Throughout the process of urban development in China, land development is important because the government must use land to obtain financial support and to subsequently improve urban infrastructures. In most places in China there exists a dual system of land ownership between the city and the rural areas: state-owned land and collectively-owned land. This means that land in the cities is owned by the state, and land in the rural and suburban areas is owned by collectives. Therefore, when urban development reaches a certain level, and more land is required, the government first appropriates the collectively-owned land in the rural area and converts it into state owned land to be used for urban construction. More precisely, the government appropriates the collectively-owned land in the rural area and compensates the owners before converting the land into state owned land. Subsequently, the government launches the process of primary land development, which involves investing in the land and developing it before contracting this new urban land to developers. This is commonly known as changing “raw land” into “cultivated land”.
Primary land development includes land acquisition, land consolidation, and land reserve. Land reserve means that the ownership of land collected by the government is stored in the land reserve centre. These three processes must satisfy the requirements of the indicators for municipal underground infrastructures, as well as the requirements of urban planning, in order to carry out demolition, land levelling, and construction of public facilities in order to meet the land transfer standards. The executive bodies in primary land development are the local gov ernment, or the companies designated by the local government, such as urban investment companies and land reserve institutions. When the process of primary land development is completed, raw land is changed into cultivated land, which can be traded at the land transaction centre. The government holds auctions where developers can bid on land. Since 1994, the Tax Sharing System has been applied to local finances. Because of the Tax Sharing System, the local government cannot receive tax compensation from the central government. Therefore, the local government attempts to raise land prices through auctions to acquire higher land revenue. From the perspective of land developers, it is now possible for them to gain profits from the development of the acquired land. Likewise, the government can use the funds collected through land auctions to improve urban infrastructures.
If we look at the models of land development for the four development zones of Jinqiao, Lujiazui, Waigaoqiao, and Zhangjiang, we see that Shanghai is different from other cities in China. The Pudong New Area government, rather than the Shanghai city government, is in charge of these development zones. Because the Pudong New Area government is responsible for promoting investment and setting up infrastructures with limited financial resources, the government has designed a special model to finance and build the development zones. This land development model is called the “land rolling development model”.
First of all, the Pudong New Area government evaluates the price of rural collectively-owned land, and then pays 30% of the estimated price as the “land pre-acquisition costs” to the rural collectively-owned land owner to convert the land into state-owned land. “Land pre-acquisition costs” convert the land ownership and the land management. Then, the Shanghai Municipal Finance Bureau sets up the Development Zone Company. The fund provided to the company is equal to the estimated price of the rural collectively-owned land. When the Development Zone Company receives the fund, it purchases the development zone land from the Land Authority of Shanghai and signs the land use contract, thus acquiring the right to use the land. Next, the land ownership and the land management are transferred to the Development Zone Company. In this process, the flow of capital between the government and the Development Zone Company is counterbalanced. The land is transferred to the Development Zone Company without payment. In addition, the Development Zone Company may mortgage the land in order to receive loans to be used for the construction of the development zone. With the land loan, the Development Zone Company will need to pay only 70% of the property price to procure full ownership of the land and to develop it.
The above graph plotted by Chi-Han Ai shows the difference between land development models of most cities in China and that of Shanghai. Please click to zoom in the graph.
This “land rolling development model” enables the Pudong New Area government to raise funds and complete the infrastructure of the development zone. However, this model has some underlying problems. For example, the government focuses on land and real estate development, but neglects industrial development. For the development of the industrial zone, the links between Industrial organizations are an important factor. However, the Chinese government still has room for improvement regarding industrial connections.