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Making Land Fly: The Institutionalization of China's Land Quota Markets and Its Implications for Urbanization, Property Rights, and Intergovernmental Politics By MASSACHUSETRS W PTU OF TECHNOLOGY Yuan Xiao M. A. in Political Science University of Toronto, Toronto, Canada (2005) LIBRARIES B. A. in International Politics, B. A. in Economics Peking University, Beijing, China (2004) Submitted to the Department of Urban Studies and Planning in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Urban and Regional Planning at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY September 2014 0 2014 Yuan Xiao. All Rights Reserved The author hereby grants to MIT the permission to reproduce and to distribute publicly paper and electronic copies of the thesis document in whole or in part in any medium now known or hereafter created. Signature redacted Author V Department of Urban Studies and Planning Signature redacted Certified by Professor Annette M. Kim Department of Urban Studies and Planning Signature redacted Dissertation Supervisor Accepted by Professor Lawrence J. Vale Chair, PhD Committee Department of Urban Studies and Planning THIS PAGE IS LEFT BLANK INTENTIONALLY 2 NNOWjjWWW. WO- Making Land Fly: The Institutionalization of China's Land Quota Markets and Its Implications for Urbanization, Property Rights, and Intergovernmental Politics by Yuan Xiao Submitted to the Department of Urban Studies and Planning on August 19, 2014 in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy in Urban and Regional Planning ABSTRACT This dissertation investigates China's land quota markets, a recent land policy innovation that virtually transfers urbanization permission from the countryside to cities. To circumvent national government's quota restrictions on converting agricultural land to urban land, local governments have created new land quotas by demolishing sparsely located farmhouses, and resettling peasants into high-density apartments. These quotas are then sold in new land quota markets to real estate developers. I find that China's land quota markets alter the traditional calculus of location and land use theory: the rural hinterlands have suddenly become valuable to urban land markets, particularly for industrial projects. In fact, the more distant a village is, the more likely it will be involved in land quota markets. Remoteness becomes a spatial advantage. These dramatic changes are the result of reconstructing property rights in land. The quotas traded on the market are a right to convert land use from rural to urban, separate from development rights to invest in specific properties. These institutional changes were initiated by recalibration of inter-governiental relationships: the Central Government delegates more autonomy to local governments and the municipality centralizes control over land from subordinating district and county governments. The implications of the new land quota markets are profound and many. The quota markets further draw land resources away from the rural areas to urban areas, and reinforces the imbalances between big and small cities. Since these institutional changes are driven by public finance at its core, the scale of our analysis needs to be regional rather than at the scale of the city. Lastly, quota markets have mixed welfare impact on different types of peasants. For peasants on the urban fringe, the scale of land taking is likely to increase, displacing more peasants than without the quota markets. For peasants in the deep rural areas, their housing conditions and access to infrastructure and public services are improved. However, their transition to urban lifestyle takes place before their transition to urban mode of production, therefore their long-term economic prospect is dismal. Thesis Supervisor: Annette M. Kim Title: Associate Professor Thesis Reader: Jinhua Zhao Title: Assistant Professor Thesis Reader: Lily. L. Tsai Title: Associate Professor 4 Acknowledgements Writing this dissertation has been an empowering experience. My deepest gratitude to the following people for making this project possible: Professor Annette M. Kim, my advisor, for her never failing confidence in me; for holding up the highest academic standards while being the most understanding and caring person; for being my mentor, inspiration and role model. Professor Lily L. Tsai, for shaping my research methods and way of thinking in critical ways; for opening up the world of rural China to me as a researcher - I will not forget the hot summer days which we spent together interviewing peasants. Professor Jinhua Zhao, for challenging me to bring out the best of my research and for leading me to find my passion in teaching. His dedication to nurturing students has left an important mark on me. Being parents themselves, all three professors of my dissertation committee have given me enormous support at times when I struggled to find a work-life balance. Mr. Victor M. Vergara of the World Bank, for single-handedly shifting my career path to urban planning; for continuing to be a mentor and guiding me at every critical step; for showing me how to be humble and curious and to keep a good sense of humor even in the most challenging situations. Professor Karen R. Polenske, for supporting me emotionally, financially and academically throughout my doctoral studies. Her genuine care has made the impossible possible for generations of students. Professors Diane Davis, Yu-Hung Hong, and Yasheng Huang, for their guidance and support at various stages of my study and research. Ms. Sandy Wellford and Ms. Kirsten Greco, for helping me clear many administrative hurdles with ease, especially when I was in non-residence and away from campus. My dear friends and colleagues at the Department of Urban Studies and Planning and from other parts of MIT - Li Xin, Fang Wanli, Chen Yang, Xu Jingsi, Hou Yue, Xue Lulu, Atul Pokharel, Amit Prothi, and Kyoung Shin, for sharing good laughter as well as frustrations, and for providing great help to me with my research. Jie Dalei, Chen Ling, Fang Fang, Li Shuai, Gao Xuesong, and Yang Xinyue, for helping me establish key contacts in various Chinese cities-my fieldwork was fruitful thanks to them. 5 My key informants -the many government officials, real estate developers, rural investors and villagers that I had interviewed, for introducing me to their worlds, for sharing invaluable insights about China's rural-to-urban transformation. This dissertation is about them. Ms. Susan Spilecki, for her prompt and first-rate editing, and for teaching me the psychology of writing. Stephen Kennedy, Zou Linyi, and Liu Liu, for their indispensable help with graphics, GIS mapping, and data cleanup. Lastly, my family-my parents Long Qunynig and Xiao Mansheng, my in-laws Li Bingyi and Qi Guoxin, my sister Xiao Ping and the family, my uncle-in-law Li Jiansong and the family, for their unconditional love and support in all aspects. I am deeply indebted. My daughter Qi Mulan, for being mom's sunshine, and for injecting so much energy and positivity into me. My dear husband Qi Haotian, for his love, trust, and support through the ups and downs of this long journey; for sharing intellectual pursuits and enriching my life. 6 Dedicatedto my parents, Long Qunying and Xiao Mansheng &(1$$$$]$: aN, 14*-t 7 Table of Contents List of Tables.................................................................................................................................10 List of Figures ............................................................................................................................... 11 Chapter 1 Introduction: The Emergence of the Land Quota Markets ............................... 12 1. 1 M otivation of R esearch ...................................................................................................... 12 1. 2 Literature Review and Theoretical M odel...................................................................... 17 1. 2. 1 Fiscal Socialism 2.0: De-spatialized Land Transfers and Spatialized Politics ........... 17 1. 2. 2 Revisiting Urban Spatial Economics .................................................................. 22 1. 2. 3 Land Policies, Property Rights Evolution, and Chinese Politics ........................... 24 1. 2. 4 Research Questions ............................................. 29 1. 3 Research Design and Data Collection .................................... 30 1. 3. 1 C ase Selection ............................................................. ..................................... 30 1. 3. 2 D ata Collection ..................................................................................................... 34 1. 3. 3 Interviewing Government Officials ........ .......................... 35 Chapter 2 Institutional Context of the Land Quota Markets: Public Finance, Land Use Planning, and Inter-governmental Relations in China .............................. 41 2. 1 Land Commodification and Public Finance in China....................................................41 2. 2 Land Use Planning and Urban Growth Control through Quotas..................................44 2. 2. 1 Land Use Planning and Arable Land Preservation ..................................................... 44 2. 2. 2 Inter-governmental Relations in Land Use Planning ........................................... 51 2. 2. 3 The Annual Land Use Plan and Operationalization of the Quota System..............53 2. 2. 4 Problems with China's Land Use Planning and