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Volume 33.4 December 2009 890–913

International Journal of Urban and Regional Research DOI:10.1111/j.1468-2427.2009.00892.x

Land Commodification: New Land Development and Politics in China since the Late 1990s JIANG XU, ANTHONY YEH and FULONG WU

Abstract

ijur_892

890..913

This article examines the development of the land market in China since the late 1990s. It analyses new practices in which urban space is commodified through ad hoc market development, and argues that the structure of the land market is indeed becoming more complicated and that land sales are pervasive and rampant. Under such circumstances, the state has rearticulated its function in land governance in order to apply a more consolidated regulatory power. The politics behind the development of the land market and the rearticulation of the state are explored with reference to the changing role of the state in land commodification. It is argued that, if we understand the market as an emerging institution, the development of the market has been supported by the state. Regulatory land control is becoming a new way for the state to be involved in space commodification.

Introduction Chinese cities have been undergoing significant transformation because of market reform and globalization. The cities are at the forefront of this process and have now become the country’s engine of economic growth. They are, at the same time, venues of contested interests. Numerous cases of demolition and eviction have attracted national and international attention and provoked heated debate on the issue of space commodification in China. The National People’s Congress amended China’s Constitution in March 2004 to protect the lawful private property of citizens and to improve the land expropriation system (Xinhua Net, 2004). This Congress further adopted a new Property Law in March 2007 to safeguard individual property rights. Now that this legislation is in place, local governments and real estate developers are expected to feel much less secure about recklessly knocking down private property to clear space for commodity housing and mega projects. But amending the Constitution and promulgating the Property Law are only part of an ongoing effort by the central state to develop a ‘law order’ and ease tensions in cities containing an alienated population of the urban disadvantaged and uprooted farmers. Reasserting central state regulation in space commodification is, to some extent, a new expression of reactive trends to emerging governance issues. It has been increasingly constructed as a sequence of strategies to The authors would like to thank several IJURR reviewers for their comments in revising the article. They are also most grateful to the General Research Fund of the Research Grants Council of Hong Kong (Project code: CUHK 752407), the Mrs Li Ka Shing Fund and Strategic Research Theme in Contemporary China Studies of the University of Hong Kong for supporting this research. © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd. Published by Blackwell Publishing. 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden, MA 02148, USA

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manage the intense conflictual forces and multiple interests involved in land development and spatial transformation in contemporary Chinese cities. Urban space as an intricate venue for landed interests is a well-recognized phenomenon in China, engendered by the intersection of urban political elites, growth entrepreneurs, speculators, urban residents and migrant workers, and by the conjuncture of local transformation and transnational forces. While a number of studies have documented the emergence of landed interests and how they constitute the ‘growth coalition’ in China, little has been done to reveal the new practices of land development and the emerging land politics. Yeh and Wu (1996) studied the land development process in urban China before the mid-1990s. However, there have been many changes since, as China has significantly modified its land policies since the late 1990s. Studies in more recent years have primarily been concerned with either the commodification of land use rights (Ding, 2004) or more specific land issues such as converting land to nonagricultural uses (Lin and Ho, 2005), promoting urban growth by land-centred accumulation (Lin, 2007) and market applicability in China (Haila, 2007). Relatively little has been written about the new land development process since the late 1990s, probably because constant policy changes have made the process more complex and increased the difficulty of generalizing about it. The new practices of land development need further study in order to provide better insights into the relationship between the land development process and urban development in China. This article examines the new features in the process of commodifying urban space and assesses the institutional configuration of space formation during the period after the late 1990s. In particular, we review how the central state adopts very strict land policies and employs market instruments to reassert its functional importance in urban land governance. By so doing, we intend to investigate the following questions of fundamental importance in both theoretical and practical terms: How are the new practices of developing urban land radically different from those identified by Yeh and Wu (1996) in the early 1990s? How are new actors introduced into or old actors constrained by these practices? What are their changing roles in redefined circumstances? How do they contribute to the current stage of market formation? What are the land politics introduced by the interaction of market and state institutions? By probing into these questions, we intend to examine some controversial theoretical issues in land development, e.g. the magnitude of space commodification and the state’s functionality in the process of marketization through economic decentralization.

