Does the Chinese market for urban land use rights meet good governance principles?

Land Use Policy 30 (2013) 417–426

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Does the Chinese market for urban land use rights meet good governance principles? Nesru H. Koroso, Paul van der Molen ∗ , Arbind. M. Tuladhar, Jaap A. Zevenbergen University of Twente, Faculty Geoinformation Science and Earth Observation ITC, Hengeloseweg 99, 7514 AE Enschede, The Netherlands

a r t i c l e

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Article history: Received 12 July 2011 Received in revised form 3 April 2012 Accepted 6 April 2012 Keywords: Urban land market Land use rights Governance China

a b s t r a c t This research investigates whether the process of transfers of urban land use rights in China, particularly where the state plays a major role in the transfer of urban land, complies with basic principles of good governance. In order to assess market, an assessment framework is developed. A critical analysis of secondary data from official and non-official sources is done. Major changes since late 1980s in the institutional environment and subsequent results have been assessed. The findings reveal that the transfer of urban land use rights in China is gradually responding to an improved governance system. Institutional reforms have led to a steady improvement in indicators such as transparency, efficiency, and access to information. Nonetheless, the market has significant weaknesses in addressing equity issues, engaging stakeholders, tackling corruption and dealing with expropriations. In general, the paper finds that the efficiency and effectiveness of the urban land market largely depends not on the type of tenure regime per sé, but rather on the system of governance in place. © 2012 Elsevier Ltd. All rights reserved.

Introduction An urban land market, which does not run efficiently and effectively, might adversely affect development of an economy (Zevenbergen et al., 2007). Farvacque and McAuslan (1992) state that orderly development of land markets, for instance the commitment to efficiency, transparency and equity, cannot be separated from the wider issues of governance. A better approach to good governance facilitates the operation of an efficient and equitable land market (Dowall and Clarke, 1996). Good governance eliminates distortions and takes measures to reduce market imperfections (Deininger and Feder, 1998). According to Burns and Dalrymple (2008), good land governance in the land market has some of the following features: the land (market) policy is in line with principles of fairness and equity, zoning and development control plans are justified and undertaken in an efficient and transparent manner, land market organizations have a clear mandate and operate transparently and cost effectively, procedures are clear and applied transparently, transparent property valuation system, and judicial institutions which resolve disputes associated with land transfer fairly.

∗ Corresponding author. Tel.: +31 6 52 48 1600. E-mail addresses: [email protected] (N.H. Koroso), [email protected], [email protected] (P. van der Molen), [email protected] (Arbind.M. Tuladhar), [email protected] (J.A. Zevenbergen). 0264-8377/$ – see front matter © 2012 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.landusepol.2012.04.010

The land markets in many countries face governance challenges (Deininger and Feder, 2009). Illegal land transfer, corruption and bribery are common. Service provision and land administration are inefficient. According to Transparency International (2008) the land market is in the top five public sectors where bad governance is evident. The market for urban land use rights in China In the Chinese market for land use rights, there are many challenges which point at weaknesses in governance. Access to urban land is becoming increasingly difficult for urban poor and low income groups. Reports indicate that there is an insignificant level of participation by the citizens in the process of expropriation. In recent years, many major corruption cases are associated with land transactions in China. The State Land Supervision System which has come to existence in 2007 has claimed that lots of land parcels were illegally occupied. As a result, hundreds of local officials have been punished (Fubing, 2008). China reported 53,000 cases of land abuses in 2010 alone (China Daily, 2011). The Ministry of Land and Resources has found that 113 million meter square of land – which could provide housing for 1 million people – remained idle after developers purchased land use rights from the State (People’s Daily Online, 2010). Illegal buildings and illegal land use have been reported in Sichuan’s Wusheng county, Guandxi and in Xinjiang (MLR, 2010). Hsing (2006) reports that agencies that regulate the urban land market, in some cases, pursue their own real estate development deals.

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It is not yet clear whether all the above raised problems and challenges in China, can be linked and attributed to lack of good governance in the sector. Dowall (1995) has made an attempt to assess the urban land market in general, from the view point of demand, supply, and price of urban land, but not from its governance aspects. Where governments play a prominent role and are directly engaged in the land market as a sole conveyer of land use rights (Ingram and Hong, 2009), the way this kind of urban land market responds to issues such as equity, transparency, efficiency and access to information, which are the foundations of a land market, is not yet well understood. This paper assesses the urban land market in China from a good governance perspective.

A few words about rural land use rights and housing rights This paper deals with the issue of urban land use rights in China. Land use rights in the rural areas are not subject of this paper. In order not to neglect the rural area completely, we dedicate a few words to changes in rural land rights. Land in the rural area is collectively owned; this is different from land in the urban area, which is state-owned. The situation is however not quite clear viewed from the institutional perspective. Ho (2005) observes major problems in identifying which government body exercises administrative power; this applies to both rural and urban area: who acts as ‘collective village’, respectively ‘who acts on behalf of the State’, sometimes leading to misuse of power, corruption and related social conflicts. Since the abolishment of the collective communes, after the introduction of the Open Door Policy in 1978 by Deng Xiaoping, the adoption of the household responsibility system opened opportunities for farmers to get land use rights allocated by their village management. Part of the deal was an agreement to deliver certain production quota; the surplus could be brought to the market freely (Krusekopf, 2002). Farmers could have allocated land use rights on collectively (rural) and state (urban) owned land (Mak et al., 2007). Nevertheless, land use rights are not always secure, due to the earlier mentioned institutional problems (Ho, 2005) and to the frequent land reallocation imposed by village authorities so that long term investment in agricultural production are lost (Krusekopf, 2002). This paper neither deals with house ownership in China, despite some considerations in “Assessing governance aspects of the Chinese market in urban land use rights: the aspect of ‘equity”’ section. In order not to neglect ownership of houses and apartments, we will also dedicate some words to this subject. House ownership exists in China. During the nationalist government (1912–1949) private property existed widely. After the establishment of the People Republic of China (1949) private ownership continued. The Great Leap Forward (1958–1962) abolished all private ownership of land and houses (Ho, 2005; Cheng et al., 2006). The danwei (production unit, to which citizens administratively belonged) allocated houses and apartments to their members, based on hierarchical position within the unit (. . .). People paid nominal rent to cover only maintenance costs (about 1–2% of their income). In 1998, subsidized housing was faced out: from ‘welfare’ housing to ‘commodity’ housing. In 2000, 59% of China’s households were homeowners, while 41% still lived in houses provided by the production units (Mak et al., 2007). In 2005 homeownership counted already for 81%, in 2007 for 82% (Guo, 2010). The commoditisation of housing policy was quite successful: in 1985 the average living space for urban residents was 4 m2 , in 1990 already 13 m2 , in 2001 20 m2 , in 2005 26 m2 and in 2006 27.5 m2 (Guo, 2010). A specific obstacle in the implementation and monitoring of the new housing policy is the still existing household registration system (hukou), which assigns an either rural or urban registration to citizens. Without an official transfer from rural to urban ‘hukou’,

