Study On Risk Assessment And Precaution Of Local Governments’ Land Finance

Due to the competitions among local governments, China has witnessed a high growth in economy since the Reform and Opening-up Policy. Under the competition regime, local governments are fully motivated to use scarce land resources to increase both total revenue and fixed asset investment, which is usually called "land finance". Tax reform brings asymmetry between local governments’ ownership of property and duties, and accelerates local governments’ dependence on the so-called "making money by selling land". As is all known to us, it’s our national’s basic condition that land is relatively scarce because of the huge population. So under the farmland protection constraint of 1.8 billion mu, exploitation of urban construction land, the core carrier of land finance mode, has been largely restricted. In other words, the current land finance mode, seemingly to be simple, convenient, fast and efficient, in fact hides a huge risk including financial risk, monetary risk, social risk, political risk of corruption, and simultaneously has large uncertainty obviously.This paper focuses on the financial risk of land finance along the following analysis framework:situation analysis-risk assessment-risk prediction-risk precaution. After defining the connotations of land finance and its risk, the paper would have a further analysis on temporal evolution discipline of land finance’s status, scale and structure. At the same time, we have built a quantitative risk assessment index system and have carried out an empirical research in risk assessment. On this basis, further risk prediction will be taken to reveal the risk evolution trend. Finally, in order to meet the needs of transforming economic development mode and innovating land management, we will focus on the governance of risk prevention in the end.1. Connotations of Land Finance and Its RiskAfter a review of previous research, we will have a discussion on land finance’s connotation combined with this research’s positioning and need. Referring to the definition of financial risk, the paper is going to have a deep study of land finance and its risk’s concept and content. Then current land finance scale will be calculated. Besides, we would also take an analysis of land finance’s temporal evolution characteristics and differences in the case of its size and structure.2. Quantitative Risk Assessment Study of Local Governments’ Land FinanceThrough exploring the meaning of land finance risk and its concept, we will construct a risk assessment index system theoretically from the dimensions of income flow uncertainty and public resources uncertainty of land finance mode for the purpose of quantitative analysis and comparative study. And next, analysis and classification of risk evaluation results are expected to be accomplished.3. Study on Local Governments’Land Risk PredictionMaking use of quantitative risk assessment results we have studied above, we start to have a prediction of local governments’ risk, so as to reveal the risk evolution trend, and further to clarify the urgency of risk governance. Simultaneously, in order to find out how local governments’ land finance and its risk would change under different circumstances, we plan to conduct a scenario simulation research, which will be a foundation of risk precaution of next part. Specific scenarios consist of GDP growth adjustment simulation, and real estate market regulation simulation.4. Study on Local Governments’Land Risk PrecautionIn this part, we would start with the driving mechanism and implementation mechanism of local governments’ land finance during its formation process. Then, by learning from foreign local governments’finance and taxation system and comparing it with our nation’s, we are devoted to offering references of international experience. At the end of this part, based on our previous studies on land finance including situation analysis, risk assessment, risk prediction, driving mechanism, achievement ability, international experience research, we will put forward certain counter-measures of risk precaution in the need of transforming economic development mode and innovating land management.Conclusion shows as following:(1) During our study on land finance’s status, we find that on one hand, its scale speeds up fast overall. As to regional difference in local governments’ dependence on land finance, we can see dependence degree in the eastern region is higher than that in the middle region, and western region’s dependence on land finance is lowest relatively. Moreover, regional difference is shrinking constantly, which reflects that local governments are all fond of using land finance to enrich local finance. On the other hand, the structure of land finance has evolved from "equal attention to land tax and land-transferring fee" to "mainly depending on land-transferring fee", and the regional difference is shrinking as well. All show that no matter in the eastern, middle or western region, local governments all have path dependence and preferences on "making money by selling land".(2) Quantitative risk assessment study of local governments’land finance informs us that in national level land finance risk has a increasing trend, and risk degree in eastern region is highest, while western region sustains lowest risk at the present. Meanwhile, more than 45% provinces are caught in a rather high level of risk. What’s worse, the regions that sustain higher risk degree gather in those areas that have small construction land endowment when taking their urban construction land expansion speed into account, such as the eastern coastal areas like Jiangsu, Zhejiang and Fujian, part of the middle regions like Anhui and Hubei, few areas of the western regions like Sichuan and Chongqing.(3) Through land finance risk prediction, we can see without effective measures, land finance risk degree would deepen continuously in 2011-2020. The result of scenario simulation shows that dropping expected GDP growth down and insisting on real estate market regulation will help reduce land finance risk degree.(4) Combined with land finance driving mechanism and implementation mechanism research, the paper proposes the following risk precaution strategy:strengthening land administration supervision and controlling construction land supply; transforming land finance formation mechanism and improving local finance revenue structure; making land market structure more rational and reforming land expropriation system; consummating budget supervision mechanism and increasing financial supervision; deepening taxation system reform and realizing the symmetry between local governments’ ownership of property and duties; optimizing administrative performance appraisal standards and changing current competition regime.Our concerns will eventually focus on financial risk, while monetary risk, social risk or political risk has not been quantitative evaluated. As a result, studies on land finance risk need further investigating.