Perspectives on the land market in China: empirical issues and theoretical debates Land policy in urban China before 2000 is a well-researched area subject to intensive scholarly attention (Dowall, 1993; Yeh and Wu, 1996; Ho and Lin, 2003; Lin and Ho, 2005; Zhu, 2005). A common recognition is that the formation of the land market is built upon a group of unique property rights: urban land is owned by the state while rural land is primarily owned by the collectives — the former being endowed with an innate right to acquire collectively owned land in the name of the public interest. Before 1988, when urban land reform was officially launched, the state monopolized land supply via resource control, and land was supplied to users via administrative allocation, although selected cities (e.g. Guangzhou, Shenzhen, Foshan, Tianjian and Shanghai) were permitted to experiment with allowing foreign-affiliated firms to pay for land use (Walker, 1991; Yeh, 1985; Yeh and Wu, 1996). It was not until the First Session of the Seventh People’s Congress in 1988 that paid transfer of land use rights was made official. The clause ‘The right to the use of land may be transferred in accordance with laws’ was added to Article 10, Section 4 of the Constitution which states that ‘No organization or individual may seize, buy, sell or make any other unlawful transfer of land’ (Yeh, 2005: International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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59). Although this does not mark the end of free land supply, it ushers in the establishment of the urban land market. To take this further, the State Council announced the Provisional Regulations on the Land Use Tax in Cities and Towns and amended the Land Administration Law in 1988. It went on to enact the Provisional Regulations on the Granting and Transferring of the Land Use Right over the State-Owned Land in Cities and Towns in 1990. The significance of these pieces of legislation in the overall urban dynamics is far more than that of a collection of documents legitimizing the development of a land market — they are an integral part of the mechanisms changing post-reform urban conditions. The establishment of land markets leads to commodification of the built environment, which opens up a new site for capital accumulation. Two major trends in state reorganization are also distinguishable — denationalization and destatization. Denationalization occurs due to the strategic significance of economic decentralization that rearticulates state functions downwards to the local state, leading to a broad extension of the latter’s discretion in developing urban land. Destatization involves a shift from central state dominance towards various non-state actors and levels of partnership in land development. A number of studies have highlighted these changes. They document from various perspectives the problems that arise out of the process of commodifying land development and the theoretical viewpoints underlying them. Their findings can help us reach a general understanding of the land market and its impact on space production in urban China. As far as the pace of reform is concerned, the land market was built up in a gradual, dual-track manner from the very beginning (Yeh and Wu, 1996; Zhang, 1997; Xie et al., 2002). This factor testifies to the intricacy of the situation in which market supply coexisted uneasily with state allocation, which, because of the diversity of both, resulted in a highly fragmented process of land development. Researchers call this a ‘dualism’ in the land use system and attribute irregularities in space formation to it (Yeh and Wu, 1996; Yeh, 2005). To overcome hurdles in market creation, the state has radically rearticulated the institutional configuration since the late 1990s so as to develop the market institution more aggressively. The Land Administration Law was amended in 1998. The Directory of Allocated Land was announced in 2001, abolishing administrative land allocation to commercial projects. In March 2002, the Ministry of Land and Resources (MLR) issued Decree No. 11 (Regulation governing the Granting of Use Rights in State-Owned Land by Tender, Auction and Quotation), which requires all lands for business purposes (commerce, tourism, entertainment and commodity housing) to be transferred publicly after 1 July 2002, either through tender, auction or quotation. In March 2004, the MLR issued Decree No. 71, which set 31 August 2004 as the deadline for all cities to ban negotiated conveyances for commercial development (known as the ‘8.31 deadline’). In November 2004, the State Council issued the notice On Deepening Reform and Strengthening Land Administration, which is viewed by many as the strictest land policy ever to reiterate the orders contained in Decree Nos. 11 and 71. Even though these new land policies had significant implications, current studies have not yet conducted research on any impact they may have had on the land development process. Admittedly, it is probably too simplistic to presume that new state policies have led to the end of dualism and the emergence of a full-fledged market. Under the political situation with respect to land (Hsing, 2005), the enforcement of central policies is very difficult, if not totally impossible. For example, Decree No. 11, though implemented officially, has been overlooked by local states. In June 2002, just before the day on which Decree No. 11 came into effect, the Beijing Municipal Government issued its own Circular No. 33, which continued to allow negotiated conveyance in four areas: small towns, green belts, urban renewal schemes, and high-tech and major projects with urban significance (Gong, 2004). After Decree No. 11 was issued, Beijing approved negotiated land deals involving more than 10,000 hectares of land, or almost the same amount of land sold through negotiation in the previous 10 years (Jia, 2004). Over the same period, the city held a mere five land auctions and public bidding events (ibid.). Most negotiated International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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land plots have been carved up by land speculators and major property developers such as the Tianhong Group, a state-owned company under the Beijing Urban and Rural Construction Commission, and Beijing Capital Land, one of the largest business conglomerates affiliated to the municipal government (Tang, 2004). Since 2002, the central state has been forced by the disobedience of organs of local government into issuing more circulars reiterating the orders of Decree No. 11. Our assessment is that, through introducing more market allocation into space formation, the state tends to reassert its regulatory power rather than retreat from local land development. As a result, the role of the local, provincial and central state is dramatically redefined on the subnational scale of space formation. Land politics is thus reconstructed to reflect a growing interest in a stronger institutional capacity for directing capital investment in space. From the perspective of tradable property rights, China’s practice is to separate land use rights from ownership; only the former are permitted to be privatized. This means that the land market is a leasehold system for land use rights. It is land use rights that have undergone the shift from free and infinite use to paid use for a limited time span. From various writings inside and outside China, the separation of land use rights from ownership leads to an ambiguity in property rights, which is a major source of land use problems (Zhu, 2002). It is argued that ambiguity of property rights in the open domain results in undervalued land assets (ibid.). Furthermore, local governments are reluctant to transfer land use rights by bidding and auction because the state holds the legal property rights over urban land, whereas localities only control economic rights, therefore part of the proceeds of local land sales have to be remitted to the central state (ibid.: 52). In the judgment of these scholars, this indicates a solution to the problems of underdeveloped land markets — clarifying property rights. If property rights were ‘clarified’, a sense of discretion would lead to attempts to maximize land values rather than simply to capitalize land assets on undervalued terms. Property rights are an important issue, but they are probably not the answer. Haila (2007) argues that there is no empirical evidence to support the idea that clearly defined property rights work well in developing a full-fledged market. The advocates of property rights tend to ignore the regulatory measure in their blind belief in the market mechanism (ibid.: 13). Their arguments are problematic in the sense that they ‘overclaim’ the impact of market instruments, whereas in China space commodification is closely linked to state policies and regulations. Our assessment is that the production of the built environment is more than an object of state regulation. If the creation of market institutions is facilitated by the state, better regulation is the result. From the perspective of land supply, in China the state has a monopoly on the supply of leased land. A number of studies have identified three critical features of a market operation of this type: collectives or farmers are legally denied the right to trade rural land with developers; allocated land users are not permitted to transfer their land use rights without proper authorization; the implication of both these factors is that only leased land is marketable (Yeh and Wu, 1996; Yeh, 2005). These limitations, however, never constrain the spread of the black market where primitive and very often ungovernable land transactions are pervasive. While most land transactions on the black market are not formally recognized, more recent policies have lifted legal limitations in selected areas (e.g. Guangdong) and adopted an ad hoc approach to bottom-up development initiatives — collectives are allowed to sell rural land to urban developers and work units are permitted to handle allocated land in a more flexible manner. Even though they have only been implemented in selected regions, these changes fundamentally break the state monopoly of land supply. The result is a ‘pluralism’ in land transactions under the dual-track system that adds further complications to the new land development process. Reviewing the history of post-reform urban development shows that land income, especially income from leasing land, constitutes a vital revenue source for the local state (Li, 1999). Ho and Lin (2003), in a more recent study, also reveal that land sales contribute 30–70% of municipal revenue in many cities. Land income is used to improve International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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urban infrastructure, which in turn increases accessibility and opens up new venues for capital accumulation in urban investment. This is commonly referred to as ‘using land to breed land development’ (Yeh, 2005). Theoretically, heavy reliance on the sale of land for local revenue could operate as a self-generating force at municipal level, improving efficiency and reviving the competitive nature of the land market. However, reality tells the opposite story. Although the central state has consistently required all commercial land to be transferred publicly, either through auction or public bidding, land is still transferred non-transparently in most Chinese cities (through negotiation). This phenomenon and the consequences of under-the-table transactions (e.g. misallocation of land resources, land abuse, hoarding, rent-seeking and corruption) are widely observed and extensively analysed (Yeh and Wu, 1996; Wong and Zhao, 1999; Xu, 2001; Zhu, 2002; Hsing, 2005; Lin and Ho, 2005; Yeh, 2005). We argue, however, that the question of why the local state prefers under-the-table dealings to public transactions should be analysed from a new perspective. Existing explanations frequently rest mainly on the ambiguity of property rights (Zhu, 2002) and political considerations and, in particular, on the different objectives of the state and its bureaucrats. At one end of the spectrum, some argue that China’s property industry illustrates to the utmost what the ‘power economy’ is all about because political power is often entangled with private developers to pursue personal gain (Bi, 1999). This argument seems particularly relevant since so many high-ranking local officials and their relatives are shareholders in prestigious real estate projects.1 In particular, the fact that the Party governs society represents a political constraint which shapes market formation (Holz, 2007). At the other end of the spectrum, scholars argue that under-the-table dealings allow the local state to manipulate land prices to appeal to private developers (Wu, 1999). Once the governments have attracted investors into their jurisdictions, they can create a self-generating process of capital gains (Wu et al., 2007). For example, localities can benefit through in-kind land income which reduces the amount they have to remit to the central state. The local state uses the market to relinquish its responsibility,2 to externalize investment risks,3 and to overcome hurdles to economic growth (e.g. lack of capital). In this sense, negotiation can be an ‘effective’ way of kick-starting development and of generating agglomerative economies.4 This ‘effectiveness’ is related to the peculiarity of the transitional economy. There are both path-dependent and path-breaking tendencies. Negotiation, as an approach bridging the two tendencies, requires a minimum input of ‘marketized’ resources (i.e. cash provided by the developer), although the deal is less transparent. The developer, after gaining possession of the land, can barter it for development capital. For the developer, gaining a piece of land is the best way to convince commercial partners to contribute cash capital; for both the developer and government, land as a physical asset serves as the platform upon which more developments can be launched.

