Land finance and rapid economic growth

This paper is based on many years'on-the-spot investigation of the whole process of urban demolition, rural land expropriation, land consolidation, land reserve, land transfer and so on. this paper analyzes the definition and operating mechanism of "land finance" and its importance to China's economic growth, and draws the conclusion that the essence of land finance is the land monopoly system of local government, which constitutes the core competitiveness of China's rapid economic growth. It also analyzes the sustainability, land expropriation and demolition in the study of "land finance".

Since the reform and opening up, for the study of China's rapid economic growth, the land system is an unavoidable topic. After the reform of the tax-sharing system, "land finance" has become the focus of attention of all sectors of society. However, in recent years, academic research has mainly focused on the definition of land finance, causes, empirical analysis of the correlation between land finance and economic growth, existing problems and solutions. However, there are few studies on the operating mechanism and constraints of land finance, and there are few literatures on the impact of land finance on economic growth. For "land finance", the views of the media and scholars are almost critical, as Liu Hongmei said: "at present, the vast majority of scholars regard 'land finance' as a derogatory term." To sum up, the criticism of "land finance" focuses on the following viewpoints: (1) forced demolition destroys the stability of people's livelihood and harms the interests of farmers; [21) "land finance" overdraws the future income from land sales, so it is difficult to sustain "master selling Sun Tian"; (3) the proportion of land-related revenue to financial revenue is too high, there are financial risks; (4) there are loopholes in management, breeding corruption and rent-seeking. The moderate point of view only gives a realistic and reasonable explanation from the perspective of the separation of financial power and power after the tax-sharing reform, but thinks that it should be corrected from the point of view of reconstructing the pattern of fiscal revenue distribution. Of course, a very small number of people support "land finance". Du Xuejun, Huang Zhonghua and Wu Cifang believe that "land finance" has a significant impact on economic growth, and apply the method of empirical analysis. this paper demonstrates the obvious driving force of "land finance" to economic growth.

The author has followed the whole process of urban demolition, rural land expropriation, land consolidation, land collection and storage, land planning, infrastructure investment, land transfer and land financing for many years, combined with the analysis of the reasons for the rapid growth of China's economy in the past 30 years. From the point of view of the income externalities of infrastructure investment required by industrialization and urbanization, this paper analyzes the constraint conditions, operation mechanism and rationality of "land finance" phenomenon. It is concluded that the essence of land finance is the land monopoly system, and it is the land monopoly system of the local government that constitutes the core competitiveness of China's rapid economic growth.

I. definition of land finance

After the implementation of the tax-sharing reform in the mid-1990s, in the late 1980s, the land use right transfer system learned from Hong Kong's "land lease system" became more and more mature, and the financial expenditure of local governments began to rely more on land transfer income. this phenomenon is widely known as "land finance". The main source of land revenue is the finance of local governments at the city and county levels. The definition of "land finance" in academic circles is different. In a narrow sense, "land finance" only refers to the land transfer fee, that is, the land transfer income generated by the government's land grant and sale. Dong Zaiping gives a broad definition of "land finance". He believes that "land finance" means that local governments rely on the operation of land transfer to increase financial revenue. generally speaking, there are three basic ways for local governments to obtain financial revenue from land. one is to sell land to obtain land transfer fees, the second is to increase revenue through the construction industry and real estate industry in the form of relevant taxes, and the third is to mortgage land to banks to obtain debt income. Yi Yi believes that "land finance" refers to a financing income behavior and financial phenomenon in which the disposable expenditure of local governments heavily depends on land and related taxes and fees. Shao Yuan defined in the Summary of "Land Finance" and the Reform of Finance and Taxation system: "Land Finance" refers to the financial revenue and expenditure activities and benefit distribution relations carried out by local governments using land ownership and management rights to obtain income, including the behavior of local governments to obtain income through land taxation, land use right transfer, land financing and other ways to increase the capacity of fiscal expenditure directly or indirectly. [7]

Perhaps it is difficult for scholars to understand the actual operation process of land finance, the above definition has the same characteristics of defining land finance from the perspective of external characteristics, and simply attributes it to land ownership and its extended rights and interests. therefore, such definitions can not explain why local governments can rely heavily on land revenue and why it can continue to this day. Urban land has long been state-owned, and the way of land transfer and acquisition, which is different from the way of land allocation, appeared in the first batch of commercial real estate development in the early 1990s. "Land finance" became the topic of discussion only after getting out of deflation in 2003, which shows that it is the new changes in the land management system that led to the emergence of land finance.

