use Right

Industrial Projects

(District)Government

Land Use Right

Land QuotaQuota Developer

Land Quota Price (￥ 0.3million/mu)

Who Bears the Costs?• Theoretically, who bears the costs depends on

how tight the land market is.

• In my case city, the government bears the costs a transfer of fiscal resources to the countryside + to quota developers

• Less revenue per mu of land, but more land becomes available make the pie bigger, and give a slice to the peasants

Quota Size and Land Supply

• “Quota of quota” Upper limit on locally created quota: 10% of

centrally allocated quota (400,000mu)• Time lag Two year production cycle + two year use

period• In reality, 12,500 mu on averaged added to

Chengdu annually between 2010-2012, about 6.25% of the annual official quota

Chengdu 1st Zone

2nd

Zone

3rd

Zone

Overall Changes: The “Flying Land”Municipality of Chengdu

• The total area of built up in the rural and urban areas remain the same.

• Land development is transferred from rural areas to urban areas larger urban built-up area, smaller rural built-up area

Villages in remote areas are condensed first

Potential Problems

• Quality of agricultural land• Change in peasants’ lifestyle• Change in production mode • Selling quotas = outgoing of important

government resources

New Socialist Countryside? Rural Urbanization?

Source: http://blog.dichan.com/cncfc/articlesshow-681424.html

Thank you!

Yuan Xiaoyuanxiao@mit.edu

Urban Expansion with Quota Constraint

Urban Area

Rural Settlements

Newly Created

Agricultural Land