1

For example, the boss of Vanke Company Ltd, a leading developer in China, is Wangshi, the child of a former top official in Beijing. The developers of Silver Lake Villa in Shenzhen include the daughter of the former President of Yang Shangkun; the son of Wangzhen, a veteran party leader; the husband of Wang Liman, former secretary general of Shenzhen municipal party committee; and the children of former secretaries general such as Li Youwei and Lihao (Miao, 2003). In Shanghai, local scandals were also disclosed as many officials and their close relatives held shares in the real estate projects of tycoon Zhou Zhengyi, who was arrested for denying statutory compensation to relocated residents (Miao, 2003). 2 Examples include providing cheap land for planning gain from developers who will then be responsible for constructing urban infrastructure. 3 Examples include providing cheap land for state developers who then take loans from financiers inside and outside China for urban projects. For detailed discussion see Xu and Yeh (2005). 4 Interviews with urban planners in Beijing, Guangzhou and Ningbo. International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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Another closely related issue is the extent to which China has established market institutions in land development. The fact that administrative allocation, negotiated trading and black marketing continue to characterize a large percentage of land deals is often misread as a symptom of the absence of a market mechanism in resource distribution (Xu, 2001; Ho and Lin, 2003; Yeh, 2005). In discussing the applicability of the concept of the market to China, Haila (2007) argues for a clear definition of the term ‘market’. Her argument has caused a lot of debate on whether or not China has a functioning land market. Rather than classifying China’s land market as an underdeveloped or an advanced one, we simply argue that it has developed into a much more complicated system than it used to be. Building upon this observation, our assessment is that there has been a significant change in the distribution of the resource (i.e. land) from state allocation to a supply system through land sales. China has thoroughly retreated from the regime of ‘free land allocation’ — i.e. getting land without paying a price — except for a very limited amount of land provided for military or other non-profit uses. The fact that the Chinese land market is still characterized by ‘primitive’ forms of transaction should not be confused with a lack of land sales — a farmer who barters fish for vegetables without using money or paying a stall fee in the open market is still a market trader. The judgement also implies a different solution to the problem. Rather than viewing the market as an underdeveloped one in which the degree of commodification ought to be ‘improved’, we need to understand the complicated structure of the land market, where most land users, whether the state, work units or farmers, are themselves turning into active market players and allocated land and rural land are being commodified pervasively by market, quasi-market (i.e. negotiation) or primitive-form land transactions (unregulated land conversions). Thus, the root of the problem is not the low level of market formation in land development but ineffective governance when it comes to regulating market activities. The recent policy of allowing rural land trading between collectives and developers in selected areas incorporates the long-existing primitive forms of land transaction into the formal regulation, which is good evidence in support of our argument here. A quick glance at China’s urban growth never fails to give the impression of dynamic changes. Economically, the real estate sector has become the pillar industry of the national economy. Ruthless land acquisition and forced demolition have typically resulted in social discontent and mass incidents among landless farmers and displaced residents.5 The country has witnessed a series of clashes over illegal land grabs, highlighting growing tension in society. Premier Wen Jiabao issued the ominous warning that ‘on the issue of land, we cannot allow ourselves to make a historic mistake’ (Xinhua Net, 2005). Spatially, substantial land development has led to permanent alterations to the urban environment because it is often linked to massive land encroachment (Yeh and Li, 1999), inner-city renewal and prestigious projects (Gaubatz, 1999), and urban expansion and a multi-centred structure (Wu and Yeh, 1997; Ding, 2004). Culturally, intensive construction has created new architecture and urban design competing for attention in the image of cities and spreading ‘cultural uniformity’ to appeal to investors. Environmentally, massive land acquisitions reinforce market anarchy and disorder, such as overexploitation of resources (e.g. land and the environment), in many cases leaving cities spoiled. Taking all these pieces of evidence together, we can say that urban development, in contrast to the pre-reform situation, is now being increasingly attached to and embedded in places and territories on a subnational scale through a pervasive but 5 According to statistics from the Beijing High People’s Court, all municipal courts dealt with only a few hundred property-related cases each year before 1992, when the property market simply took off. The figure had climbed to 8,103 in 1999, more than 10,000 in 2000, and more than 15,000 in 2001 (Miao, 2003). Yet the court rulings rarely seem to favour ordinary people. By August 2003, the State Bureau for Letters and Calls, the top authority instituted to provide a channel for appeal, received 11,641 petitions of dispute over relocation, a year-on-year growth of 50%, and 5,360 complainants, up 47% (Miao, 2003). International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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complicated process of land development led by both regulated and unregulated land sales. Indeed, there is a powerful tendency to fragmentation and decentralization in space formation. Debating the role of the state in such a dramatic process of fragmentation and decentralization, neoliberal economists, both inside and outside China, advocate the ‘retreat of the state’. Nevertheless, contrary to what they advocate, the state is not confined to a minimal role. We likewise argue that the development of the market requires the state’s support, and the complicated structure of the land market in particular calls for better state regulation (Wu et al., 2007). To sum up, present understanding of land development in China often presupposes two beliefs: (1) that there is a limited role for market mechanisms in space formation, and the current market is an underdeveloped one; and (2) that the state monopolizes land supply and there has been an intensification of local land-centred accumulation through a decentralized state function and other ‘deregulation’ strategies since economic reform. Such a mode of analysis seems to ‘naturalize’ or ‘misrecognize’ a weak process of resource distribution through land sales and an ever more decentralized state functionality. It might not adequately address the impact of new practices in land development and the consolidation that has taken place in regulation regarding land politics. Building upon such criticisms, this article argues that the land market has undergone a radical change towards a more complicated structure since the late 1990s through various forms of new practice resulting from a number of ‘deregulation’ strategies; but, just as crucially, the state has also re-regulated its institutional capacity in land development through several consolidation policies. By examining new methods of land sale and the new practices of land development, we intend to investigate how these changing circumstances have reconstructed land politics and necessitated the establishment of new perspectives from which to understand the development of the land market in contemporary Chinese cities.

‘An underdeveloped land market’ or ‘a new perspective on market-led land development’? How should we assess the nature of the land market in China? While existing studies highlight a market that is largely underdeveloped, we argue that the amount of land produced by market behaviours (market, quasi-market and primitive form) is extensive, although it might not be labelled as leased land. Land, as a critical resource, is distributed primarily through land sales. Non-market transactions (administrative allocations) are limited. The idea of using land as an investment has also come to the fore in Chinese cities because local governments have intensified their efforts to commodify ‘place’ as a ‘space commodity’ — by means such as land banking, i.e. by purchasing and holding large tracts in places where the development opportunities have not yet arisen (see next section for details). Table 1 further supports this argument by showing official data on land supply and land transactions from 1995 to 2004.6 This table suggests three superficially recognizable features. First, administrative allocation was still a major distribution method until 2004. In 2004, 62,054 hectares of land were allocated to users, which amounted to 24.1% of the total land supplied by allocation and the primary land market combined. Second, negotiation is still a dominant method in land leasing, representing 71.1% of total land conveyanced in 2004. Third, the black market is 6 Data used in this table are collected from statistical yearbooks published by the China State Land Administration Bureau (data from 1996 to 1997) and the China Ministry of Land and Resources (data after 1997). The number of illegal land transactions only counts those recorded by the government. The real magnitude of illegal land deals is believed to exceed this number, but there is no source for the real number. International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

100

International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

7,694

4.3 Illegal transfer or sale

4.4 Others

15.97

6.74

25.15

52.14

7,431

2,774

778

18,640

7.26

29,623

244,121

24,299

5,920

67.19 2.16

25.09

9.36

2.63

62.92

100

88.98

8.86

7,669

4,615

926

22,728

2.55

35,938

884,114

63,347

129,308

76.37 12.01

21.34

12.84

2.58

63.24

100

82.11

5.88

7,085

2,524

300

8,645

2.85

18,554

441,786

23,086

34,213

76.67

Source: China State Land Administration Bureau (1996–1997); China Ministry of Land and Resources (1999–2005)

12,118

3,248

4.2 Illegal authorization

25,120

21.17

Illegal occupation

% in total land transaction

4.1

48,180

4. Illegal Land Use on Record

100

69.96

34,051

3.2 Leased

3.3 Mortgaged

7,330

7,290

3.1 Transfer of use rights

15.06

14.98

21.39

% in total land transaction

4,921 499,085

2.3 Other methods

3. Secondary Market

1,076,769

100

100

100

%

38.19

13.6

1.62

46.59

100

88.52

4.63

6.86

7,119

4,666

2,592

2,263

12,792

1.55

22,313

1,093,578

27,407

50,386

81.60

1,171,371

4.3

20.91

11.62

10.14

57.33

100

93.36

2.34

4,176

2,482

1,859

556

12,187

0.69

17,085

2,140,435

10,261

139,304

92.12

2,290,000

14.53

10.88

3.25

71.33

100

93.47

0.45

6.08

2,088

1,396

97

14,520

2.89

18,100

288,822

17,272

66,758

59.52

372,851

5,599

17,556

124,230

23.53

147,385

14.06

88,052

100

2002 Area(ha) %

193,604

14.78

221,179

4.36

65,258

2003 Area (ha)

17.9

11.54

7.71

0.54

80.22

100

77.46

4.63

17,023

2,345

1,824

320

24,347

1.93

28,836

1,102,208

9,055

69,634

78.93

1,180,897

8.13

6.32

1.11

84.43

100

93.34

0.77

5.9

100

3.36

72.02

100

%

19.37

10,128

90,394

4.21

104,698

2.98

73,980

2001 Area(ha)

10,552

100

%

37,495 105,438

48,633

11.23

161,190

5.61

80,569

2000 Area(ha)

By quotation 28,843

%

2.2 Land lease

45,391

12.16

79,155

8.32

54,163

1999 Area (ha)

5.25

274,341

%

6,507

62,058

4.40

62,058

16.68

235,194

1998 Area (ha)

10,168

100

%

By auction

34,048

8.34

34,048

17.20

70,266

1996 Area (ha)

By public tender

48,671

%

139,434

43,092

18.94

43,092

38.50

87,608

1995 Area (ha)

By negotiation

2.1 Land Conveyance

% in total land transaction

2. Primary market

% in total land transaction

1. Administrative Allocation

Transaction Type

Table 1 Land transactions in China: Allocation, Primary, Secondary Market and Illegal Land Use Activities

n.a.

n.a.

n.a.

