Can the performance evaluation change from central government suppress illegal land use in local governments? A new interpretation of Chinese decentralisation

Chinese decentralisation, characterised by the fiscal decentralisation and political centralisation relationship between the central government and local governments, has provided significant dual incentives (financial incentives and political incentives) on the land use behaviour of local governments. However, traditional incentive theory ignores the impact of the constraint indicators set by the central government in performance evaluations. Considering the changes in China’s political performance evaluation system, and in particular, the strengthening of environmental protection and cultivated land protection, this study constructs a theoretical framework for the financial incentives, political incentives, and political constraints and provides a new perspective to explain the political restraint mechanisms for the governance of illegal land issues. Based on panel data from 30 provincial regions from 2000 to 2016, we applied the fixed-effect model and FGLS method and further tested the potential endogeneity problem. The results demonstrated: (1) Fiscal decentralisation has intensified local fiscal pressures, resulting in local governments wanting to obtain more land transfer and tax revenue, which has created a fiscal stimulus for the illegal use of land by local governments; (2) under political centralisation, the economic performance evaluation index has a strong promotion incentive effect, and is an essential driving factor for local government land violations; (3) the performance evaluation system that pays more attention to environmental protection and farmland protection has a restraint effect on illegal land use; and (4) at different stages of economic development, illegal land incentive sources and constraints differ. In terms of incentives, economically developed areas are primarily driven by tax revenue and political incentives, and land granting revenue incentives are not noticeable. Conversely, the less developed areas are primarily driven by financial incentives, while the political incentives are not apparent. For constraints, developed areas are more restrained by environmental protection performance, while underdeveloped areas are primarily constrained by cultivated land protection performance. We therefore argue that a dual relationship based on powerful incentive of “encouraging local to do” and strong restraint of “keeping the bottom line” is helpful to regulate and improve the behaviour of local governments.