Local officials' obsession with GDP growth hinders better land use efficiency in China
Analysts say local governments' obsession with growth is limiting land for in-need sectors like housing and logistics
Local government officials need to tone down their obsession with economic growth if China’s efforts to improve land use efficiency are to succeed, industry analysts said.
During the agenda-setting central urbanisation work conference on December 12-13, the central government said it would cut land supply for industrial use to make room for more residential construction, so as to ease housing price inflation while protecting arable land.
The China Land Surveying and Planning Institute, under the Ministry of Land and Resources, said in a report published on December 26 that the mainland would raise minimum prices for industrial land next year, but it did not give further details.
However, such plans, if not pursued together with other reforms to emphasise the quality rather than quantity of economic growth, will fail to make material changes, said Liu Wei, a senior research analyst with the Peking University-Lincoln Institute Centre for Urban Development and Land Policy.
“Many local governments are still focusing too much on [gross domestic product] growth, and they are refunding industrial land buyers through various means,” she said. “It will take a long time to change their mindset and practice.”
Joe Zhou, head of research in Shanghai at global property consultancy Jones Lang LaSalle, said: “These policies are very difficult to be executed at the local level.”
When working on land supply plans, China’s local governments make generating taxable economic activity and jobs a priority. They embrace labour-intensive factories and capital-intensive hi-tech research centres but are wary of turning over industrial land for logistics use.
Local authorities typically offer very cheap land and three to five years of zero tax to attract the kind of investment projects that will generate rising tax revenues in the long run. For them, it is only natural to opt for a project that will bring in 10 times, or even 20 times, the amount of money from the sale of a piece of industrial land.
Sometimes, the competition for a project between cities, or even districts in the same city, becomes so fierce that governments will promise refunds much higher than the cost of the land.
To rein in such activities, the central authorities have urged local governments to sell industrial land via public tenders since 2006 and last increased the minimum price of land for industrial use in 2009 to a range between 60 yuan (HK$76.20) and 840 yuan per square metre depending on location and other conditions.
But land deals negotiated under the table and generous refunds remain rampant in less developed regions that are still trying to build their own industrial chains to drive economic growth.
Official data showed the average price of industrial land in China rose 0.98 per cent in the third quarter to 691 yuan per sq metre, far below the 2.32 per cent increase in the price of residential land to 4,910 yuan per sq metre.
China, with more than 1.3 trillion people to feed and a policy of relying mainly on domestic production for food, is firmly defending the red line of a minimum 1.8 billion mu (1.2 trillion sq metres) of arable land, although the country’s latest land survey found a better-than-expected 2 billion mu of arable land in 2012.
“That doesn’t change China’s basic national conditions. We must adhere to the hardest arable land protection and the most economical and intensive land use system,” Wang Shiyuan, vice-minister of land and resources, told a news briefing on December 30.
This policy narrows the scope of land supply for other uses, particularly the frothy residential property sector. Economists say the eventual remedy for China’s soaring housing prices is enlarged land supply to allow more affordable homes to be built for the country’s rising number of middle-class families.
Residential property takes up less than 30 per cent of China’s overall land supply but contributes two-thirds of total revenues from land sales.
“The household sector is subsidising the industrial sector,” Liu said.
But the industrial sector is a key driver of China’s economic growth, as the services sector is still underdeveloped, despite many measures to spur its growth.
In the first three quarters of last year, the industrial sector contributed 45.2 per cent to the country’s GDP, which grew 7.7 per cent from a year earlier.
Chen Xiwen, head of the Communist Party’s central rural work leading group, said during a public speech in Tsinghua University in 2012 that local governments were selling land zoned for industrial use too cheaply and that they minimised compensation for rural land while pushing up housing prices to replenish their coffers.
By offering cheap land and generous refunds, Chinese cities wish to lure domestic and foreign companies so that they will quickly stimulate other investment and boost the local economy.
More than 50 mainland cities, including Zhengzhou in Henan province and Tianjin, are offering preferential policies, such as tax refunds, to expand their airports and attract companies to adjacent industrial parks, resulting in fierce competition to attract logistics operators and hi-tech, pharmaceutical and financial firms.
Yet in doing so, they are helping to realise another of the country’s priorities: to upgrade the economy by moving towards more value-added production.
“Local governments will try their best to find a piece of land to accommodate an incoming project if it is a Mercedes-Benz factory”, regardless of the land supply quota and price, Zhou said.