53,926

n.a.

n.a.

3,422,762

79,876

66,843

3,569,481

5,583

8,773

38,316

9,773

4,338

129,083

181,510

n.a.

195,866

n.a.

62,054

2004 Area (ha)

95.89

2.24

1.87

100

21.11

5.38

2.39

71.12

100

%

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relatively pervasive and involves illegal land transactions and, disproportionately, land authorizations. Such data make scholars like Ho and Lin (2003: 681) believe that ‘the development of land markets is still at an early stage’. They observe that, because state expropriation is the only way to convey land from collective rural land to leased land, there exists a dual-track primary market which encourages illegal land transactions and creates opportunities for corruption. Yeh (2005) points out the duality of the land use system in China: despite the introduction of land leasing, a large proportion of land in China is still being allocated through administrative methods. However, the irregularity in land transactions should not be read as an indicator of a lack of market behaviours; and state expropriation should not be treated as the only means to convert rural land, given that the state monopoly in land supply is being weakened or complicated (see next section for details). Moreover, if we look at Table 1 from a different perspective, we might generate new views on land development. The complicated structure of the land market has to be assessed in relation to the overall dynamics of land development. In 2003, the total land area under transaction and circulation amounted to 1,496,170 hectares (administrative allocation, primary market, secondary market and recorded black market, combined). Allocated land covered 65,258 hectares, which only represented 4% of the total land transacted. Negotiated land had a larger share at 9%. Now, the question is: if land auctions could bring more land-related benefits to the government, then what has prevented the government from using them? If we view land as a physical asset serving as the platform upon which more developments can be launched, it might be easier to understand the pervasiveness of negotiated conveyance. With the quasi-market approach, i.e. negotiation, the monetary benefit might be smaller than with a market-based approach, nevertheless, the hidden benefits and/or planning gains compensate for the low cash benefit. In addition, because the financial hurdle for entering urban development is low, more development projects are attracted. In a way, the preference of local government for quasi-market forms is because, although the government might not get the highest land price, it can get related tax benefits and other indirect benefits in terms of employment and GDP growth (see an opposite case in Hangzhou in the next section). However, such a difference is peculiar to the transitional regime, as the preferred approach might not always generate a larger total benefit. There are two implications: uncertainty of planning gains and the risk of development. First, the hidden benefits are subject to ‘negotiation’ and erosion by corruption, and thus might not materialize into planning gains. Even though the developer has committed to build schools, sports and leisure facilities and/or green spaces, subject to the ups and downs of the real estate market, the actual construction of these facilities might well lag behind the promised schedule. There is no effective way to enforce these commitments. As such, the hidden benefit might not be recovered at all. Second, by leasing state land at a lower price, effectively, the state uses its own assets to barter capital from state-owned banks through the operation of local investment arms. In other words, local government transfers the risk through ‘market actors’ to state-owned banks. The leasing of state land through negotiation, to a certain extent, indicates a guarantee from the state for the project. This sends a misleading signal — though in fact very often the state has to bail out these projects such as Guangzhou International Trust and Investment Corporation (GZITIC) (see Xu and Yeh, 2005 for details) — the capacity of materializing development might not be there due to demand constraint in an overall overheated market. However, the existence of these hurdles should not be used to deny that negotiated conveyance is a land sale activity, fundamentally different from administrative allocation. If we are of the view that the peculiar form taken by these market transactions is purposely conditioned by the local state in the context of transitional economies, we should trace the establishment of the market to the state’s perception of market development. To the state, commodification of space represents a political strategy to expand the scope of capital accumulation. The local state could use negotiated International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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conveyance as a market instrument to relinquish its responsibilities and reduce investment risks in order to overcome the hurdle of capital accumulation. For example, as the local state is prevented by the Budget Law of China from collecting capital directly from local and overseas financiers, it has to rely on investment arms or other investors to barter capital from financiers (see Xu and Yeh, 2005 for details). This seems to be supported by figures in the secondary market. Land circulation in the secondary market has expanded significantly since 2000. This is particularly true for mortgages, in which land users assign land rights as collateral to obtain bank loans (Lin and Ho, 2005). In 2004, mortgaged land amounted to 3,422,762 hectares, accounting for 89% of total land under transaction and circulation. The research of Lin and Ho (2005) also confirms that using land to barter capital from financiers is more widely practiced in provinces where monetary capital is in short supply (see next section). Table 1 also reveals active and extensive illegal market transactions which are recorded by the government. From 1995 to 2003, illegal market transactions involved a total land area of 218,629 hectares, which was equivalent to 34.1% of the land obtained through conveyance during the same period. If off-record illegal land use activities were included, the magnitude would be much larger. Illegal land use activities comprise four major categories of transactions: unauthorized occupation, illegal authorization, illegal transfer or sale, and others. Unauthorized occupation refers to the illegal use of land without proper authorization from relevant government agencies. Violators in this category are mostly state agencies or collective organizations at various levels (e.g. county, township and village) and state-owned enterprises and institutions. In 2003, of the 24,347 hectares of land unlawfully occupied, 27.3% of violations were by state agencies and collectives and 49.4% by enterprises and institutions (China Ministry of Land and Resources, 2004). Most unlawfully occupied land has been transacted, either on the black market (Lin and Ho, 2005) or even on the legal market. An example is the Tianjin Airport Logistics Processing Zone (TALPZ). TALPZ is an important industrial park project which was proposed by the Tianjin municipal government in 2002. A TALPZ Management Committee was established in the same year under the jurisdiction of the Tianjin government to undertake all matters relating to the development of this industrial park. Without proper authorization from the central government for rural land conversion, the TALPZ Management Committee unlawfully occupied 1,300 hectares of land to start construction, and illegally signed land leasing contracts with developers. Similar cases are quite common in the massive encroachment on rural land for government-run development zones. Illegal authorization refers to illicit approval of land uses by government officials either without legal authority or exceeding the legally set limits for land size. Of the 319.36 hectares of land that were illegally authorized in 2003, 56.9% were authorized by government officials at the county level (China Ministry of Land and Resources, 2004). Illegally authorized land is mostly transacted on either the black market (e.g. the Liuhua Lake Park case, for details see Ng and Xu, 2000); the rural black land market or the legal market.7 Illegal transfer or sale refers to unauthorized transactions on the black market. In 2003 alone, 1,824 hectares of land were transacted illegally, of which 50.1% were violations by state-owned enterprises and government agencies, and this was followed by individuals (15.9%), collectives (15.5%), and county governments (12.2%) (China Ministry of Land and Resources, 2004). It is clear that administratively allocated land belonging to state enterprises and agencies is the subject of active transactions on the

7 For instance, to avoid central approval for rural land conversion and land expropriation and to reduce income remittance to the central state, some local officials have come up with the idea of unlawfully ‘renting’ rural land from collectives and farmers to replace land expropriation. Rented land is directly transacted in the land market. On 16 July 2006, the Ministry of Land and Resources issued a notice urging that this kind of illegal authorization be stopped. International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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black market. The category ‘others’ includes illegal land uses such as land conveyance at low prices and the misuse of cultivated land, practices that are also found in both the black and legal markets.8 The existence of these ‘quasi-market’ and ‘primitive’ forms of transaction is not due to the absence of land sales. Conversely, we ought not to limit our scope to the formal and regulated land market by excluding informal or even black market transactions. In this sense, we argue that the land market has a very complicated structure, in which land distribution has in fact changed from state allocation to a supply system dominated by land sales. The land produced by the quasi-market form (negotiation) and the primitive form (unregulated land conversion) is being shifted from the pool of ‘free resources’ to a pool of ‘commodities’ (even though it might not bear the label of legally leased land). It is important to recognize that a significant amount of land is being shifted from free resource to profitable commodity — this is exactly what drives widespread spontaneous and unregulated land use conversions. When assessing the nature of land sales in the market, we should not confine its scope to the single transaction of a land parcel. Rather, we should recognize that a land transaction embodies a whole package deal of commoditized space production. Failing to recognize this will lead to the misdiagnosis of the chaotic land use conversions and relentless transformation of urban landscape which is now happening in many Chinese cities. This judgement implies a different solution to the problems (also see discussions in Haila, 2007). Rather than viewing the market as undeveloped or underdeveloped and proposing that the degree of marketization should be increased (Lin and Ho, 2005) and property rights ‘clarified’(Zhu 2002), it needs to be understood that, because the state itself is becoming a market actor, property rights in urban and rural land are in a dramatic process of commodification without due regulatory constraint (e.g. the lack of legal documents to regulate municipal land banking). This absence has created negative externality which should be eliminated through regulation. The solution is thus not the commodification of land ownership and the right of development, but rather the development of governance involving checks and balances of stakeholders. With this in mind, we now turn to examining the new practices of land development after the late 1990s.