First of all, we can find some reasons from the previous amendments to the relevant regulations on land acquisition and transfer since the Land Management Law of the people's Republic of China was issued in June 1986. It was revised for the first time in 1988, stipulating: "the right to the use of state-owned land and collective-owned land may be transferred according to law, and the state implements the system of paid use of state-owned land in accordance with the law." This lays a legal foundation for the entry of state-owned land into the market. It was revised for the second time in 1998, stipulating: "the state implements the system of paid use of state-owned land in accordance with the law." When a construction unit uses state-owned land, it shall obtain it by way of paid use. It was revised for the third time in 2004, stipulating: "the state may expropriate or expropriate land and give compensation in accordance with the law for the sake of public interest." At the same time, Article 43 stipulates: "any unit or individual that needs to use land for construction must apply for the use of state-owned land in accordance with the law; however, the establishment of township enterprises and villagers' construction houses are approved according to law to use the land collectively owned by the peasants of this collective economic organization, or the township (town) village public facilities and public welfare undertakings are approved according to law to use the land collectively owned by the peasants." This means that urban construction land must use state-owned land. So far, the land acquisition and transfer path of the local government has been determined, and the urban regional construction "must apply for the use of state-owned land in accordance with the law", which has laid the foundation of the land transfer local government monopoly system.

Secondly, decree No. 11 of the Ministry of Land and Resources on July 1, 2002, "provisions on the transfer of the right to the use of state-owned land by bidding", terminated the agreed way of transfer of state-owned land, and the implementation period was finally set on August 31, 2004. Since then, the local government has finally obtained the complete land monopoly power of urban construction land. The state ownership of land ownership does not mean that the right to the use of land belongs to the local government. In fact, the right to the use of urban land has always been a kind of "unit ownership". Government institutions and institutions at all levels actually own the right to the use of land by means of allocation. For example, in the housing system reform in the late 1990s, various units agreed to transfer land to developers to solve the phenomenon of housing construction funds is very common, local governments can only get relevant taxes and fees. The raising of funds for urban infrastructure construction has become a huge problem and a major responsibility of local governments. With the implementation of "recruitment, auction and hanging", the local government has objectively obtained the highly monopolized franchise of urban construction land, and the phenomenon of "land finance" began to appear.

Third, the most stringent land use control caused by the national policy of cultivated land protection further provides the local government with the exclusive power to change land use. This is particularly important in the current process of industrialization and urbanization. The monopoly status of local governments on urban construction land has been further strengthened.

From this, we can see that the characteristics of all the aforementioned definitions of "land finance" can be acquired only after the local government has the power of land monopoly. Without the formation of the land monopoly system, all parties can agree to sell the land, and the local government will not be able to "heavily rely on" land-related income, let alone land financing, thus unable to carry out land management. Therefore, the author believes that the accurate definition of land finance should be: the financial revenue and expenditure activities and benefit distribution activities that local governments use the land monopoly system formed by relevant national laws and regulations to obtain operating income, including local governments to obtain income through land taxation, management of land use rights, land financing and other ways, directly or indirectly increase the capacity of financial expenditure.

II. The current operation mechanism of land finance under the land monopoly system.

The smooth operation of "land finance" is based on the premise of the continuous existence of the demand of industrialization and urbanization, and then because the current land management system gives the local government three monopoly powers on land.

First, the local government has the power to make planning, change land use and implement construction, that is, the power of exclusive planning, conversion and construction.

Second, the local government has the exclusive power to sell land in the primary land market, that is, the exclusive right to sell land.

Third, the local government actually has the power to expropriate land, that is, the exclusive power to buy land.

With the institutional arrangements derived from the three powers, the local governments at the city and county levels have actually formed a land monopoly system for urban construction land.

III. The necessity of land finance

1. The problem of financing for Infrastructure Construction of industrialization

The unavoidable problem in the process of industrialization and urbanization is how to raise funds for infrastructure construction, otherwise industrialization and urbanization will not be sustainable. The infrastructure construction funds of local governments can only come from tax revenue or land value-added income, except for toll items such as closed toll highways and water, electricity and gas transmissions. as a result, the so-called fiscal model supported by tax revenue and revenue from land transfer is formed. No matter which model, it is faced with the problem of how to raise funds.

The formation of local government land monopoly system objectively achieves the stable expectation of land income to a certain extent, which can provide a more effective financing basis for urbanization and industrialization. Under the premise of the existing demand for industrialization, the speed of urbanization depends to a large extent on its ability to obtain financing. The efficiency of land as collateral for financing is much higher than that of future taxes as collateral. Because the tax collection itself is a process with extremely high transaction costs. For local governments that cannot use land as collateral, the scale of financing must be greatly limited. If we want to give up raising construction funds through land finance, we must allow local governments to issue bonds or levy property taxes as a source of funds, as some scholars have suggested. The former involves a level similar to sovereign credit, and if it gets out of control, it will really become a debt crisis of local governments, and its scale will be controlled by administrative factors other than economic development; the latter is subject to our tradition of no large-scale taxation on residents' property and no matching strict management system. It is very difficult for the local finance of "eating in different stoves" to make "casual money should not be jealous". According to the experience of other countries, residents'"tax resistance" is more difficult to deal with than enterprises'"tax evasion", and their transaction costs are far higher than the current income from land sales directly from developers.

