Land financing is an effective way for the Chinese government to collect fund through sell the land-use right or land development right as it increases revenue and economic development. Although there are some advantages for the government to use land financing, there are still lots of disadvantages and problems such as fully investment, air pollution and economic bubble. This paper will discuss the problems and disadvantages of three methods that the Chinese government uses for land financing as well as aiming to provide some suggestions for these problems.
Infrastructure is one of the main methods that the Chinese government uses for land financing (sell land development right). When the government chooses infrastructure constructions, it not only increases the improvement of economic and social welfare, but it also increases fiscal income (Gao & Shi, 2018). The government’s investment in infrastructures raising opportunities in terms of employment. And this increase in employment could also lead to a greater increase in consumption levels, thus resulting in economic growth.
In addition to this, industrial land plays an important role for the government with regards to land financing. Gross Domestic Product (GDP) is a parameter to measure a country’s economy. If a country’s GDP is higher, the number of economic aggregate is also higher, and it indicates economic prosperity. Industrialisation is significant for this reason as it can give a large return to a country’s GDP. “The industrial sector of GDP accounted for approximately 37% of the total GDP in China”（Xie et al., 2018, p51).
A government can sell the land-use right direct, and this method is low cost but high return. Land-use right usually sell in the form of auction, which helps the government to achieve maximised benefit price from sell land-use right.
There are some advantages for the government’s use of land financing. As a methods for land financing, infrastructure could decline the costs for transaction and production of companies, which could help to increase the scope of industrialisation and accelerating the speed of urbanisation (Gao& Shi, 2018). Furthermore, it has a huge demand of labor at the processes of building infrastructure, which improve employment rate and social purchasing power, both of which are the two important factors leading to economic prosperity. Industry is similarly, and it could give a higher contribution in a country’s GDP immediately (Xie et al., 2018).
In addition, capital get by land financing is adequate, particularly in sell land-use right to get found. The needs of commercial housing are continuously increasing in China, that the real estate market is booming as the government can sell the land-use right with a high price and they can get fiscal revenue. Moreover, the government can use land to do a cyclic financing. Unlike in the Western countries, as the land in China cannot belong to a private capital, investors can simply rent the land-use right with a limited time. Thus, the government can use land to achieve recycle financing.
Disadvantages and problem
Although the benefit of land financing is substantial, there are still lots of disadvantages and problems. Infrastructure investment in China was already prominent, the marginal benefit to some area has reached the bottom even to become a negative number (Gao & Shi, 2018). Economic increasing is paramount to the Chinese government and as investment in infrastructure could return an outstanding effectiveness to economics, this could result in the government’s over-reliance on infrastructure and negligence to demands in other public services like medical investment. Moreover, the investment in infrastructure will disperse fiscal that result in lacking investment in sectors that are already regarded as low important factors for economic sustainable development in a country, such as education and environment.
What’s more, as the aim of the government is to maximization their net revenue (Gao &Shi, 2018), it means that the government will continue to invest in infrastructure rather than in education and environment. It is disadvantageous to a country’s sustainable development. Likewise, investment in building industrial land can lead to environmental pollution. There is a major industry region in the eastern part of China, the Beijing-Tianjin-Tangshan area, where the GDP of this region has occupied approximately half of the total number of all the Eastern provinces product and more than 30% of China (Xie et al., 2018). However, the increase in a country’s GDP also correlates to the increase in the country’s pollution levels. The air quality in China has suffered a continuous decline since 1982, causing an increase in the number of people suffering from diseases caused by dirty air– a threat to the health of the people in China.
Sale land-use right could also result in many problems. First of all, it can trigger social discontent. With an increase in house prices, more and more people (particularly people who are new in employment) cannot afford house prices with their income, and it would led to enlarging chasm between rich and poor. Moreover, the price of house is not worth their true value. In China, the demand of house assumed a dramatic increase as people purchase a house, not for their real need but for making money. This action causes a false high of house price and economic bubble, which could become a timing bomb and result in an economic crisis. A particular example is the subprime mortgage crisis in 2008 in America. Subprime mortgage crisis was caused by low interest rate of home loan. People paid for a low down payment that they could get an enormous fund to purchase a house through a bank loan that could result in a high level lever. Once individuals or firms could not pay for their loan, it was easy to tear the bubble and economic crisis.
There are also some methods to solve these problems. For fully infrastructure, the Chinese government can invest in a project called “the belt and road” that could help to output overflow capacity. For industrial pollution, it might be helpful to adjust and upgrade industrial structure. For over demand of houses, building some settlement buildings for people who do not have a house will release the stress of estate bubble.
In conclusion, despite the advantages of land financing, it has also procured some critical problems. In the future, in order to solve these problems, the Chinese government should reduce and output infrastructure and industry, which could help to remit economic bubble but still produce economic efficiency.
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