New practices of land development This section highlights new practices in land development to further support the argument that the land market has a complicated structure and land sales are indeed widespread, though they take different hybrid or quasi-market forms. Lin and Ho (2005) have devised a chart of China’s new land system. Because the focus is mainly on rural land management, it does not cover recent significant changes in the urban land market, such as enhanced land banking by local states or new practices in rural and allocated land transactions for urban development. A thorough review of the latest land policies has led us to identify the following major new practices in developing urban land (see Figure 1). Municipal land banking as a means of state land supply

Previously, municipalities were often constrained by a weak strategic capacity to direct land development, because most plots were carved up by work units and developers, and few sites were available in the government’s land bank; municipal land banking thus became a rapidly developing practice after the late 1990s. The first land banking 8 Examples include ‘zero land price to barter to large overseas investors’ which is a very common practice. International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

New land development and politics in China State land supply Sources of municipal land banking Collectively -owned rural land

Collective land supply Sources of collective land trading

Unutilized or state-owned rural land (state farm)

State-owned leased land

Land banking

901 Land supply in black market Sources of black market land trading

Rural construction land

Allocated land and rural land

Project-based

Project-based

(Government)

Urban primary land market (Government & developer)

Rural primary land market (Collective and developer)

Administrative allocation Urban land conveyance through negotiation, tender, auction, quotation, converting use right to investment share, and short lease

Urban secondary land market (Among land users) Land trading Mortgaging

Formal land market

Rural land conveyance through negotiation, tender, auction, quotation, and short lease

Sporadic Land trading (Work units, collectives, farmers and developers)

Rural secondary land market (Among land users) Land trading Mortgaging Quasi- or primitive land market

Figure 1 New practices of land development since the late 1990s in China

system was established in Shanghai in 1996. Since then, land banking agencies have been set up in most cities and counties. Land banking is mainly achieved through purchasing sites, expropriating rural land or state-owned land (i.e. unutilized stateowned land and occupied state-owned land such as administratively allocated land or leased land), exchanging land, and taking back sites when leases expire. It enables governments to buy up and develop large areas of land, provide roads, water, electricity and telecommunications, and divide the areas into smaller plots for land conveyance. Nowadays, land banking is typically used as a policy tool by a city or county government to retain some control over future urban development and exert state regulatory power on how the land is developed. Some cities have been particularly aggressive in using land banking as a way of generating urban development funds (China Land Survey and Planning Research Centre, 2006). However, land banking has caused much controversy. The first concern is with how this practice complicates the interactions between different actors in the market. There are three different approaches in land banking. Cities like Shanghai adopt a market-oriented approach in which the government land banking agency has to negotiate with existing land users about a purchase price or profit division scheme. If land users disagree with the government’s offers, they cannot be forced to give up their plots. Moreover, allocated land users are entitled to sell their plots after obtaining government approval. In sharp contrast, Hangzhou uses a more authoritarian approach in which the government has the right to enforce land purchase and determine the price. There is no room for bargaining. Only the land banking agency is entitled to lease land, and allocated land users are not permitted to do so. This International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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authoritarian approach to land banking greatly reinforces the regulatory power of the Hangzhou government and amplifies its land leasing income. At the same time, it also pushes property prices up very rapidly because of ‘land-starved’ developers entering public biddings to build more housing, retail and office space (Feng, 2006). Currently, Hangzhou is one of the cities with the highest property prices, making it less attractive to industrial investors (ibid.: 48). Between these two extremes (Shanghai and Hangzhou), Wuhai exercises a moderate approach, allowing flexibility for existing users in land transactions while still to some degree taking an authoritarian position on land banking. Because there are no state stipulations on land banking, this practice gives rise to a heated debate, particularly on its legitimacy (Cui, 2006). The second concern arises from expropriating rural land. ‘Land expropriation’ was made official by the Standing Committee of the National People’s Congress (SCNPC) in 2004 to clarify the property rights over land taken by the government. In the same year, the SCNPC made amendments to the 1998 Land Administration Law (LAL). The term ‘land requisition’ under LAL previously referred to both the taking of land ownership and land use rights by the government. However, the PRC Constitution now differentiates between two types of land acquisition, i.e. land expropriation (tudi zhengshou), where there is a change in both the use rights and legal ownership of land; and land requisition (tudi zhengyong), where there is only a change in possession/use rights of the land but not in legal ownership of the land. This amendment to the 1998 LAL brings it in line with the legal stipulation in the Constitution. Expropriation of rural land involves two critical processes: change of land ownership from collective to state ownership; and conversion of agricultural land to nonagricultural uses. Both processes are now under the strict control of the state according to the 1998 LAL. The municipality has to make a land expropriation scheme in line with a top-down quota and the pre-approved annual land supply plan. Only the central or a provincial-level government can authorize such a scheme and approve rural land conversion. Taking this further, in 2004 the State Council initiated institutional reform in land administration requiring that key cadres of the local land department (municipality and district) must be appointed by its counterpart at the next higher level. In comparison with the pre-1998 situation, where municipalities and districts had a large territorial discretion in land acquisition, there has been a resurgence of the state’s regulatory power, oriented towards the priority of ‘re-centralization’ and ‘re-hierarchization’ in land governance. In this sense, decentralization is not to be equated with the erosion of the central state’s power in land development. Removing key functions from the local state does not necessarily lead to a weakening of its role in land banking. The municipality directly takes part in negotiations with the seller, i.e. collectives (farmers) or land occupiers (e.g. work units and leased land users). Since the state is entitled by the Constitution to take land in the name of public interest, such taking often has the form of enforced expropriation, which works to the disadvantage of the seller. Compensations paid to existing land users vary greatly. The municipality can expropriate 1 mu or 0.07 hectare of cultivated land at a compensation varying from a meagre 300 yuan (US $36.2) in comparatively backward places to a rare 5,000 yuan (US $603.9) in more advanced regions such as Beijing (China Daily, 2003). Numerous disputes have arisen from land expropriation because existing users are not satisfied with state compensation which is set at a much lower rate than market value. This makes land expropriation a complicated and time-consuming process (see Yan et al., 2004 on a case of land expropriation in Guangzhou University Town). In particular, the taking of leased land can be highly troublesome, because it infringes municipal land leasing contracts, and the municipality is often confronted by prolonged lawsuits. Xu and Yeh (2005) cite instances in which Guangzhou residents filed lawsuits against the Guangzhou government after their lawful properties were forcibly demolished so that fertile farmland, where the natural environment and various ancient relics were well preserved, could be turned into the prominent university town, part of the city’s place promotion endeavours. International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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Administrative land allocation: ‘imperfection of land market’ or ‘inability in regulation’?

