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As anyone who has visited China can attest, stark poverty coexists with ostentatious displays of wealth wherever one goes. Such inequality makes for incongruous sights; it is not uncommon to see entire rural villages - crowded with ramshackle houses and lacking basic infrastructure - nestled incongruously in the middle of frenetic government directed urban developments. Wherever one goes it is easy to pick out the rural migrants, invariably they are the ones shovelling snow, scavenging trash for recyclables or otherwise engaged in some menial, low-paying labour. This inequity is a reflection of the muddled systems of governance produced by an ideology compromised between communism and capitalism.

This article grew over the course of a year through a series of Skype discussions from Beijing to Toronto. During this period one of us worked with a local Chinese firm while the other worked in Toronto; our first jobs after having finished our bachelors degree. While that began as as a way to express frustration over the state of China's civil liberties, our purpose here is to address this cause by modelling the economic-spatial distortions produced at the urban-rural interface, specifically as a function of China's property right institutions. Throughout this article, we'll be referring to (Fig. 1) a simple land-bid price versus distance graph in order to keep track of the interactions that occur along the urban-rural periphery. What we're aiming for here is to maximize intelligibility without sacrificing the various complexities of PRC's urban-rural trends. As such, we're going to be a lot less formal and rigorous than the papers cited in our bibliography but will reference a fair amount of economic concepts that - rest assured - will be defined as required throughout the article.

The theoretical underpinning of urban growth requires defining the fundamental role of property rights (PR) in stimulating incentives in an economic system. Value gained through any expenditure of labour is predicated on one's ownership of its outcome, PR institutions then organizes such rights in relation to the competing demands of collective coexistence. In doing so they act as the 'meta-structure' of urbanization by adjudicating land-use and thus shaping the physical growth of cities.

China's unique trajectory of urban and economic development can be attributed to the constraints it places on individual choice. More specifically, it was a function of China's dualinstitutional system, a vestigial remnant from the Great Leap Forward (GLF) - Chairman Mao

2    Zedong's1 attempt to induce a modern communist state through rapid industrialization and collectivisation. The dual-institutional structure was born from the Party's need for a population control mechanism that restricted rural to urban migration during this process. The Hukou system, which at the time was simply a household registration classification, was adapted to fix citizens by status and location to their geography. While theoretically it's possible to change one's hukou status, such situations are rare and for the most part hukou is permanent and thus is an effective impediment against rural to urban migration.

While both urban and rural land ownership lies with the Party, after China's transition to state capitalism urban hukou today enjoy nominal rights of property recognized through land-use rights. Land use rights can be bid for and auctioned in the market and in this way participate in a market for land exchange (16, Xun, Xianxiang and Zhigang). Rural land on the other hand has fixed land-use rights and so cannot use, sell, transfer or rent their lands for non-agricultural use. Moreover their land ownership lies with village cooperative, with individual land locally negotiated and ambiguously defined. The dual-institutional system today thus additionally controls market rights between rural and urban sectors. The emergence of the derivatives2 market for urban land-use in the 1990s was the departure point for a new era of capitalist development and economic growth. Development at the urban expansion however was still done via the Party. Section AB of (Fig.1) shows land bid price is inversely proportional to the city center; over time the land rent curve rotates counter-clockwise AB to AC as land value rises. The urban periphery here is the boundary at which the land bid price is worth less than the value denoted by Line P1, which does not react to the urban market because it is rural land. P1's value is therefore based on the state's calculation of its value3. As AB-AC rises it also naturally inflates the value of the urban periphery and thus stimulates the conversion of rural to urban land by the government. It isn't difficult to see how the artificially low price of rural land at the periphery



 Quite possibly history's greatest monster and unsurprisingly, still officially venerated by the PRC.   DERIVATIVES: A contract or security that derives its value from that of an underlying asset (as another  security) or from the value of a rate (as of interest or currency exchange) or index of asset value (as a stock  index).  3  P1 is calculated based on potential profit accrued from agricultural production on land. There are slight  variations in price but for the purpose of the article we chose to simplify it to a consistent line.  2

3    encourages rapacious officials to expropriate land, sell to developers at value AC, compensate rural peasants value P1 and pocket land residuals4 ACP for themselves.

Real estate speculation at the rural-urban envelope is thus enacted by the local government, who (strongly bringing to mind the live-work compounds of socialist economic development) tend to first build on expropriated land Urban Development Zones (UDZs).The reason for this is simple - to act as a multiplier effect on land requisition. The basic algorithm being (1) begin land development (2) drive up land cost (3) profit: extract inflated residuals from urbanization. Going back to (Fig. 1), the basic behaviour is captured by the expansion of urban boundary from Q1 to Q4, with Q3 defined as a new urban center. The development spurs a price increase so that line AC oscillates back up to center Q3 and forms a two-pole urban field. Thus there is little stopping local officials in search of revenue from overbuilding UDZs that supply multiple peripheral zones even if they lack any proportional demand.

