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(China Daily)
Updated: 2007-09-25 13:59

Four institutional obstacles should be tackled to curb illegal land use, says an article in China Economic Times. The following is an excerpt:

Gan Zangchun, deputy State land inspector-general of the Ministry of Land and Resources, said at a recent press conference that the ministry will soon expose several cases of illegal land use. He also said key problems include the unauthorized expansion of the land eligible for construction, especially as a result of local governments illegally leasing land instead of requisitioning it, and the use of farmland for non-agricultural construction.

What causes illegal land use? And what measures can be taken to tackle these problems?

The economist Wu Jinglian once said there are four institutional obstacles hindering the transition of the country's economic growth model. These obstacles are all on display in the illegal land use cases, recasting the relevance of Wu's opinions in a whole new light.

The main obstacle is that the government has the power to allocate important economic resources. Though the market plays a basic role in our economy, the government still controls resources in certain areas. Many observers have pointed out that the power given to local governments to distribute land by the Land Management Law is the root cause of illegal land use.

The second obstacle is that the GDP numbers have guided the thinking and behavior of local officials. One easy way to promote GDP growth is to approve land transfers and real estate development.

The problems left over from the reform of the fiscal and taxation system in 1994 represent another obstacle. Though the overall reform was successful, there are still some loopholes. More than half of local governments' fiscal revenue comes from value-added taxes, giving officials an incentive to push for expanded industrial production. They gain more revenue by allocating land resources to industrial development.

Price distortions pose the last obstacle. It is a tradition of the planned economy to under-price raw materials, up-stream products and other production factors so the government can earn higher profits from down-stream development. This distorted pricing model has made local officials use land in ways that are contrary to the public welfare.

Outdated performance measures and leftover thinking from the days of the planned economy have resulted in a market for land that is easily shaped by the desires of local officials. If the authorities cannot break through these institutional obstacles, illegal land use will continue unchecked.

The State Council has decided to include income gained from land use right transfers in local budgets to help regulate this money. But more institutional steps should be taken to break down these obstacles.