rural citizens are de jure forbidden to migrate from rural to urban areas. After 1978, the rigidity of the assignment was relaxed, but it still exists and migrants to cities without an urban ‘hukou’ are considered as – more or less – illegal, do not count as urban population and are denied basic government services that citizens with an urban ‘hukou’ do enjoy (social security). Urban migrants without urban ‘hukou’ are therefore doomed to low standard housing, often illegal or informal, in the rental sector, outside the scope of the government. In statistics they are called ‘floating population’, excluded from urban statistics but yet in amount estimated from 2 (inland cities) to 5 (coastal cities) million people (Chen et al., 2011). Constitutions of 1982 and 1986 declared that citizen can have private possessions, both of movable and immovable things and that the State protects their rights; in 2004 an amendment to the Constitution declares that citizens’ private property rights can be expropriated only in the public interests and against fair compensation, re-conforming the right of citizens to own a house (Wilhelm, 2004). There are actually three categories of housing, namely commodity housing, so called ‘affordable’ housing and public rental housing (Mak et al., 2007). The booming project development activities in China however go at the expense of cheap housing. Was in 1995 the sector affordable housing 15% of the construction rate, in 2008 it was only 5%, despite many government efforts, which brings the low income sector of Chinese citizens in a difficult housing position (Guo, 2010). From the legal perspective, the new Property Law (2007) facilitates home ownership and in particular apartment ownership better. Apartment ownership is now the main type of tenure in China’s urban areas (65%). Before 2007, ongoing disputes between condominium holders, between owners and developers, between developers and the State compromised social stability and jeopardized transformation, as the Urban Real Estate Law of 1994 did – for example – not provide a single recognized term for apartment ownership, such as ‘condominium’, ‘strata title’ or ‘sectional title’ (Chen, 2007). There is currently a surplus of privately provided housing units for high income families, but an under supply of low-cost housing to accommodate low cost income and unemployed families (Song et al., 2005). The government’s decision to stop all kinds of subsidies in public housing allocation in 1998 further stimulated the development of the housing market (Zhang, 2005). It is estimated that currently 140 million urban housing units serve an urban population of about 200 million households (Gvovski, 2011), of which 60 million are built last decade, while 20 million flats are still under construction. Meanwhile 14 million units of old public houses have been torn down (Caploe, 2010). Evil tongues estimate that 64 million units are vacant (Caploe, 2010; Wenzel, 2011), even ‘ghost cities’ appear to exist such as SE Kunming, Ordos-Kangbashi, Sanya (Gvovski, 2011), which is some sort of evidence that developers only build luxury apartments, leaving not enough opportunities for low- and middle income housing (Rein, 2010). Even Vice President Biden warned China for a real estate bubble with 30–50 million vacant apartments (Wenzel, 2010). Many believe this bubble will bring China in real economic problems, others think that the still centrally led government will cope with it (Ho, 2012). Building rights are separated from land use rights. As land use rights are divisible in shares, citizens who possess a house or condominium in the city, also automatically possess a land use right (Real Estate Law, art. 27). Registration is also done separately (Real Estate Law, art. 60). Under the Land Registration Rules 1995 registration was an administrative process of the government. Citizens who did not register, or register not timely, were potentially subject to an administrative punishment. The system was confusing and chaotic, caused by the lack of a uniform legal framework, lack of uniformity

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in registration offices, unduly curtailment of registrable property rights, lack of public access, and lack of indemnity funds for registrars to remedy their mistakes (Chen, 2007). However, the new Land Registration Measure (16 March 2007, in power 1 October 2007) is better structured and regards registration as a civil requirement, leading potentially to loss of a property right in case of failure to register (Faegre and Benson, 2008). Registration of urban land use rights is finished almost completely, while that of rural land use rights is carried out only on a small part of China’s vast rural areas (Jun, 2007). As said earlier, registration of homeownership is separated from that of land use rights. As a complement to the Land Registration Measure (2007) the government issued the Measure for Building Registration, effective from 1 July 2008 onwards. The registration provides for registration of real estate titles, under the new Property Act (2007). Registration still remains unclear, because a question is whether the new Ministry of Housing and Urban Rural Construction will retain the competence to register (Etgen, 2008). Research method This research is a desk research which is dependent on secondary data. According to UNDP (2007), desk research can be used to find out hard facts. This could be the analysis of journal articles, books, legal and policy papers, official reports and other relevant documents, so as to analyse the market, discuss and draw a conclusion about the point under consideration. For this particular case, we did not go to the field and collected data using the indicators for the purpose of assessing circumstances surrounding urban land market in China. Here we use secondary data to see the strength and weakness in the market from its governance aspect. This research exhaustively utilizes qualitative and quantitative secondary data from various sources. Though, data from official sources and scholarly articles have been given due attention because of their quality and reliability. Besides, data from renowned organizations such as UN agencies and prominent international organizations are explored. In some cases, for more updates, news media reports are used. The usefulness of secondary data might be limited and the findings which depend on them might be flawed. In order to avoid these situations, in all cases maximum possible effort has been made to compare data from one source with similar or related data from other sources. How to assess governance aspects of a market in land use rights: a framework There are various types of indicators for land administration performance measurement, as developed by Burns (2007). The ‘Land governance assessment framework’ is one of the most comprehensive frameworks developed recently by prominent scholars (Deininger et al., 2009). UNDP (2006) also has its own land governance indicators, particularly designed to assess pro-poor and engendered land policies. UN-HABITAT, under its network for land tenure (Global Land Tool Network-GLTN), has also come up with indicators. It also has specific ‘urban governance indicators’ (UNHABITAT, 2004). Dowall (1995) has developed a framework to assess a land markets’ performance. However, a framework for the assessment of governance of a market in land use rights is not yet developed. In order to develop such indicators, a critical analysis of literature has been done. Existing indicators, developed for various purposes, have been studied and analysed. After analysing relevant literature, we propose good governance indicators relevant to this type of urban land market, as they are equity, access to information, participation, efficiency and effectiveness, transparency and combating corruption.

