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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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Publication status: published as Hongbin Cai & J. Vernon Henderson & Qinghua Zhang, 2013. "China's land market auctions: evidence of corruption?," RAND Journal of Economics, RAND Corporation, vol. 44(3), pages 488-521, 09.
Handle: RePEc:nbr:nberwo:15067

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Cited by:
  1. Siqi Zheng & Matthew E. Kahn, 2013. "Does Government Investment in Local Public Goods Spur Gentrification? Evidence from Beijing," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 41(1), pages 1-28, 03.
  2. Siqi Zheng & Matthew E. Kahn, 2013. "Understanding China's Urban Pollution Dynamics," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 51(3), pages 731-72, September.
  3. Feng, Juan & Lichtenberg, Erik & Ding, Chengri, 2013. "Balancing Act: Economic Incentives, Administrative Restrictions, And Urban Land Expansion In China," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C., Agricultural and Applied Economics Association 149669, Agricultural and Applied Economics Association.
  4. Yongheng Deng & Joseph Gyourko & Jing Wu, 2012. "Land and House Price Measurement in China," NBER Working Papers 18403, National Bureau of Economic Research, Inc.
  5. Hanna, Rema N. & Mullainathan, Sendhil & Banerjee, Abhijit, 2012. "Corruption," Scholarly Articles, Harvard Kennedy School of Government 8830779, Harvard Kennedy School of Government.
  6. Elena Costas & Albert Sole-Olle & Pilar Sorribas-Navarro, 2011. "Corruption scandals, press reporting, and accountability. Evidence from Spanish mayors," Working Papers in Economics, Universitat de Barcelona. Espai de Recerca en Economia 255, Universitat de Barcelona. Espai de Recerca en Economia.
  7. Jing Wu & Joseph Gyourko & Yongheng Deng, 2013. "Is There Evidence of a Real Estate Collateral Channel Effect on Listed Firm Investment in China?," NBER Working Papers 18762, National Bureau of Economic Research, Inc.
  8. 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, The World Bank 6312, The World Bank.
  9. Wenjie Wu, 2012. "Does Public Investment Spur the Land Market?: Evidence from Transport Improvement in Beijing," SERC Discussion Papers, Spatial Economics Research Centre, LSE 0116, Spatial Economics Research Centre, LSE.
  10. Hanming Fang & Quanlin Gu & Li-An Zhou, 2014. "The Gradients of Power: Evidence from the Chinese Housing Market," NBER Working Papers 20317, National Bureau of Economic Research, Inc.
  11. Deng, Yongheng & Morck, Randall & Wu, Jing & Yeung, Bernard, 2011. "Monetary and Fiscal Stimuli, Ownership Structure, and China's Housing Market," Ratio Working Papers, The Ratio Institute 173, The Ratio Institute.
  12. Costas-Pérez, Elena & Solé-Ollé, Albert & Sorribas-Navarro, Pilar, 2012. "Corruption scandals, voter information, and accountability," European Journal of Political Economy, Elsevier, Elsevier, vol. 28(4), pages 469-484.
  13. Wu, Jing & Gyourko, Joseph & Deng, Yongheng, 2012. "Evaluating conditions in major Chinese housing markets," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 42(3), pages 531-543.
  14. Yongheng Deng & Joseph Gyourko & Jing Wu, 2012. "Land and Housing Price Measurement in China," RBA Annual Conference Volume, Reserve Bank of Australia, in: Alexandra Heath & Frank Packer & Callan Windsor (ed.), Property Markets and Financial Stability Reserve Bank of Australia.

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