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Liyan Xu, Jinhua Zhao
9/16/2013
1
Basic Structure of Governance in China
PRC
Central Government
Local Governments
Province (34)
Provincial Government
Prefecture (~300)
Prefectural Government
County; District (~3,000)
County Government
Township (~30,000)
Township Government
Village (~500,000)
Villagers’ CommiEee
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Fiscal Federalism with Chinese Characteristics
Income
To Central Gov’t
•
•
•
Tariff;
Profit from designated State-­‐‑
run firms;
Sea Oil Tax;
Shared •
Revenue •
Sources •
(C/L)
VAT(75/25);
Income tax/40);
Stamp tax on securities transactions(97/3
);
To Local •
Gov’t
•
Business tax;
Other resource tax;
Other stamp tax;
Vehicle&Boat tax;
Contract tax;
Tobacco tax;
Urban land use tax;
Land VAT;
Property tax;
Land grant fees;
•
•
•
•
•
•
•
•
Central
15.1%
(2001)
Central
49.4%
(2001)
Tax Return;
Fiscal Transfers
Local
84.9%
(2001)
Local
50.6%
(2001)
Expenditures
From Central •
Gov’t
•
•
•
Shared Expenditures
(Primarily Local)
•
From Local Gov’t
•
•
•
•
•
•
•
•
•
Central gov’t operating;
Defense;
Diplomatic expenditures;
T-­‐‑Bill payments;
Law enforcement;
Health care;
Agriculture;
RID;
Universities;
Infrastructure investment;
Local gov’t operating;
Compulsory Education;
City maintenance;
Militia;
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Fiscal gap for local governments
o Mismatch between revenues and expenditure obligations
Absence of other financing vehicles
o Local governments cannot raise taxes w/o the central government’s
permission
o Until very recently, they cannot issue debts either
> Financial Crisis
Solution: extra-budgetary revenues <- land grant
fees (long-term land development rights lease)
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Property taxland rent for that year;
Land grant fees: land rent for 70 years!
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A conversation between a communist prime minister (left) and a
capitalist developer (right) in 1981
o
Prime Minister Zhao Ziyang (): “we lack capital for city developments.”
o
Dr. Huo Yingdong (Henry Fok, ) the capitalist in Hong Kong: “how come you lack capital if
you have land?”
o
Prime Minister Zhao Ziyang: “We can’t charge people for using land. That’s capitalism.”
o
Dr. Huo Yingdong: “Well, even capitalism has got some merits.”
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1988 - Amendment to the Constitution
o Reiterating the state’s absolute ownership of all city land, the amendment
made the use rights of land transferable
1988 (later) – Revision to the Law of Land
Administration
1990 - Interim Regulations of the People‘s Republic
of China Concerning the Assignment and Transfer
of the Right to the Use of the State-owned Land in
the Urban Areas
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City government’s ideal: take it all
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The golden rule: buy low sell high
The procedure
o Buy land from villages; compensate them at the agriculture rent level
o Build infrastructures
o Sell the ready-to-develop land to real estate developers
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Not really selling – 70/50/40 year-leases
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Reality: other stakeholders; need negotiation
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The Shenzhen context: strong village collectives vs.
weak government
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Urban villages as bulk of housing supply
o Laissez-fair. Landlords (villagers) get all.
o Village Collectives as infrastructure investment companies
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Institutional Innovation: Landquota exchange
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Measures
o Urban Construction Land Quota Exchange
o Share of appreciation value between the government, the land owners,
and other farmers living in remote areas
o Land as assets of government-run infrastructure investment companies
Assumptions
o Enough government land reserve (~30 years)
o Sustainable land appreciation
o Efficient government; no corruption
24
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Situations vary across cities; actual distribution of
rent depends on the relative power of the players.
However, in most cases, the local governments get
the largest part, thus the land finance is possible.
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Agenda
o Role playing game
o Debates on the land finance system
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Stakeholders
o Suburban farmers (de facto original land owners)
o Village collectives (via the villager’s committee; de jury original land
owners)
o City residents
o Migrant workers
o Other farmers (living in remote, “real” rural areas)
o City government
o Real estate developers
o Central government
27
,
The land finance system: merits and disadvantages
o The moral dimension
o The practical dimension
Overarching issues
o Government-lead vs. market oriented
o Efficiency vs. equity
o Short run vs. long run
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Georgism
o People own what they create, but that things found in nature, most importantly
land, belong equally to all.
o Single tax on land
Supporters and critics
o Pro: Joe Stiglitz; Winston Churchill; Martin Luther King, Jr.
Frank Lloyd Wright, Leo Tolstoy; Sun Yat-sen
o Con: Karl Marx; most neoliberal economists
This image is in the public domain.
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Corruption: room for rent-search
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Image of the project site removed due to copyright restrictions.
Map data ©2013, AutoNavi, Google. All rights reserved. This content is excluded from our
Creative Commons license. For more information, see http://ocw.mit.edu/help/faq-fair-use/.
32
Satellite images of the Wanliu site in 2001, 2002, 2003, and 2005 removed due to copyright restrictions.
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Sustainability through growing
o Demands for construction land have been high
o Land value appreciation appears forever
o So far so good
However, in the long term…
o Cities cannot expand forever
o Incremental land development will eventually diminish
o What next?
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Ongoing experiments
o Municipal debt
Ubiquitous
Financial risks
o Property tax
Limited cities (Shanghai, Chongqing)
Political risks
Other proposals?
36
MIT OpenCourseWare
http://ocw.mit.edu
11.S945 Urbanizing China: A Reflective Dialogue
Fall 2013
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