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Performance is an accomplishment of a given task measured against defined or fixed standards of accuracy, completeness, cost and speed. Assessment of performance is a necessary precondition before embarking on possible intervention measures (Deininger et al., 2009; Kaufmann et al., 2009). In our specific case, assessment of market of land use rights is indispensable for these reasons: • To see whether urban land market caters for all residents despite income gap between rich and poor. In the land market which disregards equity aspects, it is only the rich who reap the benefit market provides. The poor hardly afford to compete in the market and win to own property. • To understand whether the market is strengthened by availability and quality of information, or weakened by unavailability and poor quality of market information. Unless the market is governed by the principles of good governance provision of quality and timely information might be compromised. Information asymmetry always puts the poor in disadvantaged position. • To know whether the processes and procedures involve land transfer are effective and efficient. • To observe if land transfer and associated processes are done in a transparent way. • To find out whether the government is combating corruption or not. These points and others necessitate the need to develop comprehensive land market assessment framework. We assess the market performance from good governance perspectives mainly due to the pivotal role governance plays for the creation of wellperforming land market using assessment-indicators, An indicator is a tool which provides particular information on state or condition of something measured against a certain benchmark. An indicator can be the measurement of an objective to be met, a resource mobilized and an effect obtained. As USAID (1996) puts “Indicators tell us specifically what to measure to determine whether the objective has been achieved.” The indicator helps to address issues like how much is done and whether there is a progress towards a certain goal or not (UNDP, 2006). Land market performance indicators are essential tools to assess whether a land market is equitable, efficient, effective and transparent, access to information is easy and whether there is an effort to combat corruption. Participation in decision making and accountability can be assessed using the indicators. It also helps to understand and monitor direction of the market (socio-economic progress as often envisioned by decision makers). These indicators are the base to figure out what the laws and policies of a government look like (inclusiveness and pro-poor). It can provide bulk of information: whether laws and policies on paper are working on the ground (to assess de facto vs. de jure). Efficiency and effectiveness of the organizations involved in the land market can be evaluated/assessed using these indicators. They give insight into the level of corruption, accountability and transparency as well. In other ways, quantitative and qualitative indicators help to assess issues in different approach and they are also developed in different ways (Corner, 2005). Quantitative indicators are measurable in terms of actual numerical values (numbers and percentage). They are objective and above all easy to understand and interpret. Number of procedures, time and cost involved in property transfer and information sharing; and percentage reduction in corruption cases and percentage of landless urban residents can be assessed quantitatively. Quantitative indicators, nevertheless, are difficult to develop mainly due to time and cost involved in data collection. In another way, qualitative indicators basically measure issues in a subjective way. They tell perception of people. They depend on what others say: like yes or no to a given question. Availability

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of pro-poor land policies, people’s perception about service provision, availability of corruption and bribery and perception about property affordability can be assessed using qualitative approach. For this particular case, assessment of land market, we are going to develop indicators that are both qualitative and quantitative in nature. This is mainly due to the fact that governance issues in land market cannot be plainly measured only in quantitative terms. Indicators are most commonly developed by asking series of questions (UNDP, 2006) about the point under discussion. For the purpose of developing indicators we have asked relevant questions: 1. Equity • Are there laws and policies that promote equity? • Is competition in the market fair? • Does the government take affirmative action (subsidy) to give the poor access to land? • Is land price affordable to the poor and or low income social groups? • Is access to financial sources easy for the poor? • Is information equally accessible to all (no or less asymmetry)? 2. Access to information • Is there legal provision for making land market information publicly available? • Is timely land market information available? In what format (hard copy or online)? • How reliable land market information is? • How difficult (cost, time, procedures) it is to access market information? 3. Participation • Do citizens (particularly the poor) take part in important decision (land market)? 4. Efficiency and effectiveness • How fast the process of registering property is? • Is property affordable to the poor/low income families? • How high cost of transaction is? • How many procedures are involved? • How big volume of annual property transfer is? • Is informal property transfer properly managed? • Is there strong coordination among various departments handling land market? 5. Transparency • Are there laws/policies that make information and processes open to public? • Is information about fees and procedures involved well defined and publicly available? • Is there announcement/notification about state land sale? • Is market information published in detail and on timely fashion? 6. Combating corruption • Are anti-corruption laws and policies in place? • Is anti-corruption agency in effect? How effective it is? • How prevalent cases of corruption and bribery are? After asking questions pertinent to land market governance (above) and applying essential criteria such as directness, objective, practical, reliable (USAID, 1996) we finally developed indicators useful for assessing situation of governance in the market in urban land use rights in China (see Table 1). The (urban) land market in China: a market in ‘land use rights’ The market in land use rights in China has been officially introduced following the constitution of 1988. This has happened nearly a decade after the economic reforms of 1978, due to the sensitivity