In addition, whether it is the accumulation of tax balances or the issuance of bonds with the approval of the central government, the funds raised cannot keep pace with the demand for urbanization driven by economic development. Under the condition that the government monopolizes the primary land market, the government can use the future land value-added income as collateral to promote infrastructure construction. at this time, the land value-added income is basically predictable and supported by the demand of economic development. therefore, it is a process of simultaneous development of demand and supply. At this time, the financier can fully rely on the government to recover the investment in infrastructure construction through the proceeds from the sale of land.

The opinions of the State Council on reforming the Railway Investment and financing system and speeding up Railway Construction issued in August 2013 clearly pointed out that it supports the comprehensive development of railway stations and line land, so as to solve the problem of raising funds for railway construction. This again proves the necessity of land franchise for infrastructure construction.

In today's China, the so-called "tax protection operation, land protection construction" is the current local government financial survival state. Objectively, the land finance based on land franchise provides a huge operating space for local governments to promote China's rapid industrialization and a wide range of cities and towns, and negates the land finance of local governments. My economic development and competitive advantage will lose an economic foundation that cannot be replaced in the visible future. To give up land finance is to self-destroy the Great Wall.

two。 The externalization effect of Infrastructure and Public supporting Investment

The land needed for industrialization and urbanization can not be directly met through conversion and expropriation, but need to be invested in infrastructure construction after unified planning, reallocate land resources, and change from "raw land" to "mature land" before it can be used effectively. The behaviors required for the allocation of land resources, such as planning, transformation of land use and investment in infrastructure construction, and public supporting (schools, hospitals, water, electricity, roads, etc.) have strong benefit externalization effects. If a main body invests and all the subjects who own the surrounding land share the income, the result is that the investment behavior is not sustainable. Only with the help of land monopoly operation can the interests be internalized to the maximum extent and the sustainable investment power will be derived.

With the monopoly of land franchise, the local government can fully internalize the externalities of land value-added income, and then it will be possible to raise sufficient funds to solve the problem of "chicken or egg first" in industrialization. to ensure that the investment and return of infrastructure are balanced within local finance, so that investment infrastructure and public facilities can be planned according to the requirements of overall efficiency. On the contrary, if this process is handed over to the market, the investors will try their best to control the investment intensity in order to avoid the externalization of interests. In this way, in order to achieve the overall efficiency of land resource allocation, it is necessary to pay huge transaction costs, and even eventually can not get effective allocation results, resulting in urbanization, industrialization speed down to a standstill.

Taking the urban area of Chengdu as an example, the land for urban construction has increased from 58. 5% in 2002. 440000 mu expanded to 1977in 2011. 20000 mu. According to the urban planning, the millions of mu of new construction land has different uses and requires a lot of infrastructure, such as roads, pipe networks, power plants, parks, subways, schools, hospitals and other public facilities. Under the condition that the government is the only supplier of construction land, the different uses of land and its costs and benefits, as well as the investment and returns of infrastructure facilities brought about by planning and construction are solved within the local government, and all benefits can be internalized as far as possible. This has greatly reduced the transaction costs of industrialization and urbanization.

If the process of reallocating land resources is all left to the market, since public charges for urban infrastructure cannot be operated by market investors at all, investors also need to be rewarded through the appreciation of the surrounding land. this requires developers to develop on a sufficient range of land and obtain the benefits brought by supporting investment in infrastructure as much as possible. Otherwise, hitchhikers will flock in and the terms of the deal will be more complicated. In theory, different market players can only use the high transaction costs of repeated games to promote the overall efficiency goal of planning and construction, but in fact, because of the high cost of land construction, the opportunity of repeated games is almost zero. it will be difficult to achieve the level of infrastructure construction that meets the needs of industrialization and urbanization at one time. Compared with the existing land monopoly mode of the government monopolizing the primary land market, it adds more links, more bargaining process, and more disorderly competition, which leads to a slower speed of industrialization and urbanization. it may even be the overall stagnation under the restriction of the separation of interests of each subject. In reality, if there is almost no success of such so-called urban area owner-independent transformation projects without additional subsidies, failure cases can be found everywhere.

In a word, the increment of land mainly comes from the investment of infrastructure and public facilities, while the land monopoly system means that the price goes up to the public. The externality of infrastructure and public supporting investment illustrates a basic principle: if the land value-added income does not return to the public, it will be very difficult for the land price to rise.