The fact that administrative land allocation continues to exist is often misread as an ‘imperfection of land market’ (Lin and Ho, 2005). Haila (2007) argues that in most Western capitalist cities, some land parcels are provided by political allocation to schools, libraries, sport facilities and streets. There is no strong evidence to support the unanimous belief that market regulation is better than administrative allocation. Similar land allocation policies can be found in China where allocated land can only be supplied to non-profit projects, such as urban infrastructure, public utilities and affordable housing. To minimize ambiguity in this practice, there are clearly defined state stipulations to specify which projects can receive allocated land (MLR, 2001). Despite this, allocated land is still supplied to unspecified projects. Zhang (2005) noted that 84% of land supplied to university towns nationwide was through administrative allocation, and a large amount of it was used for commercial rather than educational facilities. By comparison, it is becoming increasingly difficult to secure sites for affordable housing although it is identified as a priority issue. There is a huge affordable housing shortfall with 1.56 million urban households lacking enough living space (People’s Daily, 2003). Developers are reluctant to become involved in such programmes because of the relatively low profit margin. Local governments are not active in providing allocated land to ease affordable housing shortages because they can sell the land at a much higher price to commercial developers. Existing studies have shown that inadequate land supply for affordable housing exacerbates social and political tensions (Wang, 2004). In discussing the roots of this problem, Zhang (2005) argues that instead of questioning ‘unambiguous property rights’ as the main cause of disorder in land allocation, attention should be directed to understanding how the local state circumvents central orders to marketize land resources at the expense of social objectives. Land transactions in the primary land market: new modes and increasing flexibility

In their 1996 study, Yeh and Wu identified three major modes of land conveyance, namely: negotiation, tender and auction. In more recent years, new urban conditions have complicated these practices. In converting urban land for leasing, municipalities still have much discretion, but face growing resistance to demolition and relocation. The new Property Law increases protection of private property rights, and is the first law to cover individual assets. This makes it more difficult for municipalities to arbitrarily clear land for conveyance. Converting rural land for leasing was once the most popular means of land conveyance, but it has been under strict control since the late 1990s. Rural land conversion is now subject to final authorization by the provincial and central state. Municipalities have very limited power to authorize this type of transaction. At the same time, the central state offers a number of disincentives to converting rural land. For example, municipalities are required to surrender 30% of income from rural land conversion to central finance, while the remaining 70% can be retained at the local level but exclusively for land cultivation. This is in sharp contrast with past practice when the local state appropriated all the income from converting rural land. When a project only takes up existing construction land, the municipality is permitted to retain all the income generated. Since the late 1990s, three new modes of land conveyance have been introduced in addition to negotiation, tender and auction. The first is called ‘quotation’ (gua pai — literally, hanging plate) which came into existence in 2002. Quotation is a process whereby a city government publishes a notice disclosing the terms and conditions for granting land use rights. It then accepts quotations from bidders and updates prices in the listed notice accordingly. The winning bidder is the one who offers the highest price at the end of the notice period which is normally set for at least 10 working days. Quotation International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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is said to offer a more flexible institutional platform in land transactions, because it leaves a certain degree of leeway for municipalities to manipulate the transaction process (see Wu et al., 2007 for details). The second new method of supplying leased land is to convert land use rights in state-owned land into municipal investment shares. This type of land transaction is primarily applicable to land administratively allocated to firms listed at home and abroad. It refers to land transactions in which the municipality converts the land use rights of an area of allocated land into investment shares in the listed firm. Land use rights are held by the firm and may be granted, leased or mortgaged. Equities belonging to the state should be held as state-owned asset investments by qualified state stockholding entities authorized by municipalities. In this sense, the municipality is a ‘shareholder’ rather than a land seller. The lease of state-owned land (guoyou tudi zulin) is the third new type of land transaction. It first appeared in the Provisional Regulations on the Administration of Allocated Land Use Right for Enterprises under Reconstruction, which was promulgated by the former State Land Administration Bureau in 1998. It was further legally acknowledged as a method of paid transfer of land use rights in the 1998 Regulations for the Implementation of the Land Administration Law. Supplementary to traditional modes of land conveyance (i.e. negotiation, tender and auction), the lease of state-owned land refers to land transactions in which the land user as lessee signs a land lease contract with the governments at or above county level for a fixed period of time and pays annual rent in respect of the land leased. It is different from land conveyance in several aspects. First, the lease of state-owned land applies primarily to formerly allocated land in which a transfer of land use rights, or a change of original land use or state enterprise ownership has occurred. The lessee is not permitted to use the land for building commodity housing. The right to use state-owned land in all other projects may be acquired by lease which can also take the form of negotiation (industrial projects), tender and auction (commercial projects). Second, the duration of the lease cannot exceed the maximum for land conveyance for the same type of use.9 Third, the lessee is not allowed to trade land use rights in the secondary market. The lease of state land is best analysed, perhaps, as an intermediary approach in transforming free land use to paid land use for extant allocated land.10 Land transactions in the secondary market: redefined relationships between different developers

One significant feature of the Chinese economy after the late 1990s has been the ‘unusually’ high growth rate of fixed assets investment. Such a growth rate is highly uneven in different sectors with government spending on infrastructure, real estate and related industries like cement, steel and aluminium tending to predominate. Real estate, for instance, added roughly a quarter of the total growth in fixed assets investment in 2003 (Wu et al., 2007). Thus, a new issue is how to bring about a soft landing for China’s economy. This has led to a tightened monetary policy and a controlled land supply, resulting in a redefined relationship between different developers in land trading. A higher land cost bankrupts smaller developers, while larger ones, especially those with a government background, increase their market share in land development. The CITIC group, one of the largest investment arms of the central state, has a very powerful financial capacity in land banking through its subsidiaries like banks and trusted firms 9 50 years for land for industrial use; 50 years for land for educational, scientific and technological, cultural, public health or sports use; 30 years for land for commercial, tourist or entertainment use; or 50 years for land for other uses. Leasing state-owned land is not allowed for developing commodity housing. In comparison, land conveyance allows 70 years for residential uses including commodity housing. 10 For more information on tudi zulin, please refer to http://news.xinhuanet.com/house/2003-09/15/ content_1081539.htm. International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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(Zeng, 2007). This has enabled the group to start purchasing sites in Beijing, Tianjin, Hainan and Sichuan and to develop and divide them into smaller plots for sale to other investors (ibid.). Companies that are listed at home and abroad have a similar capacity to raise funds from financial markets and purchase land plots despite control of bank loans. Developers that have previously obtained sites tend to solve capital shortages by using land use rights as collateral to obtain bank loans. This makes mortgage the most popular mode of land transaction in the secondary market (see last section). The new ad hoc approach in land development

An important ad hoc approach is to legitimize illegal land transactions. The land black market has developed in depth and scale since the late 1990s. Land deals are undertaken in two primary forms of black market: urban and rural (Yeh, 2005) (see the section on ‘land supply in the black market’ in Figure 1). The circulation of land on the black market is very common despite the absence of a legal label as leased land. In the urban area, the de facto owners of allocated land — the state work units or individuals who own private housing — can lease their land to other users through negotiation. There are several forms of black market in allocated land. The first is the direct leasing of buildings such as shops to other users who are not the original allocatees. The second is through joint ventures in which the original user contributes the allocated land and the investor, who does not have land but has money, pays the construction costs of buildings. In the rural areas, collectives and farmers transfer rural land use rights to factory owners or joint ventures. A recent report reveals that in Huzhou, Jingjiang and Shunde,11 80% of urban construction land is collectively owned rural land (Zhou, 2002). Using collective land for urban development is quite pervasive in medium-sized and small cities. Even in large cities, a sizable percentage of the built-up area often occupies collective land. In Hangzhou, for example, 70% of peri-urban land is taken up by farmers for private housing projects (ibid.). Given the size and degree of land circulation on the black market, it is unreasonable to deny the huge demand for primitive land circulation (i.e. unregulated land conversion) and its role in ‘space commodification’. Confronted with the dynamics of market transactions, the state has begun to adopt an ad hoc approach toward bottom-up initiatives by individual land users. In a sense, the present Chinese state is different from its 1990s counterpart and is active in creating innovative mechanisms in governing and fostering the market. The first practice is to legitimize the illegal trading of land use rights in collectively owned land between collectives and developers (see the section on ‘collective land supply’ in Figure 1). Guangdong has been allowed to experiment with this new policy, which is set forth in the Administrative Measures of Guangdong Province for the Circulation of the Right to Use Collectively Owned Land for Construction Purposes (hereinafter ‘the Measures’). This document, the Measures, was promulgated in 2005 to permit the collectives to trade rural construction land with developers for all kinds of projects except commodity housing. Like its urban counterpart, rural land can be traded via land conveyance, lease, transactions or mortgage by collectives or developers. This has three critical implications for the market configuration and land governance in Guangdong. First of all, the state no longer monopolizes land supply because the collectives are permitted to sell rural land (rights) without changing the designation of the land from rural to urban. Second, rural land sales will definitely lead to redistribution of the local state’s land income and complicate land politics — the local state might face more intensive resistance to expropriating rural land. Third, the ‘black market’ transaction of rural land is no longer classified as ‘illegal’. Transactions involving rural land that took place before the Measures were promulgated are still classified as ‘black market transactions’, however, unless all parties involved go through the administrative procedure of seeking appropriate approval retrospectively. 11 These are three fast-growing county-level industrial cities in Zhejiang, Fujian and Guangdong, respectively. International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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Another example of the ad hoc approach is the practice of converting collectively owned land to state-owned land without land expropriation — theoretically, the only way in which such a conversion can be done. However, in the Implementation Details of Land Administration Act, it is stipulated that when villagers become urban residents, their collectively-owned land can be automatically converted to state-owned land. In 2004, Shenzhen used this provision to start converting 235 square kilometres of rural land in Bao’an and Longgang (two districts outside the boundary of the special economic zone) into state land by transforming all villagers in these two districts into urban residents (Shenzhen Municipal Government, 2004). This practice circumvents the procedure of land expropriation and is used to overcome the hurdles of local control over land — top-down tightened checks and bottom-up resistance to land taking. Former collectives and villagers (now urban residents) are compensated according to locally defined standards which are lower than the state’s expropriation standards. At least 50% of compensation has to be used for buying pension and medical insurance for former villagers, and the rest is restricted to use for the development of collective economic and community facilities. Where land has been used for factories or industrial zones, collectives cannot receive any compensation but are required to sign a leasing contract with, and pay an annual land use tax to, the government. In fact, Shenzhen is not the only city to convert rural land to state land in this way. In 2005, there were almost 70,000 such proposals nationwide attempting to take land from farmers through converting ‘townships’ to ‘streets’ or ‘villages’ to ‘residents’ committees’.12

