Page 1

Why are cities growing so fast? How does government finance urban growth ? Yiping Fang

Tax reform 1994

Tax sharing reform 1994 Tax Sharing System (fenshuizhi), fundamentally changed the way revenues are shared between the central and provincial governments.

• •

central share from 22 percent of total revenues to 55.7 percent. Local government has more responsibility in providing social welfare. VAT - 25% local and 75% central Sales tax, and land use rent - all local

non-location specific - world factories. LAND FINANCE

Christine P.W. Wong 2000 “Central-local Relations Revisited: the 1994 Tax Sharing Reform and Public Expenditure Management in China” World Bank Office in China

Competitive development among districts •

VAT (25%) and corporate income (40%) tax - attract businesses to move to the district;

Land, was sold cheap earlier - stop land auction for two years - forgetting the old price;

• • •

Target for district to achieve: Total Retail Sales of Consumer Goods GDP - a promotion indicator Tax revenue from businesses (bind with SOE)

Monetizing state asset - LAND

Nov. 2008

1st and 2nd land development 1st level development - infrastructure: 8% cost as profit; 2nd level development - Auction! recent Beijing land ‘King’ - 70,000 yuan per square meter

Sold land has to be developed! The higher land auction price, the merrier‌ the more development, the better‌ Developers: will investment be paid off? Ghost towns Yingkou

Land as collateral Government owned real estate company

Government is in big debt!

How is land value decided? Corporate income: % of assessed value In cases of compensation: reward if assessed within $$$.., If the game rule is unjust, you should not expect players to be fair. corruption -

Ghost Towns

Alternative to land finance?

• • •

Property tax? Municipal Bond? Change of tax sharing?

Property tax Government: Yes! Current: 60 square meter per person - no property tax. Land use rights was paid for 50 years during land transfer, a much more efficient revenue collection than property tax. Developers: NOOOOOOOOOO! control real estate price? tax collection???

URBANIZATION moving 250 million rural residents into cities by 2025

1. China's farmland is shrinking. Industrialization and sprawl have driven a substantial amount of recent farmland loss. 2. The United States has six times the arable land per capita as China. China has just 0.09 hectares of arable land per capita—less than half of the global average and a quarter of the average for OECD member countries. 3. A fifth of China's land is polluted. Fully 40 percent of China's arable land has been degraded by some combination of erosion, salinization, or acidification—and nearly 20 percent is polluted. 4.

China considers its soil problems "state secrets." The Chinese government conducted a national survey of soil pollution in 2006, but it has refused to release the results.

5. China's food system is powered by coal. China's food production has been driven by an ever-increasing annual cascade of fertilizer. China relies on an energy source that competes aggressively with farming for water. 6. Five of China's largest lakes have substantial dead zones caused by fertilizer runoff.

Local government finance  
Local government finance