Land use reform is most crucial

Local governments around China have been busy setting up large-scale development zones, in which land use rights are transferred to users at very low price to attract investment since the 1990s. If taking infrastructure and land expropriation expenditure into cost, most land transferred for industrial use was making losses while the authorities can only make money from land for commercial and residential projects. Therefore, it is inappropriate to arbitrarily accuse local governments of mobilizing "land revenue" when they expropriate land at low prices, and then transfer them at a higher price, for making high profit.

The different features of the manufacturing industry and service industry should be blamed for the price gap between land for industrial use and those for commercial and residential projects. Manufacturers always give priority to seeking best locations for factories on cheap but easily-accessible land, with low environmental and labor protection standards so that their products can be easily distributed through modern logistics. The service industry and real estate sector, however, are usually confined to certain areas as they mainly provide services to local residents.

As a result, all the local authorities are trying on the one hand to lower their industrial-use land price as a preferential measure to attract more outside investment. On the other hand, they snatch extortionate profit through limiting land supply for commercial and residential buildings, as the governments at different levels enjoy monopoly in local land transactions.