Land and Transportation Development in China: Economic Analysis of Government Behavior

This paper presents an economics perspective to help make city governments’ involvement in land and transportation development in urban China understandable. Chinese city government plays a monopolistic role in land supply because of the current land ownership by the state and the management power of the city government. City government behaves like a profit-maximizing organization because of the revenue assignment and service responsibility under the current public finance scheme. Conditioned on these institutional elements and responding to an incentive structure that lacks public involvement, rational city governments have pursued continuous new town development and neglected updating infrastructure in the older parts of cities. Road infrastructure has been emphasized, but transit investment has been neglected. Without changing the basic institutions such as land ownership, public involvement and land revenue spending regulations are essential to make city governments more responsive to the demand from the urban public.