Analysis on the Rent-Seeking Phenomenon in Chinese Land Market
Qian Mo
Southwest Minzu University, Chengdu, China.
DOI: 10.4236/oalib.1108942   PDF    HTML   XML   66 Downloads   499 Views  


In Chinese land market, each economic subject wants to gain a dominant position, and the system improvement of the land market system needs a certain process. So there are many rent-seeking phenomena in the land market. The paper analyzes the rent-seeking subjects in the land market at different stages and analyzes the causes of the rent-seeking phenomenon and proposes solutions according to the existing problems.

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Mo, Q. (2022) Analysis on the Rent-Seeking Phenomenon in Chinese Land Market. Open Access Library Journal, 9, 1-9. doi: 10.4236/oalib.1108942.

1. Introduction

1.1. Research Background

The scale of the land market is relatively large. And the industrial chain is long. There are many related economic entities involved, and it has a great impact on the correlation of related industries. With the improvement of Chinese urbanization level, Chinese available land resources are further reduced, and it is estimated that by 2035, Chinese urbanization rate will reach 75% to 80% [1]. To reach the same level as developed countries, the slowdown in urbanization suggests that the era of large-scale and rapid urbanization is over. Land sources will also change from incremental to mainly stock, which will also create new opportunities for the land market, such as urban renewal. And the land market due to long-term management disorders also appeared such as the current prices “irrational” growth, land market disorder, unclear government functions, land market-related enterprise behavior and market disputes of various aspects, and “rent-seeking phenomenon” is one of the elements of the negative impact of the land market. A large number of rent-seeking phenomena in the market have had a great impact on people’s life and production. Rent-seeking in the land market further increases the price of land, and land builders have to obtain the cost of rent-seeking by raising the sale price. For builders, the extremely high rent-seeking cost increases their market cost. This paper analyzes the causes of rent-seeking phenomenon and the possible links, and finally proposes the possible solutions to rent-seeking phenomenon.

1.2. Research Meaning

The rent-seeking phenomenon in the land market is a net loss of social welfare [2], because the rent-seeking phenomenon in the land market is a non-productive competition activity. There are similar non-productive activities in land transfer, housing construction, fundraising, and government taxation. In the land transfer link, in order to obtain the monopoly position of land resources, real estate developers need to use the rent-seeking method to target the relevant departments, so as to obtain the dominant position in the government land transfer link. At the same time, the government also needs to waste resources to supervise and punish, or the government to waste time and energy to rent, and actively seek “collusion” with developers. Finally, when the rent-seeking activities are completed, the market is filled with a large number of rent-seekers. Therefore, the government’s supervision departments need to waste a lot of time and energy on governance, otherwise, it will affect the long-term sustainable development of enterprises related to the land market. Moreover, when rent-seeking activities are realized, while the government and developers carve up the monopoly profits, the relevant producers and home buyers will pay the price, which is higher than the profits of rent-seekers. The widespread existence of rent-seeking phenomenon in the land market leads to the loss of social welfare. The study of rent-seeking phenomenon in the land market is conducive to starting from various economic subjects, hoping to analyze and understand the rent-seeking phenomenon in the land market and provide solutions to the future improvement phenomenon.

2. Correlation Theory

Rent-Seeking Theory

There is no unified elaboration of rent-seeking theory at the beginning, and different scholars have different descriptions of rent-seeking theory. The rent-seeking theory was proposed in the 1970s by Tarock, one of the main representatives of the school of public choice. Later, the upsurge of studying rent-seeking theory was caused by the article “The Political Economy of Rent-Seeking Society” published by Anne-brook. The rent-seeking theory is different from the traditional profit-seeking theory and studies the allocation of resources in the productive and non-productive fields. Buchanan (1980) considered the term rent-seeking. It means that people act in the pursuit of self-interest maximization without bringing about an increase in social welfare but causes a waste of resources under certain institutional constraints. Srock (1980) believes that rent seeking means that people’s investment practices have caused a decline in social productivity. But it brings some special status or monopoly power to investors and increases their personal income. Torrison (1982) believes that rent-seeking is a scarce resource to obtain government-created transfers. Bagwati (1982) believes that rent-seeking is a series of non-productive practices. It will bring income for actors. The rent-seeking phenomenon mentioned in this paper focuses on the concept proposed by Anderson in 1988. That defines rent-seeking activities as “pursuing direct non-productive profit”. The “direct” here means that the social surplus is not created through the production process but by means of the public power.“Non-productive” refers to the rent-seeking behavior analysis of various economic entities in the real estate market to pursue the existing production profits in this process. It brings benefits to the actors without creating the inputs necessary for the production of services or products and expanding the scale of social production. It will even shrink the production scale and make the loss of social welfare.

