Use of Land in China : Government Regulation Financing Dependence and Policy Orientation

The policy for use of land is one of important components in the economic reformation in China. Beginning from the present situation of Chinese policies for use of land, this paper has taken Zhejiang province as a representative example to make an analysis, finding that there are many problems in Chinese present policies for use of land, pointing out that the future reformation should focus on solving three issues, including the duel land-system, the government regulation and financing dependence, and the imperfection of relevant legal system. Conclusions in this paper are meaningful in deepening Chinese policies for use of land.


The evolvement and present situation of Chinese policies for use of land
The reformation and evolvement of Chinese land policy are always accompanied with the reform of economic system.Here there are four typical stages that arouse attentions.At the first stage in 1986, The Law of Land Administration of the P.R.C has been issued and the National Land Management Authority of P.R.C has been founded, forming a new system for an integrated administration of towns, counties, lands, and governments.At the second stage from late 80s in last century, relevant articles in The Constitution and The Law of Land Administration of the P.R.C have been amended, entering the system reform of profitable use of lands and the process of market allocating land resources.At the third stage in 1998, The Law of Land Administration of the P.R.C has been completely amended and The Ministry of Land and Resources P.R.C has been founded.The administration of land has begun to be transformed toward the regulation of use.After entering the new century, the country's documents No.[2004]28 andNo.[2006]31indicates that the administration of land has begun to be transformed from the specialized resources management toward the participation in macro-control.
Chinese present policies for use of land have ten characteristics.1. Protection for farmland, especially for arable land, is the fundamental national policy of China.Although the domain of China is large, the farmland per unit is small considering the large population and the quality of arable land is poor.Considering the strategy of Chinese grain safety, the protection for land should not only improve the quality of arable land to increase the production of grain per unit, but also guarantee the quantity of farmland.2. The regulation on use of land.According to the fundamental land policies established by The Law of Land Administration of the P.R.C, the base of the regulation is the classification of use of land, the gist the overall layout, the key the approval of transforming farmland into construction land, the carry-out practice the allocation of land supply, and the guarantee the land registration.3. The compensation policy for the occupation of farmland.If the farmland is used for non-agricultural purpose, the organization that occupies the farmland should take the responsibility of cultivating a new piece of farmland in equal quantity and quality, according to the "occupation-equal-to-cultivation" principle.If the organization fails to cultivate a new piece of farmland or what it has cultivated does not meet the requirement, the organization should pay costs for cultivating a similar piece of farmland.4. The policy for controlling the quantity of total land supply in construction.Control the quantity of total land supply in construction strictly according to the overall layout of land-use and the practical needs in local construction.Set up index restriction and annual plan index control (the control index for farmland transformation and the control index for farmland occupation).5.The policy for collective supply of urban construction.It is the city government that controls the land supply for construction.In one city, all the land for new construction should be confiscated and supplied by the city bureau of land administration.Besides, the land for new construction in the urban administrative regions and all "gardens and districts" should be brought into the land-supply channel of city government.6.The policy for profitable use of land.Except for the use of land based on laws or administration, all other kinds of uses of land should be paid back.The profitable use of land can be realized through four ways, namely selling, renting, investing, and sharing.The law allows four fields to occupying land for free.The first is the land for state administration and military affairs.The second is the land for fundamental urban facilities and public causes.The third is the land for energy, transportation, irrigation works, and other fundamental facilities supported by the state.The fourth is the land for other uses set by laws and administrative regulations.The Ministry of Land and Resources of P.R.C constitutes the Direction for Use of Land to make this issue more specific and definite.7. The policy for publicly remising the right of using the land.Land for commercial services or industry must be remised by bidding publicly.The remising process by agreement must be publicly noticed and the result has to be publicized.8.The policy for periodically renewing and publicizing the benchmark for land price.Set up and update the benchmark for land price in time.In principle, the benchmark for land price should be updated every three years and be made adjustment according to the changes of market.The essential contents of the benchmark for land price should be publicized at appointed place or media in proper forms and can be inquired by people freely.9.The policy for land registration and registration query.The right of land works after registration.The registration of land property can protect the legal right of land obtainers.Except for the field of state secrecy, the land registration should meet the requirement of public query.10.The policy for land participates in the macro-control, guarding the two gates of "land" and "credit".Applying the policy for land to the macro-control is a special choice made by the central government considering the unique land system in China, the special state situation, and the specific development stage.It has the feature of transition economy.
