Land Conversion and Misallocation across Cities in China

China is experiencing rapid urbanization whereby large amounts of farmland at the urban edge is being converted to urban use. This is taking place in a unique institutional context in which the central government specifies the total amount of land to be converted each year and allocates quota among different provinces, which in turn is distributed to lower level governments. While some of this land is used to build infrastructure and public facilities, the use rights of the rest are leased to developers and businesses for very long terms (40, 50, or 70 years depending on the use type). Over the years, local governments have increasingly relied on land lease revenue to finance public spending. Whereas this land quota system is arguably the most important government policy shaping urban development in China, little is known about the details of land conversion at the city level and still less is known about the consequences of this policy. Collaborating with Shihe Fu, Professor of Economics at Xiamen University, this research addresses two primary research questions. First, what are the important characteristics of land conversion and land finance at the city level in China? Second, does the land quota system efficiently allocate newly converted urban land across cities in China?