of land issues in the country (Hin, 1999). Subsequent land laws and policies have added some clarity and strengthened the urban land market. Since then, the market is constantly growing. China’s urban land reform, among others, is one of the most important measures taken by the government in the late 1980s (Xie et al., 2002). It has created a market that basically depends on the lease system, which is the system of ‘land use rights’, both in urban and rural areas. The reform did not give urban residents the right to fully own land; however, holders of land use rights can transfer these rights. The Chinese constitution, in 1988, grants citizens the right to transfer land use rights (Chinese Governmnet’s Official Web Portal, 2004). The amended constitution and the Land Administration Law, which were passed in 1998 and amended in 2004, have put a solid legal foundation for the establishment of the market through the transfer of land use rights. Land in rural area is owned collectively. This gives villagers the right to own the land under their jurisdiction collectively: all villagers in a village own the rural lands. Basically, land, which is under this ownership, cannot be converted from agricultural use to construction use. Transfer is possible only as far as the land is used for agricultural use for a maximum period of 30 years. Nevertheless, most of collectively owned land in peri-urban areas is being used for construction, which is actually not legal. Due to this challenge, a pilot project in Guangdong province is underway since 2005 to facilitate the potential rural land conversion for various uses. According to this project, which is still to be fully implemented, the villagers have the right to negotiate with developers about a potential transfer of their land use rights (Xu et al., 2009). All land in urban centres is owned by the State (except the ‘structures on the land’, such as buildings). Municipalities or cities are de facto owners of urban land. Urban residents purchase the rights to use land for a definite period of time. Land use right transfer is facilitated. The law provides that land use rights can be transacted (transferred, mortgaged, leased) to individual citizens and to organizations. According to the Land Administration Law of 1998, duration of the lease depends on the type of use the land is subjected to: 70, 50 and 40 years for residential, industrial and commercial use respectively.

The formal transfer of land use rights in China Based on their distinct characteristics, we distinguish three types of urban land markets in China. The primary land market: In urban areas, the State is the sole owner of the land. The land market in peri-urban areas primarily depends on acquisition of rural (collectively owned) land. The State uses eminent domain to take land for urban use (Land Administration Law of 1998). Once the land acquisition is complete, the State leases out the land to developers (private or state owned enterprises). In this market, the State (primarily municipal governments) transfers/leases out urban land to the developers depending on the market value (conveyance). The value can be determined through negotiation (e.g. ‘industrial use’ or ‘low income housing’) or by the means of tender and auction which are open to the general public. Another part of this primary market, very important in terms of land use right transfer-volume, is called ‘administrative allocation’. In China most of urban land goes to administrative allocation on annual basis (Ho and Lin, 2003). Predominantly, public organizations get access to land (Xie et al., 2002) for infrastructure and social services through administrative allocation. Under this arrangement, they are required to pay compensation to the

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Table 1 Assessment framework for urban land market (indicators based on good governance dimensions). Dimensions

Market performance (governance) indicators

Good practice

Equity

Equal opportunity to the poor (fair competition in the market)

Availability of laws and policies and its enforcement mechanism (yes/no) Availability of affordable land and housing scheme (yes/no) Adoption of special/preferential treatment to the poor (women and other vulnerable groups) (yes/no) Availability of Positive discrimination (yes/no) and the % of the poor who benefited from it (possession of rights) Number (%age) of the poor who access loans and mortgage Number of financial institutions (formal) that provide loans to the poor % of down payment and interest rates for those who want to buy land or house Perception of people about down payment and interest rate (high or low) Perception about price of land and house (high, low, etc.) depending on annual disposable income % of land transfer taxes (capital and stamp) Perception of people about tax (high or low) Level of involvement of the poor (number of poor participants and the role they play (active/passive)) Taking part in planning (spatial) (yes/no)

Policies and laws of great importance for the poor Positive discrimination/affirmative action Subsidies for the poor (to buy/rent land and access shelter) or tax break/exemption Alternative sources of finance (loans and credits) for the poor/Equal opportunity to loan and mortgage Level of down payment and Interest rate

Affordability of land and housing Tax regime (transfer and other taxes) Participation

Access to Information

Efficiency and effectiveness

Open consultation about the matters (spatial panning) that could affect land market and property value Engaging in policies that are designed to give the poor access to land through market Involvement of the poor in matters related to takings and subsequent compensation (if driven by market forces) Legal provision for making land market information openly available Timely market information (sales, rent, mortgage, etc.) Volume of market information readily available Reliable and authentic information (ownership, land use, future development plans, legal encumbrances, etc.) Cost involved in accessing market information Level of accessibility of information (geographical and administrative) Media used for land market information outlet Availability of land market information in local languages Time needed to access market information and do transaction Cost of transaction Procedures involved

Engaging the poor (vulnerable groups) in the formal land market Affordability of land and housing Annual volume of land transaction Recognition of informal market Capacity to implement/enforce laws and policies Coordination among offices at various levels Barriers and legal hurdles on supply and demand (regulations, procedures and condition) in land transfer Service standard Impartial, speedy and affordable court proceedings

Land administration professionals Customer satisfaction Transparency

Legal provision for making land market information openly available Publicly available information about fees involved and procedures to be followed Notification of state land sale (tender, auction and negotiations)

Ability to influence the decision/outcome (yes/no) Availability and perception about its practicality (yes/no) Frequency of essential market information in public (daily, weekly, monthly, yearly, etc.) Quantity and dimension (cover every important topic) Perception about its reliability and authenticity Perception (free, cheaply, expensive, etc.) Accessibility (local, regional and national level) Type of media (radio, internet, TV, papers) Information in ones’ own language Minimum time (hours) required to complete tasks Amount of transaction cost involved Number of steps and paper works involved from the beginning till the end of transaction Stakeholders’ perception (many, easy, complex, etc.) Number and/or % of low income people involved in land transfer (formal market) Perception about price of land and house (high/low) depending on annual disposable income Total volume of transactions and share of low income people (% of the poor) Availability of strategies for incorporating informal market (yes/no) Perception about the authorities/institutions contract enforcement capabilities (+/-) Availability of clear mandate and strong commitment for cooperation (+/- or yes/no) Perception about availability of legal barriers and hurdles that inhibit the poor from participating in land market (yes/no or high/low) Measure of perception about level of satisfaction (high/low) by assessing time, processes and cost involved Perception about courts independence (not under local authorities or not give verdict in favour of the authorities in case of expropriations and dispute over contract) (+/-) Assess courts track record (+/-) Number of backlog cases (high/low) Number and experience of legal professionals (high/low) Amount and number of legal fees (stamp, lawyer, etc.) or availability of legal aid Number (adequacy) of professionals and their skills/expertise % of the customers who have positive view about the service provided (satisfied) or general perception Availability of a law (yes/no) Awareness about fees involved and all steps to be followed (by making a survey) (high/low) Enough and timely aforementioned notification i.e. make a survey (yes/no)