3. Land Market Rent-Seeking Phenomenon Specific Performance

3.1. Land Transfer Link

Obtaining land transfer rights is the beginning of rent-seeking and the source of corruption. The transfer of land is the paid transfer of land use right, that is, the government delivers the use right of state-owned land to the land users at a certain price within a certain number of years. In the current situation in China, the land development examination and approval management system, system and regulations are not perfect, there are many shortcomings and loopholes, which leave opportunities for the corruption of some officials, and some illegal developers take advantage of loopholes to opportunistic, making the land market into a disaster area of corruption. The proval departments, and when the relevant approval departments approve and how the approval resmooth progress of real estate construction in China needs the approval of the government apsults can affect the final profits of real estate developers. Planning refers to the municipal people’s government. In order to realize the healthy and orderly development of the urban economy and society, determine the nature, scale and development direction of the city, make rational use of urban construction land, and coordinate the urban layout and arrangement of various constructions. In the construction process, various indicators such as building spacing, floor area ratio, floor area, floor area and so on are closely related to the final profit of real estate, and these indicators need to be approved by the approval department. Only by passing the government approval, can developers achieve their final profit. That is why developers have had to waste resources and risk getting rent-seeking money to pass their own real estate plans. Land resources is a very precious means of production, our country land nationalization, the government monopoly all land supply, local government as the only agent, the state monopoly all land supply of land system provides rent-seeking space, when the land use right into the market as goods to developers, the government ownership of land becomes the real estate industry related planning department, examination and approval departments and pricing department and land use right developers between private interests. Officials have more rights in the land planning, examination and approval and use departments. The land rights are excessively concentrated in the hands of a few government officials with public power. The analysis of the rent-seeking behavior of various economic entities in the real estate market will obviously produce a large number of power rent-seeking behavior. In this way, real estate enterprises want to successfully get the land development right, they have to seek rent from government departments, and the government rent, social costs and welfare losses caused by rent-seeking developers are included in the housing price [3]. Through the commercial housing market, sales have been passed on to consumers, so the government and developers have conspired to divide the excess profits, but it is the ordinary buyers who bear the rent-seeking cost, which is why Chinese housing prices are always high. Power trading, power and money trading can be seen everywhere in Chinese land supply market. Developers adopt a strategy that conspired with local governments, where developers get land rights at low prices and local government officials get kickbacks. Developers take collusion strategy, in the process of land bidding, through a series of unfair competition, exclude other bidders, eventually get land use right, the bidders to the bidding unit rent-seeking, bribe bid evaluation, deliberately release false news, malicious bid up bid prices, reduce competitors in the bidding process, other state-owned real estate companies in order to complete their assessment indicators, a lot of land reserves, and effort to raise the bid price. There are various rent-seeking possibilities in the land auction market in China, such as splitting the project below the legal public bidding limit and using the contracting right to take bribes; awarding of the subsidiary projects and collusion to create favorable competitive conditions for the parties and take bribes. Moreover, some relevant government officials abuse their public power, illegally transfer state-owned land, and use their power for personal gain. While seeking to maximize their personal interests, they cause the economic losses of the country. Most of the land for the construction of affordable housing in China is allocated through the state administration, which results in greater rights in the hands of officials of relevant government departments, so rent-seeking behavior is more prostitutes. Common are: developers, especially some do not conform to the conditions of developers in order to get affordable housing construction land, rent-seeking, through collusion with government officials, smoothly get the government allocated land, land real estate development enterprises to regulators rent-seeking, seek regulatory “shelter”, will transfer land for others, so as to seek more profits for themselves. This kind of rent-seeking behavior of stealing land use through collusion with the government can be seen everywhere in China.

3.2. Housing Construction

Coordinate the urban layout and the layout and arrangement of various constructions. In the construction process, various indicators such as building spacing, floor area ratio, floor area, floor area and so on are closely related to the final profit of real estate, and these indicators need to be approved by the approval department. Only by passing the government approval, can developers achieve their final profit. That is why developers have struggled to waste resources and risk rent-seeking to make their own plans through. Chinese strict regulation of five certificates and two books system1 determines that the smooth progress of Chinese real estate construction needs the examination and approval of the government examination and approval departments, and when the relevant examination and approval departments approve and how the examination and approval results can affect the final profit of the real estate developers. Planning refers to the city people’s government in order to realize the healthy and orderly development of the city economy and society, determine the nature of the city, scale and development direction, the rational use of urban construction land, coordinate the urban layout and the layout and arrangement of various construction. In the construction process, various indicators such as building spacing, floor area ratio, floor area, floor area and so on are closely related to the final profit of real estate, and these indicators need to be approved by the approval department. Only by passing the government approval, can developers achieve their final profit. That is why developers have struggled to waste resources and risk taking rent-seeking measures to pass their own plans.

