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 Conversion Central 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

URBAN FRINGE 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: / Variation in interventions No. of Cases Cities with traditional land conversion 600+ Cities with Linking Programs 20+ Cities with quota markets 2 (Chongq ing and Chengd u) 1 2

4. Land Quotas are Transacted on the Market Source:

Urban Expansion With Local Quota Creation and Trading Villages in deep rural areas are affected Urban Area Rural Settlements “De-spatialization” “Re-spatialization”

Chengdu 1 st Zone 2 nd Zone 3 rd 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 Xiao

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 costs10% ￥ 20,000/mu Management and financing costs 7% ￥ 14,000/mu 100% ￥ 200,000/mu

Land Quota Certificate

mu= acre (1 Mu= 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:

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 Factory Land 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 Price ( ￥ 0.3million/mu) Land Leasing Fee

Residential/Commercial Projects Real 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 Projects Real 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 Projects Real 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 Factory Land Use Right Taxes + Jobs Land Use Right

Industrial Projects (District) Government Land Use Right Land Quota Quota 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 , about 6.25% of the annual official quota

Chengdu 1 st Zone 2 nd Zone 3 rd 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:

Thank you! Yuan Xiao

Urban Expansion with Quota Constraint Urban Area Rural Settlements Newly Created Agricultural Land