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Table 1 (Continued) Dimensions

Combating corruption

Market performance (governance) indicators

Good practice

Publication of detail data about land prices Clear procedures about land valuations Timely publication of detail land market and land use regulations Public inspection of the procedures and land prices (sale, lease, rent, etc.) Application of E-governance (for participation, consultation, complaints, decision making) Anti-corruption laws and policies Anti-corruption agencies Strategies formulated to combat corruption Reported cases of corruption Prevalence of bribery Enforcement of land transfer contract and ownership rights Legal protection/security (de jure and de facto) during and after transfer (sale, lease, mortgage) without discrimination Impartial court (dispute resolution) despite people’s economic status

Availability of land price data (yes/no) Perception about land valuation (+/-) Awareness of policy changes (yes/no) Access to detail procedures and price determination (yes/no)

The poor can reject undesirable decision (eviction, unfair compensation, high land and housing prices, high tax rates) Handling corruption cases

collective owners and cover costs involved in land acquisition and occasionally pay annual land use fees (Palomar, 2002). The secondary land market involves developers and users (individual consumers or organizations) with the State acting as a regulator (facilitating and moderating). Here the developers act like sellers and users are the consumers. After developing land (building houses and offices) they lease it out to users in a competitive market (MLR, 2007). The land use rights the developers acquire from the State, move over to new users, when the developers sell commodity houses (houses built by real estate companies). This market allows all land use right-holders to dispose of their homeownership (transfer, mortgage, or sublease) to others in accordance with the law (Property Law 2007) which requires that all transactions shall be registered at land registers (article 9). A tertiary land market provides a forum for a wide range of subleases amongst land users. This is the case when a person (natural or non-natural) leases out the land use right he himself got through lease with fixed time period from a developer, to another user for a time period not more than what is mentioned in the original document (land use right-certificate). This market needs formal approval to be valid and should also comply with the laws and the land use regulations. Transactions, done at this level, just like other transactions, are required by the law to be registered. Yet, many fail to undergo registration. As Xie et al. (2002) describe, informal transactions are common at this market.

The informal transfer of land use rights in China The percentage of land use rights being transferred informally was typically high in the 1990s, though it has shown a big drop after 1998. This is perhaps due to the effect of the adoption of the Land Administration Law in 1998, which has anti-illegal transfer provisions. Illegal land transfer accounted for 21.17% of the total land use rights transfer in 1995 (Xu et al., 2009). However, this figure has dropped to mere 1.9% in 2010 (Xinhua, 2011) which is remarkable in terms of dealing with illegal land transfer. The biggest share of illegal land use comes from illegal occupation and this is followed by illegal authorization by authorities in the 1990s. Illegal authorization has remarkably dropped from 12,118 ha in 1995 to 320 ha in 2003. Conversely, according to the annual report of the Ministry

Access of E-governance to the wider public for service delivery and improvement-accessible/not i.e. make a survey Their existence (yes/no) Existence of whistle-blowers (yes/no) Availability of the strategies (yes/no) Cases of grand and petty corruption (yes/no and number) % of people who pay bribe to access service Perception about resolution of contested transactions (+/-) Confidence in legal system (+/-) Availability of grievance redress mechanism (Ombudsman) (yes/no) Perception about legal system or profession-partial/impartial (+/-) i.e. make a survey Number of those who aggrieved by the court decision Chance to appeal and re-appeal (check for availability of legal provision and make survey) Likely chance of winning petition (low, high) . . .make survey Per cent of alleged corrupt leaders (local and national) brought to justice (prosecuted)

of Land and Resources, 27,559 ha and 27,866 ha of land went for illegal use in 2009 and 2010 respectively (China Daily, 2011). Assessing governance aspects of the Chinese market in urban land use rights: the aspect of ‘equity’ After realizing how many urban poor left behind, due to high land prices and market inefficiencies, the government aims at putting pro-poor measures in place. According to Xinhua (2010a) “The General Office of the State Council, China’s cabinet, listed [. . .] specific measures [. . .] increasing supply of low-cost houses for low-income families and common residential houses, encouraging reasonable house buying while restraining purchases for speculation and investment [. . .] speeding up construction of housing projects for low-income households, and specifying responsibilities of local governments.” In December 2009, the central and provincial governments have initiated policies which further increase low cost housing supply. In 1998 the state council had envisioned the need for low income housing (Meisheng, 2004) and pushed forward with Anju scheme (housing construction for low income families) (Hongyu, 1998). To guarantee the continuity of the previously started pro-poor urban housing polices, Administrative Rule on Low Rent Housing for Urban Low Income Households was enforced in 2004. The ‘CB Richard Ellis’ report (CBRE, 2010) shows that the government allocated 10% of the economic stimulus money to low income housing construction. The government has – furthermore – formulated a series of policies like Welfare Housing Project, Anju scheme, affordable housing policy, low-rent housing policy, etc. since the mid 1990s, to address these housing problems. The most widely followed approaches to provide affordable housing for low income households in urban areas are (a) free land allocation (widely applied), meant for economy houses to developers, (b) direct fund injection (subsidies) from central government, (c) funds from provincial and municipal governments for the construction, (d) tax exemption for the developers, (e) reduction of construction cost and (f) price control. Xinhua (2010b) has reported that the central government has recently increased subsidies for building affordable housing from 300 Yuan/m2 to 400 Yuan/m2 and from 400 Yuan/m2 to 500 Yuan/m2 in Central and Western China respectively. Land supplied for low cost housing has increased significantly in recent years. Developers are encouraged to use 70%

