Using Land to Promote Urban Economic Growth in Chi

UsingLandtoPromoteUrbanEconomicGrowthinChinabyChengriDingandErikLichtenbergWP08-02DepartmentofAgriculturalandResourceEconomicsTheUniversityofMaryland,CollegeParkUsingLandtoPromoteUrbanEconomicGrowthinChinaChengriDingDepartmentofUrbanStudiesandNationalCenterforSmartGrowthUniversityofMarylandCollegePark,MD20742andErikLichtenbergDepartmentofAgriculturalandResourceEconomicsUniversityofMarylandCollegePark,MD207421AbstractThispaperinvestigatestheeconomicincentivesforurbanspatialexpansioninChinabyestimatingthevalueofurbanlandusinganeconometricmodelappliedtodatafromthe220largestChinesecitiesfortheperiod1996-2003.Theresultsareconsistentwiththepropositionthattherapidrateofurbanspatialexpansionresultedfromacombinationoffiscalpressureonlocalgovernmentsandgovernancereformsthatgavelocalgovernmentsgreatercontroloverlandandinvestmentpolicies.TheestimatedparametersofthemodelindicatethaturbanlandgeneratesfarmorethanincomeperunitareathanagricultureineasternandcentralChina,suggestingthatlocalgovernmentscanprofitsubstantiallyfromconversionoffarmlandtourbanuse.Thevalueofurbanlandinthoseregionsincreasedintheperiodafter1999,anoutcomethatcouldbeattributabletoincreaseddemandforlandtoaccommodateeconomicgrowth,delayeddevelopmentoflandsetasidespeculativelyintoeconomic/industrialdevelopmentzones,and/orimplementationofstricteradministrativecontrolsonfarmlandconversionthatrestrictedthesupplyoflandforurbanuses.UrbanlandappearedtohavealoweconomicvalueinwesternChina,aregionthat,takenasawhole,haslaggedintermsofeconomicgrowth.Theestimatedparametersofthemodelareconsistentwithfindingsofpreviousstudiesregardingreturnsonforeigndirectinvestment,domesticChineseinvestment,andlaborproductivity.UsingLandtoPromoteUrbanEconomicGrowthinChina1.IntroductionChinahasbeenurbanizingrapidly—as,indeed,onewouldexpectinacountryexperiencingrapidindustrializationandeconomicgrowth.Between1978and2004,whileChina’sGDPwasgrowingatanaverageannualrateof9.4percentintotaland8.1percentpercapita,theurbanshareofChina’spopulationincreasedtofrom18percentto42percent.Chinacitieshaveexpandedspatiallyalmostasrapidlyasthecountryhasgrowneconomically:Between1986and2003,urbanizedlandgrewfrom10,161km2to28,308km2,anannualaveragegrowthrateofabout6percent,almostdoubletheaverageannualrateofpopulationgrowthof3.15percent(ChinaStatisticalYearbook,variousyears).Astheselatterfiguressuggest,urbangrowthinChinahasbeencharacterizedbyabiastowardsuburbanization,thatis,expansionintothesurroundingcountryside(ZhouandMa2000).CasestudiesofShanghai,Beijing,Guangzhou,Guangdong,andothercitieshavedocumentedthispreferenceforspatialexpansionoverredevelopmentoftheexistingurbancoretohigherdensityuses(WuandYeh1997,Wu1998,Gaubatz1999,YehandLi1999,Fuetal.1999,Lin2001,Cartier2001,Wu2002a,Xu2003,Tanetal.2005,Lin2007).Thisbiastowardspatialexpansioncanbeattributedtoforcesunleashedbyaseriesofeconomicandpoliticalreforms.Whilenominallysubjecttothestricturesofurbanplanningguidelinespromulgatedbythecentralgovernment,landallocationdecisionsareincreasinglydrivenbypolitical-economicincentivesfacingmunicipalgovernmentandCommunistPartyofficials(oftenoneandthesamepersons).Landisamajorsourceofpoliticalandeconomicpower;decentralizationreformsofthe1990sdevolvedmuchofthatpowerinthehandsoflocalgovernments(WuandYeh1997,1999;Hsing2006LiandZhou2005;LinandHo2005;Lin2001,2007).UnderChina’ssystemofpublic2landownership,acquisitionofrurallandforurbangrowthisunderthesolecontrolofmunicipalofficialswhilecontroloverexistingurbanlandisnot(Hsing2006,HoandLin2003).Acquisitionofnewlandforurbanexpansionisalsolesscostlythanredevelopmentoftheexistingurbancore(Hsing1999,HoandLin2003,Fuetal.1999,ZhouandMa2000,Ding2003,Lin2007).Howlargearethegainsfromurbanlandexpansion?Informationonlandvaluesishighlyfragmentary.Dataonrealestatetransactionsareavailableonlyforafewcitiesandonlyforafewselectyears,makingitimpossibletoassessthecontributionoflandtotheurbaneconomy(andhencethestrengthofincentivesforurbanspatialexpansion)inanysystematicfashion.Giventhelackofdirectinformationonrealestateprices,thispaperattemptstoobtainsystematicestimatesofthevalueofurbanlandinChinausinganeconometricmodelofthecontributionoflandtoeconomicgrowthinthe220largestChinesecitiesovertheperiod1996-2003.ThepaperbeginswithabriefdescriptionofChina’sallocationsystem(Section2)andthendiscussestheincentivesforurbanspatialexpansiongeneratedbythatinstitutionalandlegalframeworkforacquiringlandforurbangrowth,withanemphasisontheimpactsofeconomicandpoliticalreforms(Section3).Section4discussestheconceptualframeworkunderlyingtheeconometricmodel,thespecificationofthemodel,anddatausedinthisanalysis.Section5presentstheestimationresultsanddiscussestheirimplications.Section6concludes.2.InstitutionalandLegalFrameworkofLandAllocationinChinaChangesintheinstitutionalandlegalframeworkgoverninglandwereakeycomponentofChina’seconomicreforms.AlllandinChinaispubliclyowned.Duringthe1980s,Chinaimplementedtwokeyreformstoprovidelandforexpandingprivatesectoractivity.First,itsetasidelandineconomicdevelopmentzonesandindustrialdevelopme