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China's Land Market Auctions: Evidence of Corruption

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  • Hongbin Cai
  • J. Vernon Henderson
  • Qinghua Zhang

Abstract

This paper studies the urban land market in China in 2003--2007. In China, all urban land is owned by the state. Leasehold use rights for land for (re)development are sold by city governments and are a key source of city revenue. Leasehold sales are viewed as a major venue for corruption, prompting a number of reforms over the years. Reforms now require all leasehold rights be sold at public auction. There are two main types of auction: regular English auction and an unusual type which we call a "two stage auction". The latter type of auction seems more subject to corruption, and to side deals between potential bidders and the auctioneer. Absent corruption, theory suggests that two stage auctions would most likely maximize sales revenue for properties which are likely to have relatively few bidders, or are "cold", which would suggest negative selection on property unobservables into such auctions. However, if such auctions are more corruptible, that could involve positive selection as city officials divert hotter properties to a more corruptible auction form. The paper finds that, overall, sales prices are lower for two stage auctions, and there is strong evidence of positive selection. The price difference is explained primarily by the fact that two stage auctions typically have just one bidder, or no competition despite the vibrant land market in Chinese cities.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15067.

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Date of creation: Jun 2009
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Handle: RePEc:nbr:nberwo:15067

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  1. O. Compte & A. Lambert-Mogiliansky & T. Verdier, 2005. "Corruption and Competition in Procurement Auctions," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 1-15, Spring.
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Cited by:
  1. Abhijit Banerjee & Sendhil Mullainathan & Rema Hanna, 2012. "Corruption," NBER Working Papers 17968, National Bureau of Economic Research, Inc.
    • Abhijit Banerjee & Rema Hanna & Sendhil Mullainathan, 2012. "Corruption," Working Papers id:4952, eSocialSciences.
    • Banerjee, Abhijit & Hanna, Rema & Mullainathan, Sendhil, 2012. "Corruption," Working Paper Series rwp12-023, Harvard University, John F. Kennedy School of Government.
  2. Siqi Zheng & Matthew E. Kahn, 2011. "Does Government Investment in Local Public Goods Spur Gentrification? Evidence from Beijing," NBER Working Papers 17002, National Bureau of Economic Research, Inc.
  3. Wu, Jing & Gyourko, Joseph & Deng, Yongheng, 2012. "Evaluating conditions in major Chinese housing markets," Regional Science and Urban Economics, Elsevier, vol. 42(3), pages 531-543.
  4. Deng, Yongheng & Morck, Randall & Wu, Jing & Yeung, Bernard, 2011. "Monetary and Fiscal Stimuli, Ownership Structure, and China's Housing Market," Ratio Working Papers 173, The Ratio Institute.
  5. Lozano-Gracia, Nancy & Young, Cheryl & Lall, Somik V. & Vishwanath, Tara, 2013. "Leveraging land to enable urban transformation : lessons from global experience," Policy Research Working Paper Series 6312, The World Bank.

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