State-driven land politics Decentralization and fragmentation of multiple types of transaction

State policies since the late 1990s have tended to nurture a more transparent land market by wiping out the transfer of land to commercial projects by means of administrative allocation and negotiation. This is often misread as the end of the dual land use system in China. Our assessment is that state policies have not led to the end of dualism (administrative allocation is still there, although its use is quite limited). Rather, they have added further complications. First of all, land banking enables governments to play a more active role as market actors by purchasing, holding and speculating in land. Second, in terms of tradable land in the primary market, there is now a coexistence of state-owned and collectively owned land because the latter is gradually being permitted to go directly onto the market. Third, there is a tendency towards multiple land suppliers because collectives, like their counterparts in urban areas, are allowed to trade rural land with developers. Fourth, in the conveyance market, a dual-track system has been installed as negotiated land trading is allowed for industrial uses while other commercial projects need to seek land via public bidding. To complicate this state of affairs still further, land pricing now operates on a ‘multiple-track’ system, with the co-functioning of allocated prices, negotiated prices, bid prices, expropriation prices and black market prices. Ownership by firms also adds to the complexity of multiple land transactions. Domestic firms are required to pay land use tax, while foreign firms are not only exempted from paying such tax, but also granted free land conveyance in many circumstances. In the case of the acquisition, merger or restructuring of a firm, stateowned enterprises have the privilege of keeping allocated land for a certain period, while other firms do not have such a privilege. This observation suggests a highly complex and fragmented process of land development — involving multiple transactions under the dual-track system. Contrary to the thinking of many scholars who advocate the ‘end of dualism’ and ‘simplification of 12 Interview with a researcher from the Shenzhen Comprehensive Development Research Institute on 15 October 2006. International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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land transaction’ as a means to establish a full-fledged market, land development is becoming more sophisticated. Rather than viewing this as a ‘legacy of state socialism’, we need to understand that the function of land development is now being constantly redefined by the imperative of market development. In fact, it exactly reflects the nature of transitional cities, which are undergoing constant transformation towards an unknown destination in order to cope with the ever changing global environment (Wu and Ma, 2005). In this sense, we do not see the fragmented and complicated structure of land market as a result of random objective choices on the part of the state. Whereas fragmentation is the salient feature, restructuring follows a certain logic. For example, the idea of continuously allowing negotiation in supplying land to industries can be understood as one element in a state strategy to sustain the competitiveness of manufactured products in the global market.13 This observation further supports our argument for alternative solutions to the problems. Rather than blaming dualism and multiple transactions for land use chaos (as exemplified, for example, by corruption) leading to demands that they should be eliminated or simplified, negative externalities should be solved through regulation. Or, to put it another way, ungovernable spatial development is not a result of complications in land development, but a consequence of the ineffectiveness of state regulation.14 Reasserting state regulatory control

In view of the complications brought by multiple land transactions, there is a new trend of reasserting the state’s regulatory power. This is counter-devolution, a phenomenon that is widely studied in the literature of China’s governance. It is argued in many existing studies that the distinctive decentralized form combined with proper incentives allows the local state to play an increasingly corporatist role (Oi, 1992; 1995; Walder, 1995; Wong et al., 1995; Duckett, 1998); and that former centrally organized institutions are now undergoing a process of ‘de-hierarchization’, which gives rise to the ‘territorialization’ of place-based socio-institutional forms in urban development (Wu, 2002). These discourses suggest a widely recognized and intensively researched urban condition in post-reform China — the accelerated rearticulation of state functions downwards to the lower level of politico-institutional organization, which leads in turn to a systematic reworking of the traditional statehood under socialism. This downscaled state function is said to invigorate a process of territorialization through which the local state reconsolidates its power with the jurisdictional capacity to regulate all local activities regardless of their affiliation (ibid.). In this sense, urban development, unlike the pre-reform situation, is being increasingly attached to and embedded in places and territories on a subnational (i.e. municipal) scale. With these discursive interpretations, it is tempting, in the first instance, to read the contemporary urban transformation in China simply as a major consequence of the decentralization process. One significant deficiency of these interpretations is that they focus on only one side of the changing picture of urban governance — decentralization of statehood. Such analyses neglect a counter-trend in which the central state has de-territorialized and re-hierarchized some key functions through the state regulatory regime (Xu, 2008; Xu and Yeh, 2009). In her study on scale relations in post-reform China, Cartier (2005) observes that there is a reassertion of state regulatory power. Our discussion of shifting regulatory authority in land use authorization provides a more specific case to back up 13 Domestic industries in China suffer due to keen competition from countries with lower labour costs (e.g. India), protectionism in major overseas markets, and rising prices for raw materials and energy (e.g. oil and steel) that are now controlled more by large world commodity marketplaces like the New York Mercantile Exchange than by real market demand. 14 Even in capitalist cities like Hong Kong, most school sites and GIC (government, institute and community) sites are also close to free allocation, i.e. a very nominal fee is charged. This has not led to land use chaos. International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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this argument — the process of decentralization is counterbalanced by the rise of state strategies to rearticulate the scales through which a more centrally consolidated power can be achieved. Land development since the late 1990s indicates a powerful trend of fragmentation and decentralization. Government, collectives and farmers can trade land with growing flexibility (e.g. short land lease, converting land use right into an investment share; rural land trading; transferring rural land to urban land through granting urban status to villagers). Prior to 2005, only the trading of state-leased land was legally recognized; today trading of allocated land and rural land is undertaken in a much more flexible yet legitimate manner. The role of the local state as a market actor has been intensified. Indeed, the land market has grown markedly in the past decade. But even this trend is overshadowed by a wave of consolidation that is at least equally powerful. The more the market is fragmented, the more centralized the top-level control may become. Central and provincial governments now authorize land expropriation and rural land conversion. This function was taken away from municipal and district governments in 1998, who had captured it from work units and their corresponding agencies at a higher level in 1986. Municipal land banking also represents an attempt to incorporate unregulated land transactions (e.g. allocated land transaction by work units) into regulatory control. The gradual step in recentralizing state power suggests that the state needs consolidated control and to expand its capacity, given the complications of the decentralized and fragmented land market. In this sense, the rise of recentralized strategies might be understood as political efforts on the part of the central state to reassert its functional importance to the decentralized process of economic governance. The trend of recentralization should not be treated as the ‘legacy of authoritarianism’ or ‘survival of an earlier pattern’. Rather, the nature of the recentralized state function is redefined by the imperative of market development, making the state fundamentally different from its former counterpart. Although there is continuity of state dominance in matters such as land control and management, the Chinese state is moving away from being a resource distributor (the redistributive state in social relations), to being a market regulator (adopting more passive forms of the ‘minimal state’ and a deeper form of ‘strategic management’ as shown in the developmental state), and finally to being a more entrepreneurial type of market actor that can manipulate the market. Building upon this realization, we believe decentralization does not mean the relaxation of control; and state rearticulation upward should be read as a reactive process rather than as a linear transition from one system to another. State-driven land politics