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of the land they are granted, for low cost housing construction purposes (Xinhua, 2011). In order to give low income household access to the land use rights and housing market, different preferential treatments have been considered, such as easing credit for the low income household which build houses (Morgan, 2008), subsidies, tax relief, and low loan/credit rate (Duda et al., 2005; Ju, 2002). First, for the very poor and first home buyers it is relatively easy to access ‘Housing Provident Fund (HPF)’-housing provident fund (public employees). But for those who would like to access HPF to purchase a second home or more, there are many constraints which make the fund hardly accessible to them (HPF with higher interest rate). Secondly, for instance, Xi’an municipal government has been offering subsidies to home buyers based on the size and purchase price of the dwellings, with buyers of smaller homes set to benefit the most on a percentage basis (<90 m2 = 1.5%; 90–144 m2 = 1%; >144 m2 = 0.5%). In Changsha, the government has offered a subsidy of RMB 80,000 to first-time buyers of affordable housing and reduced transaction taxes from 1.89% to 1.1%. Thirdly, down-payment requirements have been lowered from 30% to 20% for home purchases made through employee provident funds (Morgan, 2008). Assessing governance aspects of the Chinese market in urban land use rights: the aspect of ‘participation’ The market in land use rights in peri-urban areas primarily depends on acquisition of collectively owned land by the State. For this to happen, developers’ proposal should be approved by a county or municipal people’s government. Then villagers are notified through a notification which stays public for at least five days. Following the notification, the farmers can file for compensation or else they can seek clarification as to the purpose of the plan. If they do not agree with the proposed plan and the compensation, they can call for a meeting for further discussion. This is theory, because in practice in most of the cases, however, the participation from the villagers (farmers) is insignificant and has little influence in terms of reversing the decision made by the county/municipal people’s government (Lei, 2010). Assessing governance aspects of the Chinese market in urban land use rights: ‘the aspect of access to information’ The Chinese Regulation on the Disclosure of Government Information (RDGI) of 2008 makes all government information at all levels of administration to be publicly available and accessible except for State and economic secrets (Business Anti-Corruption Portal, 2010). This law – when enforced effectively – could create a transparent environment in the public sector and could make information broadly available and accessible. Already in 2004, the government adopted a new real estate policy which required the release of statistical information on the land market in 40 Chinese cities (Leung and Wang, 2007). The Ministry of Land and Resources, which is the principal body that handles land related issues in the country, has set many goals (MLR, 2007). One of them is to complete a modernization of land information management. Moreover, Decree No. 17 of the General Office of the State Council calls for a government information resource directory which can address the society’s need for information. All government departments are required to speed up the process of making information known to the general public (Seifert and Chung, 2009).Land market information can be accessed from the Land Administration Departments/Bureaus found at different levels (provinces and municipalities). As subordinates of the Ministry, they handle detailed land market information for the primary market. They

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release up-to-date land transaction information. According to the Property Registration Law of 2007 potential purchasers must check the ownership and related information of the property. This is possible with the use of the Land Information System, which has a potential to integrate information from various sources. Article 18 of the Law asks the registration department to facilitate access to information and to provide copies of the registration information upon request. The availability of land market information in the country is improving and increasing from time to time. According to Jones Lang LaSalle (2010) there is a solid advancement in terms of land market data availability and quality; especially in first tier cities (Beijing and Shanghai). Public access to information seems to get easier. The country’s position in terms of information provision to the public is strong (Global Integrity, 2009) and China’s score for 2009 is 81 (maximum possible score is 100).Article 21 of the Law makes the Registration Department liable for mistakes made during the property registration and requires the department to pay compensation for the damage caused. This guarantees property security and tremendously boosts the confidence of those parties who are engaged in land related investment, by sending a clear message to the real owner and by allocating clear responsibilities.

Assessing governance aspects of the Chinese market in urban land use rights: the aspect of ‘efficiency and effectiveness’ This aspect appears to be highly related to the existence of an informal market. The Chinese government does not recognize informal transactions. Any property transfer done through informal ways or illegally in violation of laws, is invalid (Rehm and Julius, 2008). Article 9 of the Property Law (2007) makes clear that property transfer shall take effect only if it is registered. According to the same Law (article 16), the evidence for ownership of property is registration. The law thus does not recognize and guarantee protection for any informal and or illegal transfer of property even though this kind of transfers widely exists. According to the investigation made by the Ministry of Land Resources, there are 6.6 billion m2 ‘minor property rights’ (transfer of rural land use rights into urban use/residential) throughout the country. The problem, with these kinds of development, is a risk of tenure insecurity. They are susceptible to demolition and eviction without compensation. According to China Daily (2010a) 336,500 m2 of illegal construction was either confiscated or dismantled by the National Audit Office (NAO). The site reports that the NAO has conducted a survey and found that illegal land transfer and acquisition have been taking place in many provinces and cities. It discovered that several cities have acquired thousands of hectares of farmland (5 cities, 12,700 ha) in the primary land market in violation with the Land Administration Law and that they paid insufficient compensation. In 2010, 53,000 cases of illegal land transfer were discovered (China Daily, 2011).The Property Law (2007) states, that property registration can only be done in the registration department of the place where the property is located. ‘Property’ regards land use rights, homeownership, etc. (Chen, 2007). The Law unambiguously indicates that any unregistered land (use) right transfer cannot be recognized and does not enjoy legal protection. Articles 60 and 61 of the Real Estate Administration Law state that people’s government above county level is responsible for registration and subsequent issuance of title certificate of buildings. These articles make clear that constructed buildings need separate registration, different from land use rights certificate, to receive a title certificate. The departments which handle land and buildings registration are different and under a different ministry. The separation of land and building registration makes the procedures complicated and time consuming (Kaiwen and Minhua, 2009).

