China’s Urban Billion is a series of blogs exploring China’s urbanization process. Xiaomei Tan guides TheCityFix readers through China’s opportunities and challenges as it transforms into an urbanized society. She examines the urbanization process as it relates to governance, the private and public sectors, and the economy.

China’s cities rely on the sale of land to raise revenue, resulting in vast urban sprawl. Photo by Ding Zhou.

Although China is home to some of the densest cities in the world, its newly developed urban areas are experiencing rapid geographic expansion. Urban sprawl is a serious issue. There are multiple reasons behind the phenomenon – a prominent one is the lack of fiscal strength in Chinese cities.

In western countries, a significant portion of a city’s revenue comes from property taxes. In China, however, property taxes don’t exist. This means Chinese cities don’t have the necessary tax base with which to meet the needs of recurrent expenditure and investment. Another fiscal instrument often used to raise capital is the issuing of government bonds. In China, only the central government can leverage bonds to raise capital, leaving China’s cities in a difficult position when trying to raise funds.

Since both levying property taxes and issuing government bonds are lacking in China’s municipal fiscal system, the cities have to rely on other financial sources. Unfortunately, the source they often rely on the most is also extremely detrimental to the cityscape: selling land.

According to Peking University’s Professor Zou Qiren, 83% of local government revenue in China comes from selling lands. And the trend is not changing anytime soon. In the first half of this year, the three largest Chinese cities – Shanghai, Beijing and Guangzhou – all saw neck-breaking growth in revenue from selling land.

From January until June of this year, Beijing raised $10.16 billion USD through land sales. Shanghai raised $9.64 billion. In Guangzhou, the $6.94 billion raised by the city reflected a whopping 500% percent growth in revenue from land sales from the year before. For cities lacking alternative ways to raise funds, this is a lucrative opportunity.

Using land sales as a key source of revenue not only creates a tremendous amount of pressure on China’s scarce arable land, but also leads to unplanned expansion of a city’s footprint, which raises costs of transport and infrastructure. Instead of responding to the needs of citizens with responsible land use planning, city governments find themselves responding to the needs and requirements of the land purchasers. Planning is critical to ensuring a balance between green areas, factories, businesses, residential areas, shopping areas and recreational facilities such as parks and playgrounds. When cities respond to the needs of land purchasers, mixed-use planning is often abandoned, while funds are redirected to building new roads and bringing services to the recently purchased land.

These issues are deeply rooted in China’s dysfunctional local fiscal systems. To fight urban sprawl and tackle these issues of urban planning, China must develop sound and effective fiscal systems, giving their cities the means to raise funds without selling arable farming land to single-use developers and companies.

Xiaomei Tan is the Deputy China Country Director and Director of China Sustainable & Livable Cities Initiative at the World Resources Institute. She is charged with steering WRI’s research agenda in China, fostering high-level dialogues around critical environmental and development issues, and leading a team of over 10 researchers to contribute to China’s sustainable urbanization and overseas investment.

In her various roles, Xiaomei has published widely in mainstream and professional journals such as Energy Policy, Ecological Economy, and Overseas Investment and Export Credits.