Land finance

Land finance is a key component of China's economy in various aspects of the country's urban development. Most scholars summarize it as a fiscal operation model in which local governments obtain land transfer fees by selling land use rights and rely on them as a primary source of fiscal revenue, or referring to Chinese local governments' high reliance on various types of land-related financing. Local governments gain substantial financial resources by controlling key stages such as the acquisition, reservation, and transfer of urban construction land. These funds are then invested in urban infrastructure development and the provision of public services, thereby promoting urbanization and economic growth.

Motivation

The objectives of local governments in land transfer are to pursue developmental interests and to maintain social stability. The motivations for land transfer can be summarized as follows:

First, land transfer serves as a means to alleviate fiscal pressure ( Among all feasible approaches, land transfer fees have become the primary source of extra-budgetary income to cover the fiscal deficit resulting from decreases in funding from the central government). Following fiscal decentralization, the mismatch between administrative responsibilities and financial resources has become increasingly pronounced. In response, local governments have adopted the strategy of selling commercial land at high prices to ease budgetary constraints and compensate for insufficient revenue allocations (In 2002, the China central government changed the allocation scheme for income tax, and the income tax (which used to be obtained exclusively by local governments) has been shared between the central and local governments (40% for central government and 60% for local governments) since then. After that reform, local governments have found it even more difficult to make both ends meet, and they tend to increase the pace of land expropriation to obtain more extra-budgetary revenue. Local governments' behavior has changed from being "assisting-oriented" to "grabbing oriented".).