The recent reform on Chinese land policy has gained greater progresses.But these progresses are still insufficient.Certain problems in the aspects of land policy and practice are waiting for resolution.Studies show that China's present policy for use of land still faces these main problems as follow.A dual system exists in the policies for rural land and urban land.The state monopolies the primary market of urban land.The occupation for land is not equal to the compensation.Farmers are powerless in the aspect of land property.Local government depends too much on profits from remising land and land-related financing.The ratio of farmland reduction is hard to decrease.The legal frame for use of land is imperfect.
In recent years, the speed-up growth of economy and urbanization is keeping up with the market openness and the fundamental reform on the policy for use of land set by Chinese government.Presently, China has taken some important measures in order to enhance the control of farmers and citizens over their land, decreasing the ratio of farmland reduction, and improving urban assets capability of market transaction.At the same time, there are also some vital challenges in the fields of land policy and system.

Case analysis on the land market in Zhejiang province of China
In the following analysis, we choose Zhejiang province as a sample for its recognized success in executing the policy for use of land, by which we can probe into the problem of land uses in China.Here we take the year 2004 as the cross section in researches.
Zhejiang has a dense population in a relatively small land area.The average land area per capita in Zhejiang is 0.24 hectare, being one fourth of the national average and one thirteenth of the world average.The imbalance between people and land is serious.Fortunately, the diverse uses of land in Zhejiang province and its interactive development among the local economies contribute to its leading development of provincial economy in China.
(1) The rapid economic development in Zhejiang province causes the vibrancy of land market.In the year 2004, Zhejiang province remised 13,619 pieces of land and the total area reached 18,018.4hectare, including a newly-remising area of 14,531 hectare.According to the situation of remising land, most of the remising operations are based on agreements.The remising-land by agreements is 11293 pieces, occupying a proportion of 82.9 percent, reaching an area of 14,004 hectare, including a newly-remising area of 12,046 hectare which respectively occupies 77.7 percent of the total remising land 82.9 percent of the newly-remising land.The remising-land by bidding is 246 pieces and the total area in bidding reaches 315.5 hectare, including a newly-remising area of 218.8 hectare.The remising-land by auction is 1,128 pieces and the total area in auction reaches 1,679.8hectare, including a newlyremising area of 1,041.3hectare.The remising-land by listing is 952 pieces and the total area reaches 2,019.2hectare, including a newly-remising area of 1,224.9hectare.The remising-land by bidding, auction, and listing occupies 17.1 percent of the total remising-land, the relevant area 22.3 percent of the total, and the newly-remising area 17.1 percent of the total.
Table 1 indicates that the transactions are frequent in the land market in Zhejiang province in 2004 and the ways of transaction are changed from initial agreements toward bidding, auction, and listing.But the three new ways merely occupy a lower proportion of the total.The number of 20% indicates that there is a long way for the development of land transactions.
(2) The prices for different pieces of land are various and the return from land increment is prominent.In 2004, the total income in land-remising reached 87,430,000,000 Yuan and the net profit was 13,560,000,000 Yuan.The total average price of remising-land was 4,852,000 Yuan per hectare and the total average profit was 752,000 Yuan per hectare.In the aspects of prices and profits in different remising ways, the average price of remising by agreements was 1,677,000 Yuan per hectare and the average profit was 161,000 per hectare.The average price and average profit in bidding respectively reached 27,482,000 Yuan and 5,148,000 Yuan per hectare, what are respectively 16 times and 32 times of that by agreements.
