Fixing China’s Distorted Urban Land Quota System

March 4, 2015 Jinhua Zhao, Yuan Xiao

Chinese cities face two related problems: first, a shortage of land available for development, and second, wasted allocation of that land. Taken together, these two problems constrain local economic and social development at a time when cities are growing rapidly. Too often, Chinese urban land remains idle while cities have a surfeit of unused land allocation quotas. Indeed, more than fifteen years after China decided to marketize land in 1998, China’s land market, to a large extent, remains inefficient. And this distortion of China’s urban land market derives mainly from problems of supply, particularly of the conversion of agricultural and rural construction land into urban land.

Xiao and Zhao begin by exploring sources of inefficiency in China’s current land market. The Chinese government has attempted to undertake reforms, but, they argue, China’s one-size-fits-all national land allocation policy does not sufficiently take account of local variation. In practice, the inflexibility of land policies at the local level prohibits market mechanisms from responding to—and correcting—these inefficiencies.

The memo examines in detail two specific reform experiments:

“Quota linking” is an innovation that has allowed local governments to get around quota restrictions; if they increase the supply of arable land by reducing construction in rural areas, they are permitted in turn to increase their quota of land for development in urban areas, thus establishing a “link.”

“Quota markets” are a further evolution of this idea and have marketed the quota system by permitting officials in selected municipalities to trade their quotas outside local counties and in their entire prefecture.

Both experiments are controversial, yet Beijing has already allowed 28 provinces to move forward with one or the other of the two experiments. In that context, Xiao and Zhao offer a series of policy recommendations aimed at putting safeguards into place to minimize the adverse effects and side-effects of quota markets.

About the Author

Jinhua Zhao

Edward H. and Joyce Linde Assistant Professor of Urban Planning in the Department of Urban Studies and Planning of the Massachusetts Institute of Technology (MIT)

author

Jinhua Zhao is the Edward H. and Joyce Linde Assistant Professor of Urban Planning in the Department of Urban Studies and Planning of the Massachusetts Institute of Technology (MIT). Zhao also directs “JTL,” MIT’s urban mobility research lab, and is the co-Principal Investigator for MIT’s Transit Lab at MIT. He previously taught at the University of British Columbia. Zhao received his PhD, Master of Science, and Master of City Planning from MIT, and is a graduate of Tongji University with an engineering degree in urban planning. His work has clustered in three areas: (1) the behavioral foundation for transport policies; (2) public transit management, with an emphasis on the use of information technology; and (3) China’s urbanization and urban mobility. Professor Zhao has worked closely with several cities to improve their urban transportation systems and policies, including London, Chicago, Boston, Vancouver, Shanghai, Beijing, and Singapore. He publishes regularly in journals, such as Transportation Research Record and Transport Policy.

Yuan Xiao

Adjunct Assistant Professor of Public Service, Wagner Graduate School of Public Service of New York University (NYU)

author

Yuan Xiao is Adjunct Assistant Professor of Public Service at the Wagner Graduate School of Public Service of New York University (NYU) and a postdoctoral Research Scholar at Columbia Law School’s Center on Global Legal Transformation. Her research interests include property rights, land policy and markets, urbanization in developing countries, and international development. Xiao previously worked for three years with the World Bank in Washington DC, where she focused on capacity building and training programs in the field of urban management and planning for developing countries. Yuan received a PhD in Urban and Regional Planning from the Massachusetts Institute of Technology (MIT), MA in Political Science from the University of Toronto, and concurrent BA degrees in International Politics and Economics from Peking University.