Liberalizing rural-to-urban construction land transfers in China: Distribution effects

Abstract China's land market is characterized by a dual urban-rural system, with the government in control of rural-urban land transfers. In recent years, different types of pilot projects have been implemented to experiment with liberalizing markets for rural-urban construction land transfers. The objective of this study is to gain insights into the distributional effects of three different types of land liberalization rules by making a comparative analysis of three pilot projects carried out under each of these liberalization rules. We find that transfers facing more liberalized rules result in higher shares of land revenue flowing to the rural sector and thereby reduce the ruralurban income gap. But direct transfers between rural and urban land users also contribute to growing income inequality within the rural sector, as households living in urban fringes benefit relatively more from such transfers. A tradable quota system can reduce the impact of location on the price of land, and thereby contribute to a more equal distribution of the revenues of rural-urban land transfers within the rural sector.