According to the table 2 and the price and profit of different pieces of land, the price of land for residence was the highest, reaching 14,540,000 Yuan per hectare.In the next place, the price of land for commercial services reached 13,010,000 Yuan per hectare.The land for industrial or special uses was in general at lower prices, being almost equal to one tenth of price of land for residence.The profit of land was similar to the price.The average profit of land for residence was 2,550,000 Yuan per hectare and that of land for commercial services was 2,260,000 Yuan per hectare, higher than ten times of price of land for common uses.
Table 3 shows that the land system of combining bidding, auction, and listing can help to escape from a black-box operation to a great degree in the land transaction, except for the land for public facilities, constructions, and special uses.The open, fair, and equitable policy for land can regulate the land market and save land in its uses, improving the using efficiency of land.
(3) The remising-land is chiefly centered on the land for industrial and mining storages and residence.In the uses of remising-land, most of them are used for industrial and mining storages, reaching an area of 12,951 hectare, occupying 71.9 percent of the total remising-land.Secondly, the land for residence reached an area of 3,453 hectare, occupying 19.1 percent of the total remising-land.Thirdly, the land for commercial services reached an area of 1,313 hectare, occupying 7.3 percent of the total remising-land.All the land for the three kinds of uses occupied 98.3 percent of the total remising-land.
In 2004, the officially-allotted land reached an area of 8372 hectare in Zhejiang province, being equal to 46.5 percent of the total remising-land.The officially-allotted land chiefly focused on the transportation (occupying a proportion of 25.6 percent), the government subsidized residence (occupying a proportion of 17.5 percent), and the public facilities and constructions (occupying a proportion of 36.8 percent).
According to the way of remising land in the table 4, the land for industrial and mining storage is chiefly remised by agreements, occupying a proportion of 99.6 percent.The land for commercial services and residence is chiefly remised by bidding, auction, and listing, respectively occupying a proportion of 86.3 percent and 80.6 percent.All these numbers indicate that the land for businesses is mainly remised by bidding, auction, and listing.The way of remising becomes market-oriented step by step.
Studies show that the development of land market is a process, in which the planning economy was destroyed and replaced with the market economy.This process stands for a path of the government-guided obliged system's transfer and evolvement.Although the land market in Zhejiang has achieved a fast development, many factors, such as the effects of former system, the duality of land market, and the participation of government in land operations, contribute to the mal-development of land market.This problem can be identified in two aspects.
In the first place, the rent-seeking and monopoly of government causes its malfunction.And the competition for interests between sections leads to the market malfunction.It is the dual land system in rural area and city and the monopoly of government over the primary land market in city that causes the dual prices of land, distorting the function of market.According to the land system in China, the state and collectivity possess the land and the government at different levels manages the land in practice.In the process of land conversion, the duality of land system directly leads to problems as follow.The owners and users of rural land can not make transactions in land market and can not gain profits from the value increment of land in city.The land compensation obtained by them is far less than the values of land in city, what is usually used for constructions and businesses.Because the rural land can be acquired at a lower price by government regulations, it fosters a unique environment in which land is used inefficiently, cities are expanded roughly, and farmland is reduced greatly.The local government can obtain a huge income out of the budget by means of confiscating the land, forming the "land finance", what causes an excessive dependence of the local government on the land-confiscation income from and the land-related finance.As a result, it will lead to the land reserve system's functional dissimilation.Due to the different prices in the dual price system of land, lots of rent-seeking activities appear what provide possibilities for corruption.
In the second place, the administration system and legalization frame for land fail to deal with the new situations and problems in development.Although the reformation has made certain progresses in the aspect of defining the rights and obligations of land-users and the state, the reform still has been performed in two aspects, namely the urban land and the rural land.Besides, the administration system and legalization frame for land are either in conflict with each other or imperfect.On one hand, the government participates in the market as not only the sole supplier of land but also the intermediary.The dualism of government leads to the lose restriction on land confiscation.On the other hand, the value of land is determined by its position in one city, in stead of the purpose of compensation.However, the compensation standard for land confiscation is associated with the multiple of average agricultural productivity per year in last three years.As the rural land is confiscated for commercial uses, the compensation for farmers will be far less than the income obtained by the government from the final user.

