Government intervention in city development of China: A tool of land supply

There has been continuous debate on whether the state can support market-based activities in the land market. It is widely recognized that land markets do not function by themselves, mainly because they are inherently imperfect; this imperfection provides foundation for state intervention. Under the Land Use Rights System of China, land supply is a powerful tool for intervening into land markets, and proceeds from land supply greatly contribute to local revenue and financing of infrastructure construction. The state, however, is not an impartial entity. Its desire to increase local revenue through land leasing has led to the oversupply of land and housing affordability problems in real estate markets. This paper, using evidence from Guangzhou, argues that land supply intervention is a two-edged sword in Chinese city development. It further claims that the state intervention is becoming gradually professional after the real estate market bubble in the early 1990s. Problems, such as structure imbalance in land supply, however, still have negative impacts on the sustainable development of Chinese cities.