Development Of China’s Infrastructure Through The Land

Over the past twenty years, infrastructure stock in China grows in a supernormal speed. Existing literatures look for the reason in the view of political and fiscal incentives. But I find that China’s structural change of the land institution and development of infrastructure through the land are also important clues, and it can explain supernormal growth of the infrastructure. This paper theoretically proves that, in addition to political and fiscal incentives, the self-financing mechanism formed through the land by local officials is one of the main factors that influence the optimal infrastructure supply in a political centralization, economic decentralization and public land ownership economy. But the mechanism depends on the land institution structure of a country, which helps explain the differences between China and other developing countries in the infrastructure stock theoretically. Empirically, results show that the land support hypothesis can significantly explain the supernormal growth of China’s infrastructure.However, at the same time, the existing pattern that seek to develop China’s infrastructure through the land has generated some complications such as the problem of damaging to the interests of farmers and the othe landless, masses collective petition, pseudo-urbanization, and land prices remainong so high, and so on. These complications result in a series of economic and social contradictions. They are actually a major source of China’s economic and social problems, and contain huge social risks and financial debt risks, which is not sustainable.Therefore, in the context of the transformation of economic growth pattern and new urbanization, the existing pattern faces the task of adjustment and restructuring. But the question is that, on the one hand, the new urbanization needs more infrastructures, and on the other hand, the existing pattern does not have sustainability. So, how to crack the need of lots of money for huge infrastructure in new urbanization? It has become a key issue to promote new urbanization strategy in China. In fact, the root cause of the current pattern is not the land financing for infrastructure itself, but rather the local government intake land-related incomes excessively. If they follow the way which the market works, the pattern through land financing for infrastructure has economic rationality, especially in the peak phase of urbanization, and it has been confirmed by international experiences. Therefore, this paper studies development of China’s infrastructure through the land, and provide in fact a solution to the huge funding gap required for the new urbanization.The full text has seven chapters, and except for the first chapter, the second chapter proposes the mystery of China’s infrastructure. The third chapter is the theoretical basis and international experience of the land financing for infrastructure, it is the basis and premise of this paper. The fourth chapter is the main part of the article, and the main aim is cracking the mystery of China’s infrastructure from reality, theory and empirical three levels, demonstrate the pattern of seeking to development of China’s infrastructure through the land. The fifth chapter is the study of the negative impacts, discussing the complications of the existing pattern generated. Chapter VI studies measures for complications. It points out the transition problems of the existing pattern, and proposes concrete solutions and improvements, especially in how to promote their integration between the new urbanization and new land-support pattern. Chapter VII is the conclusion part. It summarizes the full text and explores directions for further research.Through the above studies, this paper draws the following basic conclusions:First, infrastructure development through the land has several rules. Government should follow the principles of the market, and finance infrastructure following to the basic principles which capture land value-added according to the amount of infrastructure capitalization, and who benefits from the infrastructure and who pays the cost, and land asset management.Second, the land strongly supports the supernormal development of China’s infrastructure through the explicit or implicit way. In China, due to the unique structure of the land system, local government get a lot of infrastructure funding through explicit and implicit land revenue and then support for the supernormal development of China’s infrastructure.Third, the mechanism of land supporting for the supernormal development of China’s infrastructure are closely related with two main stages (processes) and the two conditions. The first stage is the process of local governments to raise funds for infrastructure development through land-related channels. The second phase is the process of the local government using these funds to invest in infrastructure projects for capital formation. Two phases are composed of a complete development pattern of China’s infrastructure through the land. Corresponding to these two phases, the first condition is that local governments have the ability to raise large amounts of construction funds through the land. The second condition is the existence of incentives which enable local governments to invest in infrastructure.Fourth, the established theoretical model is able to explain the supernormal development of China’s infrastructure. Theoretical studies show that in a political centralization, economic decentralization and public land ownership economy, local governments have the ability to meet two above conditions, local officials can achieve self-financing for infrastructure through regulating land prices, which means that the rise of land prices will can meet the infrastructure investment demand of local officials and then achieve superior self-supply capacity of infrastructure.Fifth, empirical measurement reveals that the land support hypothesis holds. I use a provincial panel data in 1999-2008, and take land prices and land transfer income as the main explanatory variables respectively. The results show that after solving heteroscedasticity and autocorrelation, and resolving endogenous, the main explanatory variable coefficients are expressed as a positive number, and all through a 1% significance level test. These reveal the land support hypothesis holds.Sixth, the existing pattern is not sustainable. Studying the existing pattern From the negative effect level, the results show that the pattern generates a lot of complications, and reveals the current pattern is not sustainable. So, under the new urbanization context, it must be reformed.Seventh, to promote organic integration of the new pattern and new urbanization is an effective way to solve lots of infrastructures needed by the new urbanization. Should be taken to allow the market to play a decisive role in the allocation of land resources, reform the existing land institutional structures, especially land requisition system, change development concept of the local government for economic growth at all costs, strictly follow the basic principle of operation of land financing/instruments for infrastructure and use new pattern to promote new urbanization and other measures.