The government regulation and financial dependence: analysis on the characteristics of policies for land
Zhejiang is one of provinces that have powerful economy in China.It has already achieved a higher urbanization with a proportion of 54 percent.The increase of cities in this province is driven by its highly-speeded-up growth of industry and commerce.Inversely, the fast increase of cities also contributes to the high growth of industry and commerce.The typical feature of city increase is the upsurge of large urban centers that covers the whole province but not focuses on one or two regions.The investment in real estate is also at a high level in Zhejiang province, what reflects the relatively-higher and constantly-growing purchase power of urban residents.
The case proves an excessive dependence of the local government on the land-remising income and the land-related financing.The monopoly of government on the primary market of land serves as the stimulation for the government severely depending on the land-remising income which can be used to make up the regular finance budget capital and to expand the city.At the same time, the local government becomes more and more dependent on the confiscated land that can be used as the guaranty in form of land reserve by the local government to apply for bank loans.Both the two activities encourage the local government to confiscate the farmland regardless of potential risks, causing the irrational increase of cities.
The income of the local government includes two key parts.One is the budget income that is the return of various fees and taxes.And some are directly coming from the land and the real estate.The other is the out-of-budget income.And most are related with the land and the real estate.
Taxes and fees on the land and real estate are complicated and restricted by bugs in the taxation system.They may be collected only in transactions or they are just fixed at any occasion.Meanwhile, they are usually estimated according to costs, without regarding to the current values of assets in market.Therefore, they can not provide the local government with sufficient assets-based property taxes.In contrast, in many other countries the market-value-based property taxes are the main resources of finance income for the local government.In China, considering that most of families do not pay any kind of tax for their houses, the excessive land confiscation becomes unavoidable.On the other hand, the local government's out-of-budget income is extremely huge and most are coming from the profits of the bureau of land reserve.In many cases, the out-of-budget income from the bureau of land reserve may be equal to or even exceed the local government's total budget income.
The monopoly of the state on land supply, and the excessive dependence of the local government on land confiscation for the sake of finance income make the local government involve in this field that has less risks and more investment opportunities.The greatest risk faced with the local government is that it is not the local government who finally determines the position of land in need.It is enslaved to the fluctuation of ratio, especially the huge loans generated from the land's "market-value" evaluation that is made by the institution of land reserve and development authorized by the local government in fact.The principles in the property market are greatly distorted due to the inspiration of local government, no matter what it is an institution or an individual.As a result, the land in counties or the land possessed by collectivities is encouraged to turn into urban land or state-owned land as much as possible.
The income of the local government from this field has potential changeability.Once the elements that affect the demand of market change greatly, this income will be influenced negatively.Besides, the limits of land resources for expansion, the fluctuation of ratio, and all relevant fields surpass the control of the local government apparently.However, all these factors can exert potential effects on the behavior of local government.Moreover, although both the finance budget capital and the out-of-budget capital are under the examination and supervision, the later capital is in short of auditing and transparence in its management and expenditure.

The review of documents and research conclusions
As far as the theories and policies for use of land are concerned, two viewpoints gain attentions in China's academic field.According to the first viewpoint, the thoughts of irrationality, uncertainty, and flexibility are vital revolutions of human epistemology and methodology brought by scientific and technological development.Because of the gradually-increased uncertainty, irrational factors, and behaviors in the application of land policies, the former theories of land fail to meet the needs of reality due to its unilateral rationality, certainty, and rigidness.Step by step, the distance between theories and practices becomes larger.This issue is especially serious in the transition economy of China.Therefore, experts suggest that in the filed of using land, we should keep on absorbing the latest achievements in science and technology, making up and improving the theories of rationality, certainty, and rigidness by the programming theories of irrationality, uncertainty, and flexibility, and constructing and perfecting the ideology and methodology of land using and programming.By this way, it can benefit the innovation of theories land using and programming, and the effective combination of programming and reality, what can help to avoid the separation of programming from reality to a great degree.According to the second viewpoint, the theories of land using and programming can be divided into three levels based on the practice of land use in China, namely the political economy-related fundamental theory, the general theory, and the subjective theory.The general programming theoretical system for use of land includes two parts, namely the horizontal part and the vertical part.Vertically, this system has three levels.The top level is theory of coordination and systematic cooperation that directly guide and affect the detail of the whole use and programming of land.The middle level is theory of dominating conditions that control the key problems in the process of using land.The bottom level is the cybernetics that directly manages the land-using structure and balance in detail.Horizontally, this system is an open ring.The theory of coordination is the core of the ring.The theory of dominating conditions reflects the coordination in general and it is an expansion of conditions.The cybernetics is specific methods for coordination, and the application of theory of conditions.In a series of rings, it is possible to add new theories considering the specific regional features and the requirements of times.Therefore, this theoretical system has a strong self-adapting mechanism.
