China's Government Land Exposé

Sara Hsu

A farmer works the land in Southern Guangxi Province.  Source: Author.

China’s National Audit Office, under the direction of the cabinet, recently launched an audit to review funds from land sales obtained between 2008 and 2013. The audit is part of the government’s fight against corruption.  Local governments have often used land sales to increase revenue, at times under dubious circumstances, taking land from farmers at extremely low prices and selling the land to developers for a tidy profit.  The audit brings to light ongoing issues with local government revenue and rural land use rights.

Local governments receive a portion of value added and corporate taxes collected in their region, as well as all personal income and business taxes, but this has proven insufficient to generate a steady rate of GDP growth.  In order to combat this problem, officials have used rural residents’ land both as a source of revenue and as collateral in taking out loans via local government financing vehicles.  In this way, they have access to a major asset, unimproved land that promises to gain in value.

After the initial impact of the global financial crisis, the growth of local government financing vehicles (LGFVs) increased, and land takings, land collateral, and land development played a major role in for various localities in securing credit. Local government financing vehicles are entities at an arms’ length from the local government, but that receive an implicit guarantee from local governments for receiving land revenues.  Land was used as collateral in obtaining loans from financial institutions, and land taken from farmers was used in large property and infrastructure development projects.  Due to the sudden surge in LGFV indebtedness and the associated money flowing from the use of land as collateral and property in development, it is likely that corrupt activities with respect to land also increased.

Land takings by government officials have had a highly negative effect on rural residents.  In the past decade, the practice of rural land grabs and resales worsened the predicament of farmers, whose only asset is land.  This issue has ignited protests throughout China in recent years, even leading in some cases to self-immolation.  Rural residents who have lost their land in this process have found themselves plunged into the ranks of the urban unemployed, with even lower standards of living and a bleak future.

The Chinese leadership has attempted to resolve this problem by giving farmers rights to their own land.  However, despite the imposition of laws that have attempted to protect farmers’ rights (including the Land Management Law of 1993, the CPC Notice on Rural Land Contracts of 1997, the Rural Land Contracting Law of 2002, the Property Law of 2007, CPC Decisions on Rural Reform of 2008, CPC Opinions on Farmers’ Incomes of 2009, and CPC Opinions on Balanced Development od 2010), land-stripped farmers actually have little legal recourse. In practice, land “rights” are balanced against the “public interest” within the scope of the law.  Still-unclear property rights have left the door open to blatant “land grabs” by local officials.

It is hoped that the National Audit Office will uncover some offenses by local officials who used land sales to enrich themselves, but this will not correct the underlying incentive for local governments to use land as an important source of supplementary income and collateral.  In order to remove this incentive, particularly since rural residents have so much to lose because of it, China’s fiscal system needs to be revamped, with more revenue flowing back to local governments from the central government or fewer fiscal burdens on local governments.

At the minimum, the practice of using land use rights as collateral should be banned, and the onus should be placed on local governments to adequately compensate farmers for undeveloped land.  Without these basic requirements, local officials’ abuse of rural land will likely persist.

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