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Rural to urban land conversion in China — How large is the over-conversion and what are its welfare implications?

  • Tan, Rong
  • Qu, Futian
  • Heerink, Nico
  • Mettepenningen, Evy

The current system of converting farmland to urban land use in China can be characterized as a hybrid system that combines government controls with market-based transfers. In this paper we argue that this hybrid governance structure causes an over-conversion of farmland from the rural to the urban sector, as compared to a competitive market situation, and a welfare reallocation that discriminates against farmland owners. We develop a partial equilibrium model that can be used to examine the impact of the current hybrid governance structure on the over-conversion of farmland and to analyze the welfare changes for different groups of actors and the resulting net social welfare loss. Using a dataset with detailed information on farmland acquisitions and urban land transactions in Yingtan City in Jiangxi Province, we illustrate how this framework can be applied. Our results indicate an over-conversion of 33.5% of the total converted farmland in this city between 1999 and 2003. The welfare of farmland owners affected by the conversion decreased by 1.38billion RMB, while the net social welfare loss equaled more than 270million RMB during the same period. The local government obtained 380million RMB of revenues by re-selling farmland as urban land through competitive conveyance mechanisms between 2002 and 2005, while the manufacturing sector gained an estimated 280million RMB from buying land use rights at relatively low prices. We conclude that the current policy of increasing urban land conveyance through competitive mechanisms does not address two major underlying causes of over-conversion, and that protection of farmland would be better served by replacing the current hybrid rural to urban land market structure by a competitive land market.

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File URL: http://www.sciencedirect.com/science/article/pii/S1043951X11000794
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Article provided by Elsevier in its journal China Economic Review.

Volume (Year): 22 (2011)
Issue (Month): 4 ()
Pages: 474-484

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Handle: RePEc:eee:chieco:v:22:y:2011:i:4:p:474-484
DOI: 10.1016/j.chieco.2011.07.013
Contact details of provider: Web page: http://www.elsevier.com/locate/chieco

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  1. Lichtenberg, Erik & Ding, Chengri, 2008. "Local Officials as Land Developers: Urban Spatial Expansion in China," Working Papers 6834, University of Maryland, Department of Agricultural and Resource Economics.
  2. Rong Tan & Volker Beckmann, 2010. "Diversity of practical quota systems for farmland preservation: a multicountry comparison and analysis," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 28(2), pages 211-224, April.
  3. Guangzhong Cao & Changchun Feng & Ran Tao, 2008. "Local "Land Finance" in China's Urban Expansion: Challenges and Solutions," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 16(2), pages 19-30.
  4. Chengri Ding & Erik Lichtenberg, 2011. "Land And Urban Economic Growth In China," Journal of Regional Science, Wiley Blackwell, vol. 51(2), pages 299-317, 05.
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