1. Lincoln Institute of Land PolicyUniversity of Maryland 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. 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

6. 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. 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

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. 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

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

15. 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 Acquisition Positive Impacts

16. 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 Acquisition Positive Impacts

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. 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 Acquisition Positive Impacts

19. 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 Acquisition Positive Impacts

20. Impacts on Urban Spatial Development Shenzhen: 140 km 2 in 1999. Chongqing’s urbanization: 18.99% in 1996  28.5% in 2000 and urban built-up areas increased from 158 km 2 in 1994 to 175 km 2 in 2000. Land Acquisition Positive Impacts

21. 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 km 2 per year in the second half of the 1990s. Land Acquisition Positive Impacts

22. 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 Land Acquisition Institutional Problems

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 n Land taking contributes substantially to urban economic advance n Positive impacts make it difficult to reform land taking (implementation issue n Radical/fundamental reform may be needed, that alone may be risky and problematic too n Market development in rural areas is needed

28. Lincoln Institute of Land PolicyUniversity of Maryland Thanks