A natural consequence of the general deficiency of rural property rights and rising market demand at the urban-rural interface also stimulates an informal market for rural lands as Chinese farmers attempt to gain access to land rent residuals. Lacking land tenure5, farmers have little incentive to invest in their property's long term productivity, are unable to use their land as collateral to gain credit, and can't consolidate land for larger-scale farming that takes advantage of economies of scale. The restrictions on rural hukou basically work to restrict the liquidity and fungibility of land assets - and in doing so greatly decreases the potential value of land. For farmers then, it is by far more profitable to circumvent restrictions in a variety of ways (1604, Po) in order to sell or lease their collective lands for non-agricultural uses. Note that this is not as risky as it sounds. Due to a combination of China's extraordinary size and inchoate system of laws, the country has out of necessity developed a form of legal pluralism that, implicitly condones a certain amount of flexibility and experimentation(1612, Po). In fact certain methods are sometimes abetted by local governments in order to absorb surplus rural labour in local industries.

Back to (Fig 1), informal urbanism will raise the value of land rent residuals and give shape to meniscus ACFDB at section Q1Q2. However as such development is legally ambiguous                                                               LAND RENT RESIDUALS: Leftover revenue from land expropriation and conversion is called land rent  residuals.  4


 TENURE: The act, right, manner, or term of holding something. 

4    at best and given rural peasant's generally limited access to credit - the built outcome thus manifests landscapes of crowded, low-density, ramshackle structures of low-rent housing and industry markets. Thus even as the supporting conditions of urban transportation and infrastructure are developed region ACFDB cannot align to the urban land cost, elevating at best to curve ACFDBE. Ultimately these regions end up as the incongruous informal villages, the corollary spatial pattern to expanding urbanization in China.

If one wanted to construct a remarkably inefficient system of development, that built in inequality and managed to circumscribe bottom-up development to the caprice and profligacy of top-down authority - China's dual-institutional structure would be a pretty good start. This is without even getting into the immeasurable cost to human dignity in a country where no legitimate conduit for protest exists. Such structural failings at the rural-urban envelope are coincident to the set of civil institutions that underlie them. By unpacking them, we suggest an alternative way to read cities and their rural peripheries: specifically their property institutions can be understood as the conceptual matrix that shapes specific modalities of land use. This in turn provides a way to abstract and derive the policy reforms that enable productive, robust and just societies. Which is how we'll conclude the article.

There has been in fact numerous local attempts and experiments at mitigating the problems caused by the dual-institutional PR regime (1603, Po) - however, large scale reform has largely been resisted for a number of reasons: land residuals remain the only way to finance necessary urban development; fear of landlessness creating destitute poverty; lack of social and physical infrastructure to accommodate increased urban migration; the government's instinct to preserve stability at all costs; and the vestigial trace of socialist ideology that remains even today wary of privatization (Where, The Economist).

The most effective policy reform would be the implementation of a property tax or development impact fee that would allow local governments to extract revenue without directly controlling development process (232, Deng and Huang). With access to a continuous source of revenue, officials could also be convinced to allow rural peasants to sell their own land and thus have access to residuals themselves. Combined with a market for rural derivatives (already being tested in the cities of Chengdu and Chongqing) (Where, The Economist) it could re-equilibrate economic-spatial interaction through the emergence of a decentralized system of resource allocation.


"A work in progress." The Economist (17. May 2011): Web. 25. Jan 2012

Deng, F.Frederic and Huang, Youqin. "Uneven land reform and urban sprawl in China: the case of Beijing." Progress in Planning 61 (2004): 211-236.

Ding, Chengri. "Urban Spatial Development in China's Pro-Land Policy Reform Era: Evidence from Beijing." Lincoln Institute of Land Policy Working Paper (2003): 1-32

Naughton, Lewis. The Chinese Economy: Transitions and Growth: Cambridge: The MIT Press, 2007.

Po, Lanchih. "Redefining Rural Collectives in China: Land Conversion and the Emergence of Rural Shareholding Co-operatives." Urban Studies 45(8) (2008): 1603-1623.

"Where do you live?" The Economist (23. Jun 2011): Web. 25. Jan 2012

Xun, Li, Xianxiang, Xu and Li Zhigang. "Land Property Rights and Urbanization in China." The China Review (2010):11-38.

Definitions from

Rural Stasis: Property Institutions in China