Arnott, R.J. and J.E. Stiglitz (1979), Ades, A.F. andE.L. Glaeser (1995), Henderson Vernon (1997), Black,D, J.V. Henderson (1999), Andretsch,D.B., M.P. Feldman (2003) have made empirical researches on the policies for land and the urbanization issue in developing countries.They have agreed that the policies for land can exert vital effects on the urbanization in one country.An important problem emerged in the process of the government in developing countries pursuing urbanization by applying policies for land is that the unclear property right causes an accumulation of land property that is similar to the "original accumulation".As a result, more problems appear.Therefore, they suggest that the property clarity is the key for the effective application of land policies.
According to Grossman and Hart's (1986) definition of ownership, the ownership of an enterprise or certain assets is a control right in essence.It is a control over the residual rights, namely the residual control rights instead of the residual claim rights in a traditional sense.The residual income rights are derived from the residual control rights.After losing the farmland, farmers are allowed to share a part of income from the value increment of land.For example, as the local government confiscates a piece of farmland in one region, they will sign a contract to force the land users to provide the village or farmers with some interests.But the village has no right to determine the non-agricultural use of the land.Since the ownership is a kind of control right and farmers have no control right over the non-agricultural use of the farmland, the ownership of the farmland used for non-agricultural purpose does not belong to the rural collectivity.The non-agricultural construction land must be state-owned.And the state-owned land includes the urban land, and the part of rural land that has been turned into state-owned one.Along with the great increase of non-agricultural construction, the state speeds up the confiscation to the rural land.In the confiscation, no matter how much the confiscate land is, no matter where the confiscate land is, and no matter what the price of the confiscate land is, farmers have no right to say anything.It is determined by the local government in behalf of the state.After the confiscation, the government will remise the usufruct of the land to land users.No matter how the land-remising is realized by agreements, bidding, auction, listing, or renting, it is operated by the local government on the state's behalf.Therefore, concerning with the non-agricultural uses of farmland, the state has the ownership in practice.
However, Glease and Retal's (2005) studies are more proper for the situation in China.According to their empirical researches, Korea, Singapore, and other new-developed industrial countries have not fostered perfect property system during their fast development of economy from late 60s to 90s in last century.But all these "property-short" countries have achieved the prosperity of economy.Why the system and property were not as important as what we have thought?A metric empirical research shows that the property right is not the most important factor at the stage of economic growth.The effect of property right on economic development is merely at the second order.In contrast, the human resources, social capitals, and the level of marketization are the most basic factors in economic development.As the degree of marketization is improved, courts and legislatures will replace guns and costs of transactions will become less.As a result, it is possible to achieve the property clarity.
Since late 70s in last century, China has experienced a profound economic and social transform accompanied with the conversion of economy system from planning economy to market economy.The issue of land has been associated with this transform in many important ways.Some land-related decisions ------how to allocate, use, regulate, administrate, and finance in the field of land, will exert vital effects on the future of China economy and social development.Chinese government has been convinced of the importance of land policies in achieving the expected aims in economic and social fields.Fortunately, the recent policies for land in China are basically proper for the fast-changed environment.However, in the aspects of land policies and practices there are still some issues deserved to be resolved immediately, which is the vital task that should be solved by Chinese land policies.
