Creating a TDRs Market: a key to Chinese land reform?

The International Society for New Institutional Economics (ISNIE) soon to be renamed: The Society for Institutional and Organizational Economics (SIOE)Session 7: Panel 5 - Natural Resources: paper no. 1533In China, the state controls the right to develop rural land, which results in two consequences: first, millions of farmers cannot develop their rural land and bear the cost of preserving agricultural land without any compensation; second, the government allocates rights to develop rural land arbitrarily in China’s urbanization process. This research argues that a market for Transferable Development Rights (“TDRs”) would not only enable Chinese farmers to tap into the development value of their land without actual development, but also make the rezoning of rural land to urban land a more predictable and fair process in China. Intra-City Villages (chengzhongcun) used to be located on the outskirts of the city, but with the expansion of the city, farmlands formerly cultivated by the villages were expropriated and turned into urban land by the government whereas the villages themselves were preserved due to the high social and economic costs to compensate the villagers for their lost dwellings. Many of these intra-city villages are now surrounded by skyscrapers. In Beijing, there are 227 intra-city villages, totaling 753 kilometers of land; in Shenzhen, there are 320 intra-city villages, totaling 330 kilometers of land; Guangzhou, 138 intra-city villages, totaling 86.6 square kilometers of land. In the past decade, Chinese cities have tried to redevelop these intra-city villages for both beautification of the city and economic purposes. But it is often subject to black-box bargaining between developers, local governments, and farmers that which intra-city village should have the right to develop and how much floor area ratio of a particular plot should be, resulting in extremely unequal distribution of wealth between members of different villages. Creating a TDRs market in such cities would enable farmers in the intra-city villages to benefit equally from the economic development