Within the context of a continuing role for the state, it is evident that the peculiar form of land development in China has been purposely produced and conditioned by the state. The commodification of land is being used to expand the scope of capital accumulation. Indeed, the deep involvement of the state becomes imperative in the context of an ‘emerging market’. Land development is similar to a huge social engineering project. Land expropriation, resettlement, and the use of credit in obtaining loans all require the input of local governments who tend to replace the market and monopolize political and social resources that are not easily available to other market actors. New practices of land development, to a greater or lesser degree, all require the input of the state as direct market actor or indirect facilitator. Another example is that the Shanghai government required large state-owned enterprises like the Shanghai Jishan Petro-Chemical Corporation, Cable TV and the Bao Steel Group to lend money via banks to real estate developers when the central policies order tightened loan applications to real estate projects. In this way these developers could overcome the hurdle of capital shortage and still keep commodity housing prices at a high level (Yi, 2006). The reason is simple — Shanghai’s local finances, burdened with debt as a result of massive urban construction, International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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will suffer if a downturn in the real estate sector leads to slower growth of land leasing income (Yi, 2006). Clearly, the state not only uses market instruments (e.g. financing) to solve its own crisis, but also becomes an active yet unparalleled ‘market actor’ in the marketized political economy. Promotion strategies designed to build competitiveness (e.g. Guangzhou, see Xu and Yeh, 2003; 2005; Shanghai, see Wu, 2000) also indicate these are state projects, whether central or local. To convert collective recognition to a practical development strategy requires skilful manoeuvring by institutional structures. In addition to large urban projects, the move to build competitiveness involves the redistribution of regulatory capacities within the state apparatus itself rather than building consensus at the societal level. This is due, in part, to the weakness of ‘civil society’ and also, in part, to the persistence of pervasive state power in economic regulation. In the post-reform context, only the state has the capacity to unleash a fully-fledged regulatory adjustment.

Conclusion This article examines new practices in land development since the late 1990s in Chinese cities. Through a critical engagement with past experience, we have outlined the complicated structure of the state and non-state land development process. It is argued that the land market is highly fragmented, but the peculiar form of market transactions that has evolved is in fact purposely conditioned by the local state. If we view the market as an emerging institution in the context of a transitional economy, its evolution cannot be self-perfected, but rather needs external fostering and regulation (in particular by the state). Extending this argument further, this article has developed some theoretical interpretations of current land development, state rearticulation, and the role of the state in space commodification. Current unfolding of new practices of land development and upward rescaling of state power in land administration have entailed a major transformation in the structure of the land market. Land sales are pervasive in China and have thoroughly replaced the old mechanism of resource allocation (state economic planning). Such activities, however, are becoming extremely complicated. The market system is characterized by a paradoxically extensive commodification of urban space and primitive, and very often ungovernable, land ‘transactions’. While land leasing was mainly carried out through state-led negotiation, recent policy moves have limited administrative allocation and negotiation for commercial projects and allowed more actors to push swiftly and firmly towards a system which is more market-oriented. As a result, the institutional configuration of land development is being radically redefined, and the process is so dramatic that it leads to the emergence of multiple and highly fragmented trading practices in land. Our study shows that the state has adopted an ad hoc approach to urban land governance that recognizes bottom-up development initiatives by individual land users (e.g. the black market in allocated and rural land among work-units, collectives and farmers). While the state attempts to monopolize the leasing market, the existing land stock obtained through de facto conversion of rural land is allowed to be redeveloped, as long as this does not involve a change of land use rights). The result is a profound dualism between negotiated and auctioned leasing and between administrative approval of non-leased development and leasing through formal land markets. Nevertheless, no matter whether land development has gone through leased or non-leased markets, there is very aggressive and profound ‘land commodification’. The marketization of urban development is now increasingly built into urban strategies, ranging from renewing dilapidated urban neighbourhoods to prestigious and mega-projects. Given the continuity of state dominance and faced with increasing market dynamics, state regulation does not simply coalesce around the discretionary city level. Whereas cities today are still important nodes of urban governance, the central state is also International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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restructuring itself to control the articulation of scales through which a more centrally consolidated power can be achieved. State institutions at the central scale attempt to reassert regulatory control over local economic transactions and to introduce new forms of inter-scalar relations (e.g. division of authorization power between central, provincial and municipal governments) in controlling space formation. As a result, the central state still serves as an important level of economic regulation. Our observation also suggests that the local state, as an active market actor, was often directly involved in creating market conditions (e.g. requiring state owned enterprises to co-finance housing projects) to intensify land commodification. The interaction of market and state leads to a new spatial order which is characterized by redeveloped urban centres and multi-centred urban structures in a context of sprawl (Wu et al., 2007). The new land development process suggests two major ways of developing urban space: ‘spontaneous’ land conversions which break government plans (e.g. through the primitive land market) and state-led renovation and expansion (e.g. through land banking, the formal market and quasi-market forms). The former often involves illegal land transactions or changes of land use without planning permission (e.g. urban villages and migrant enclaves), while the latter frequently blends local governments with the private sector in an important partnership to create prestigious urban space (e.g. large redevelopment projects, science park, university towns and other types of development zone). Spontaneous land conversion was once identified as a major factor causing spatial disorder in Chinese cities during the 1990s (Yeh and Wu, 1996). However, we argue that state projects have greater impact on urban physical form and social space nowadays than spontaneous development. While these projects do exalt the urban image, they are often undertaken at a high cost to existing communities, and in many cases simply result in destruction of vibrant neighbourhoods (e.g. the courtyard house in Beijing) and the inability of urban finance. The spatial changes within the context of state-driven politics call for further studies. The new land policies have led to the rearticulation of the state in governing the market. To the state, land development represents only one institutional fix to expand the scope of capital accumulation through incorporating ‘fictitious’ capital — the landed properties. Large property projects are used as vehicles for the materialization of local development strategies. Intensification of land use is considered a pathway through which state-led spatial restructuring unfolds. With these observations, we conclude that, on the one hand, more radical land commodification has occurred since the late 1990s through various forms of land sales including quasi-market and primitive forms. The end of administrative allocation and the various forms of land sale indicate that resource distribution in China has firmly moved away from state allocation to commodified distribution. The state adopted an ad hoc approach to allow a more flexible operation of these different forms of space formation. This can be viewed as a ‘neoliberal’ strategy of deregulation to construct new bottom-up institutional capacity in land development through locally organized initiatives. On the other hand, and just as significant, the state has simultaneously built a reconsolidated strategy of ‘re-regulation’ to reassert stronger control over space formation. Under these circumstances, the role of local, provincial and central state is being dramatically redefined as both regulator and market actor. It is this state-driven land politics which demands careful reading within the context of transitional economies. Jiang Xu ([email protected]), Department of Geography and Resource Management, The Chinese Unversity of Hong Kong, Hong Kong, Shatin, N.T., China, Anthony Yeh ([email protected]), Department of Urban Planning and Design, Faculty of Architecture, The University of Hong Kong, Pokfulam Road, Hong Kong, China and Fulong Wu ([email protected]), School of City and Regional Planning, Cardiff University, Glamorgan Building, King Edward VII Avenue, Cardiff CF10 3WA, UK.

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Résumé Cet article porte sur l’évolution du marché foncier en Chine depuis la fin des années 1990. Il analyse de nouvelles pratiques par lesquelles l’espace urbain est marchandisé à travers le développement de marchés spécifiques; de plus, il montre que la structure du marché foncier devient vraiment plus compliquée et que les ventes de terrains se généralisent à grande échelle. Face à cette situation, l’État a réorganisé sa fonction en matière de gouvernance foncière afin d’exercer un pouvoir régulateur plus intégré. La politique à la base de l’essor du marché foncier et la réorganisation étatique sont examinées au regard du nouveau rôle de l’État dans la marchandisation des terrains. Si on considère le marché comme une institution émergente, son développement a donc reçu le soutien de l’État. Ce dernier trouve dans le contrôle régulateur du foncier une nouvelle façon d’être partie prenante dans la marchandisation de l’espace.

International Journal of Urban and Regional Research 33.4 © 2009 The Authors. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

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