Firstly, the dualism of rural and urban land system, and the monopoly of the state on the primary urban land market cause a severe economic distortion and an irrational growth of cities.At the times of unprecedented growth of cities and integration of urban and rural economies, the most important feature of China's land policies is the sharp different measures for urban land and rural land.As a matter of fact, the rural land and the urban land have to follow different authority systems and are managed by different agencies and laws.As a result from the division of rural land and urban land, the government becomes the sole intermediary to turn rural land into urban land.It is the government who has an exclusive right to confiscate the rural land and remise it to city users.Under the present legal system, all the rural land has to be confiscated firstly by the city government and then be allocated in urban users by different ways before the rural land entering the urban market.Recently, along with the speed-up process of urbanization, China's present land policies are questioned more and more.The question focuses on two aspects.The first is the unfairness to the users of rural land.The present policies are not good for the owners and users of rural land, because these policies directly make it impossible for them to obtain profits from the value increment of their rural land in the urban land market.The second is that they have no right to sell their land in the market.Moreover, the land compensation that was paid for farmers is merely associated with the land's agricultural productivity, usually being several times of its agricultural value, which is far less than its values as it is used for other purpose in city.This fact should be changed in the future.
Secondly, the local government depends too much on the land-transfer income and the land-related financing.The monopoly of government on the primary market of land serves as the stimulation for the government severely depending on the land-remising income which can be used to make up the regular finance budget capital and to expand the city.At the same time, the local government becomes more and more dependent on the confiscated land that can be used as the guaranty in form of land reserve by the local government to apply for bank loans.Both the two activities encourage the local government to confiscate the farmland regardless of potential risks, causing the irrational increase of cities.The monopoly of the state on land supply, and the excessive dependence of the local government on land confiscation for the sake of finance income make the local government involve in this field that has less risks and more investment opportunities.The greatest risk faced with the local government is that it is not the local government who finally determines the position of land in need.It is enslaved to the fluctuation of ratio, especially the huge loans generated from the land's "market-value" evaluation that is made by the institution of land reserve and development authorized by the local government in fact.Although it is impossible to get relevant data of the loan, it is doubtless that the loan is huge and it may cause a serious problem in the national credit institution.Besides, although the land reserve is popular in local regions, there are no relevant laws or principles to regulate this issue in China.It is the local government who approvals the land reserve action.Therefore, an adjustment to polities is urgent.
Thirdly, the legal frame of land is incomplete.Although the reformation has made certain progresses in the aspect of defining the rights and obligations of land-users and the state, the reform still has been performed in two aspects, namely the urban land and the rural land.In 1982, the Constitution classified the land in China into two systems, which started a dual system for land management and use in China.According to the Constitution in 1982, the urban land is state-owned and the rural is collectivity-owned.In 1988, the Amendment of Constitution made it clear that the land usufruct can be transferred legally.It means the land usufruct can be separated from the land ownership.As far as the rural land is concerned, the Law of Land Administration amended in 1998 guarantees an individual farmer with a contracted-ownership of thirty years.And this reform has been enhanced and deepened due to the Law of Rural Land Contract in 2002.In essence, this law has improved the position of a farmer's right for land contracts and made it become a property right in a sense.According to this law, these rights of farmers should be changed in thirty years at least.As far as the urban land is concerned, the urban land is owned by the state.But the legal base for urban land's usufruct market has been formally established.As a matter of fact, the Real Property Law passed recently has concerned with integrating all present legal progresses in this field and extending them further.

Table 1 .
The pieces and area of remising-land in Zhejiang province in 2004.From data issued by Bureau of Statistics of Zhejiang Province.

Table 2 .
The price and profit of remising-land in Zhejiang province in 2004.Data resource: From data issued by Bureau of Statistics of Zhejiang Province.

Table 3 .
The price and profit of land for different uses in Zhejiang province in 2004 (10 thousand Yuan, 10 thousand Yuan per hectare).From data issued by Bureau of Statistics of Zhejiang Province.

Table 4 .
The land-remising situation in Zhejiang province in 2004.From data issued by Bureau of Statistics of Zhejiang Province.