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Land Taking for Local Public Financing

Land Taking for Local Public Financing. Chengri Ding Associate Professor and Director of China Program at University of Maryland Workshop on Land Policies and Legal Empowerment World Bank Nov. 2-3, 2006. Contents. Introduction Practice of Land Taking

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Land Taking for Local Public Financing

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  1. Land Taking for Local Public Financing Chengri Ding Associate Professor and Director of China Program at University of Maryland Workshop on Land Policies and Legal Empowerment World Bank Nov. 2-3, 2006

  2. Contents • Introduction • Practice of Land Taking • Fiscal Reality for Sub-national Governments • Land Taking for Local Government Financing • Issues and Challenges

  3. Introduction • Rapid Urban and Industrialization • Rapid Urban Spatial Expansion • Land Ownership in China: Urban vs. Rural • Dichotomous Urban-Rural Structure

  4. Dichotomous Structure Social Welfare/Status

  5. Practice of Land Taking • 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.

  6. 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)

  7. Mandated Land Taking • 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

  8. Fiscal Difficulty for Local Governments • Centralized power of tax policy after 1994 • Increasing fiscal deficits after 1994

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

  10. 1993/4 Fiscal/Tax Reform Figure 1: Performance of “Two Rates” (Zhang and Liu, 2003)

  11. 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”

  12. 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

  13. 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

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

  15. Land AcquisitionPositive Impacts • 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

  16. 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.

  17. Land Revenues for Financing Urban Expansion (From Liu, S., 2005, in Li Guo’s AAA project, 2005) unit: 100 million RMB How does this happen?

  18. Land AcquisitionPositive Impacts • 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.

  19. 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

  20. 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.

  21. 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.

  22. Land AcquisitionInstitutional Problems • Scope and justification of land acquisition • Definition of public interest • Capital projects are subject to different compensation specified by the State Council • Fair 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

  23. 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

  24. 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

  25. 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

  26. Land Development

  27. 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

  28. Thanks

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