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According to Palomar (2002) big cities in the country are handling land (use) right registration properly; they have attained relative efficiency and effectiveness in handling registration. Shanghai performs better than both East Asia & Pacific and OECD average in terms of the number of procedures, number of days and cost involved during the registration process. Even the rest of the major city’s performance is not far behind the OECD’s average. Registration takes fewer days, but more procedures, in cities like Beijing, Guangzhou and Xian; which is better than East Asia & Pacific average. Even cost-wise, Beijing and Guangzhou are better than OECD average (WB Doing Business, 2011). Small cities, nonetheless, are still understaffed and ill-equipped (Palomar, 2002). Guiyang city, ranked 28 in registering rights to land or houses, ranking out of 30 cities surveyed in China, is performing better than East Asia & Pacific average, only in terms of time involved. If the number of procedures and cost are taken into consideration, the city is far behind the regional average (East Asia & Pacific). This is an indication of how smaller cities are performing and what the efficiency of registration looks like: smaller cities have a weaker performance record, according to the World Bank Doing Business 2011 report. In China, registration for land use right transfer is done in the House and Land Resources Administration Centre. In principle, unlike many other countries, the registration process does not involve many offices or departments. However, until the passage of Chinese Property Law in 2007, the procedures themselves and their number differ from city to city. This means that there is no formal guidelines and format of registering property uniformly throughout the country. Some cities, like Shanghai, have simple and few procedures and others do not (Doing Business, 2011). But the new law has now created a standardized way of registering transfer of rights and has created a condition for registration which can reduce regional differences, decrease complexities and increase efficiency. Yet the efficiency and effectiveness of registration is thus not the same in all cities. It appears that big cities and well developed ones are enjoying better efficiency: fewer procedures, less time and low cost of registration (World Bank Doing Business 2011). Efficiency of registration seems to positively correlate with level of economic development. The Registration Measures mentioned in “A few words about rural land use rights and housing rights” section aim at providing further guidance.

Assessing governance aspects of the Chinese market in urban land use rights: the aspect of ‘transparency and corruption’ In the absence of transparency, a (land) market can hardly function: corruption and nepotism could take over. Transaction cost becomes high and discourages many from engaging in the formal land market (Zakout et al., 2007). The Real Estate Administration Law requires land prices (the standard, the nominal and the appraised land prices) and prices of various buildings to be established and published regularly (article 33). The same Law declares that the State should publish land transaction information on a regular basis. Other land related laws have similar provisions. Above all, the Regulation for Public Information Disclosure (RPID) of 2008 makes land market information provision mandatory like any other public sector information. From here we can conclude that there is legal provision for land market information provision. Article 5 of the Law of Tenders and Bids has provision for the conformity of the tender and bids (includes land use right transfer) to the principle of openness, fairness, impartiality and faith. According to this Law (article 34) the tender must be opened immediately after closing the bidding, in public and in predetermined place. The

Law provides that all bidders shall be invited to join. The winner, bid price quotations and other important things in the document should be announced. The Law requires bidding assessment to be conducted in a confidential manner in order to achieve objectivity and eliminate preferential treatment. Moreover, anyone who feels the transaction process is not fair can file complaints. Land use right transfer through auction and tender is done publicly in a competitive bidding fashion. The Law, as mentioned earlier, requires detailed land price and information about buyers, to be public. Negotiations, although the Law demands some level of transparency in transaction and the price involved, are still done in an obscure manner. Yet, the Law provides, that the negotiated price should not be less than the base price as set by the State Council. Major fees involved in registration, are publicly available. The type of fees and amounts involved, are different from municipality to municipality. There are however also observable similarities. In most of the cases, registration fees, cadastral survey fees and certificate fees are a fixed amount. According to Jones Land LaSalle’s (2010) Real Estate Transparency Index, over the years, China’s land use right and housing market has shown momentous improvement in terms of transparency and has moved from opaque to semi-transparent level (these are the scales the organization uses to determine the level of transparency). Just like any other countries, China is not immune to corruption (Business Anti-Corruption Portal, 2010). Corruption is prevalent in many public sectors, yet land administration is one of the hardest hit (Liu, 2005). Corruption which involves land market (basically land use right transfers) has become an issue of great concern to the government for the past few years. In 2008 the Discipline and Supervision Authority of the Ministry of Land and Resources has found 31,000 cases involving 220,000 ha of land, in which land use was violated, out of which 20,000 ha were taken under the banner of land use rights (Xinhua, 2008). In the same cases, more than 2,700 officials who were allegedly involved in those land related corruption, were prosecuted. In another incident, government officials of Yangzhou sold 60 ha of land secretly without the knowledge of the owners (China Daily, 2010b). In order to combat corruption around land use right transfer, the Chinese government has taken measures. Some of those measures are targeted at fighting corruption and others at educating the society about corruption (preventive measures). In 2009 the government amended the Criminal Law, which criminalizes all kinds of corruption in the public sector. According to this Law, abuse of position or public property by a civil servant is illegal (Business Anti-Corruption Portal, 2010). The Land Administration Law of 1998 (article 228), criminalizes any act of involvement in illegal transfer of land use rights for personal gains. The country has strengthened its fight against corruption and misuse of public property by ratifying the United Nations Convention against Corruption, in 2006.

Conclusions This research takes the assessment of the Chinese land market from good governance perspectives, with special emphasis on urban land use rights transfer. The assessment has been done at three levels: input, process and output level. At the input level we have mainly focused on the institutional arrangements which are in place to usher the development of market for land use rights within the environment of good governance. At the process and the outcome level we have seen the functionality of these institutions and the results which have been obtained as a result of having these institutions. To assess specific aspects such as equity, transparency, participation, efficiency and effectiveness, access to land market information and combating corruption in the land use right

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market, we have developed an assessment framework based on good governance dimensions. Below we provide the overall conclusion and recommendations of the research. The urban land market in China operates solely based on transfer of land use rights. The primary land market depends on land which comes mainly through land acquisitions from collective owners. In this way, land under collective ownership is converted to State ownership for the purpose of using the land for urban construction. The government pays compensation for expropriations, although it is not based on market value. Widely applied use of eminent domain power and absence of proper compensation has created less security and resulted in grievances among the collective owners and urban residents, whose properties are taken for (re)development. Once the process of land-takings is completed, municipal governments transfer the land use right in the primary market to different actors for various urban uses. This could be done through administrative allocation, negotiations, tender and auction. Here, in principle, land conveyance, except administrative allocation, depends on market value. The process of land transfer in most of the cases is exposed to informal payments. Urban land for infrastructure and public organizations is supplied through administrative allocation. Land use right transfers for the rest of the cases, including residential use, are market based. High property prices, matched by low income of the urban poor and low income families, make urban land inaccessible for many poor. Particularly the case in big cities is severe. Under the current situation, the urban land use right market does not guarantee equity. It is largely catering for the rich who can afford to purchase property. However, the government, through its pro-poor policies, start to makes interventions. An effort has been made to create an equitable land market which makes that the poor and low income groups have access to property. For this to happen, the government uses mechanisms such as subsidies (for home owners and developers), tax breaks and administrative land allocations for developers who make affordable housing available in the market. In China the recent laws and policies request all pubic offices to make information easily, quickly and widely accessible to the general public. Land Laws make the provision of land ownership information, land price information and the publication of statistical information, mandatory. In case of unreliable data provision, the law provides that the government compensates the victims. According to the Law, refusal to provide information can be punishable. Most of the municipalities in the country, as a result, carry land market information online. Before-transfer and after-transfer information can be accessed especially for tender and auction. Nevertheless, information about land transfers through negotiation is still hardly accessible. Generally, access to land market information shows remarkable improvement. Land ownership and use information is open to public and can be inspected and examined. Copies of the documents can be obtained on request. The Law requires that land use right transfers should be pursued openly. This even includes land use right transfer through negotiations. Nonetheless, Chinese land market transparency record is still far behind, even the regional markets, despite significant efforts to improve the level of transparency. Though, the effort the government has put in place has moved the country’s land use right market to the level of semi-transparency. However, both the level of access to land market information and transparency in the country reveals big regional variations. Initial registration in urban areas is almost completed. Land transfer registration is widely practiced. Previously, there was no uniformity throughout the county. The Property Registration Law of 2007 has now created a platform for uniform registration. Municipalities, so far, have different procedures and levels of efficiency. Major Chinese cities have attained significant level of efficiency in terms of registration efficiency: the number of procedures, time

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and cost involved. Economically weak cities are lagging behind. This perhaps has created an environment for informal land transfer. Informal transfer is common in the country, though – according to the Law – it does not enjoy any legal protection. Currently the level of informal transfer has dropped remarkably from what it was in the 1990s. The land use right market in China is susceptible to power abuses and misuses. State land use right sale, use for personal benefit and fraudulent authorization of transfer of land use rights have been reported over years. In order to minimize these kinds of malpractices and State land abuses, the central government has recently stepped up its effort to combat corruption in land use right transfer. It is strengthening its anti-corruption agencies and making regular land supervisions. There are annual reports of illegal land use and investigations of those who are involved. The government has also taken illegally transferred and abused lands back. Those, who misused their power, are being punished. Though the government’s move in terms of rooting out corruption and corrupt practices surrounding land transfer is in the right direction, yet it is far behind many countries in its score as far as creating land market with minimum degree of corruption is concerned. Finally, one might conclude that the market for urban land use rights in China does not yet fully meet principles of good governance, although the government takes measures in the appropriate direction. Acknowledgements We thank the anonymous reviewers for their critical comments. References Burns, T., 2007. Land Administration Reform: Indicators of Success and Future Challenges. The World Bank, Washington. Burns, T., Dalrymple, K., 2008. Conceptual framework for governance in land administration. Paper presented at the FIG Working Week, Stockholm, Sweden. Business Anti-Corruption Portal, 2010. China country profile. Available from: http://www.business-anti-corruption.com/country-profiles/east-asia-thepacific/china/snapshot/ (accessed 10.12.10). Caploe, D., 2010. 200 million empty apartments? Economy Watch 21 (December). CBRE, 2010. CB Richards Ellis: China property market Scoreboard 2009–2010. Available from: http://www.cbre.com.hk/china/eng/document/ (accessed MarketReports/China%20Property%20Market%20Scoreboard.pdf 30.12.10). Chen, L., 2007. The new Chinese property code: a giant step forward? Electronic Journal of Comparative Law 11/2 (September). Chen, J., Guo, F., Wu, 2011. One decade of urban housing reform in China. Habitat International, 35. Cheng, J., Turkstra, J., Peng, M., Du n. Ho, P., 2006. Urban land administration and planning in China. Land Use Policy 23 (4). China Daily, 2010. Audit catches illegal land use. Available from: http://www.chinadaily.com.cn/china/2010-04/21/content 9755534.htm (accessed 29.11.10). China Daily, 2010. Land sale to be suspended in east China city. Available from: http://www.chinadaily.com.cn/china/2010-04/06/content 9687446.htm (accessed 11.12.10). China Daily, 2011. China vows tough measures to curb illegal land use. Available from: http://www.chinadaily.com.cn/business/201101/21/content 11898402.htm (accessed 24.01.11). Chinese Governmnet’s Official Web Portal, 2004. Factfile. Available from: (accessed http://www.gov.cn/english/2005-08/05/content 20813.htm 07.11.10). Corner, L., 2005. Gender Sensitive and Pro Poor Indicators of Good Governance. UNDP. Deininger, K., Feder, G., 1998, Land institutions and land markets. Policy Research Working Paper Series. Deininger, K., Feder, G., 2009. Land registration, governance, and development: evidence and implications for policy. Oxford Journals. Deininger, K., Holden, S., Burns, T., 2009. Using the Land Governance Assessment Framework (LGAF): Lessons and Next Steps. World Bank. Dowall, D., 1995. Land Market Assessment: A New Tool for Urban Management. Urban Management Program UMP: Tool, vol. 4. The World Bank, Washington, DC, p. 68. Dowall, D., Clarke, G., 1996. A Framework for Reforming Urban Land Policies in Developing Countries. World Bank, Washington, DC.

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