3.3. Capital Raising

Many industries in the land market, especially the real estate industry, are capital-intensive industries, and every link of real estate development needs huge financial support. In the land transfer link, the developer needs financing to bid for the land; in the land development link, the developer needs funds to maintain the project, enter the housing sales link, and the real estate developer needs funds to plan a series of marketing activities [4]. Therefore, the most critical link in the operation of real estate funds is how to finance quickly and efficiently. Chinese real estate development enterprises have lost their own funds and lack of efficient financing channels, so the financing of Chinese land market related enterprises mainly rely on commercial bank loans, resulting in most of the funds related to Chinese land market related enterprises come from bank funds. Tube in recent years the government continues to strengthen the land market related enterprise project and local financing platform supervision, but due to the interest drive, the bank irregularities is still prominent, the government hope to control prices, and the bank to the land market related enterprises to maintain “low risk, high return” judgment, through all kinds of edge ball money into the industry. On the one hand, financial institutions’ illegal lending is that the relevant personnel hope to participate in profit sharing for the consideration of maximizing their own interests, mainly by taking “kickbacks” and accepting bribes. On the other hand, because of the future development of the land market related enterprises have optimistic expectations, so many Banks, insurance companies and other financial institutions began to engage in the land market related enterprises, set up a company, their loans to yourself, not only the many constraints, and save the loan cost, spend the country and the people’s money for personal gain.

3.4. Tax Field

In all kinds of tax-related problems in our country, the land market problems accounted for a large proportion, related enterprises driven by interests, with the help of local governments for the purpose of investment promotion and set all kinds of preferential policies, and the land market related development projects due to large time span, intermediate links, so the cost calculation is complex, so the related development enterprises rack their brains of tax evasion. There are two main tax items of land in China: one is enterprise income tax, the other is business tax. And developers also have various means of tax evasion.

4. The Cause of the Rent-Seeking Phenomenon

4.1. Excess Profits Brought about by the Industry Monopoly

Land market related industry is a special industry, with the characteristics of high return and high risk. Related activities are investment activities with huge one-time investment and great value formed at the same time, lasting for a long cycle and involving many links. Due to the special nature of the industry and the national conditions that the Chinese government monopolizes the land supply, there is a large amount of potential economic rent in the industry, so that some interest groups related to the industry development will seize some rent-seeking opportunities and conditions for rent-seeking. The excess profits of related industries in China are mainly caused by industry monopoly. On the one hand, Chinese land supply market adopts bidding auction mechanism, a large number of real estate developers, apparently the competitive market; on the other hand, the government monopolized the primary land supply market, and the land market has high entry barriers, so the few large developers, mostly state-owned enterprises. Those developers who have achieved a monopoly position are fully capable of controlling the supply of commercial housing, leaving the market in an unbalanced state of short supply, and thus setting the price far above the equilibrium price of the market, thus obtaining excess profits. Stimulated by monopoly profits, developers are seeking rent and conspiring with the government to gain a monopoly position. Once rent-seeking is successful, local governments and real estate developers will form joint interest groups to grab monopoly profits, resulting in a net loss of the whole social welfare.

4.2. The Market Lacks Effective Regulation

The relevant legal system is not complete and the lack of effective supervision and punishment mechanism leads to the inability to solve the various problems in the market, and cannot be investigated in accordance with the relevant laws. That is to say, compared with the monopoly profits brought by successful rent-seeking, the cost of rent-seeking failure is very low. Therefore, stimulated by excess profits, developers have carried out rent-seeking activities, leading to the prevalence of rent-seeking activities [5]. In the case of ineffective legal supervision, the relevant government executives will also adopt the strategy of cooperating with the maximum interests of the developers to jointly reap the excess profits of the land market. After accepting bribes from developers and performing their functions, the relevant supervision and supervision agencies “turn a blind eye”, allowing developers to take land in land auction, “cut corners” in housing construction, and sell houses without getting a pre-sale certificate and other illegal activities. The balanced strategy between developers and local governments not only damages the interests of home buyers, but also causes a net loss of social welfare, which is not conducive to the sustainable and healthy development of the industry.

4.3. The Real Estate Market Mechanism Is Not Perfect

A perfect land market is an effective guarantee for the reasonable allocation of land resources. Although the land resources are special, they also have the attribute of general commodities and follow the market rules. The market mechanism is always the most efficient allocation mode. A perfect land market is composed of regulation and restraint system, trading system, support system, etc. All of these systems are based on a specific institutional environment as a platform, and operate under the influence of the system. Because there is extensive information asymmetry among various economic subjects in Chinese land market, Poor market mechanisms, The government needs to regulate the land market, But due to the inertia of the original system and the lack of limited regulation, As a result, the government plays the role of the market economy subject excessively, Some local governments even have “exclusive power” in the land market, At the same time, it plays important economic subjects, regulators, regulators, monitors, masters and other multiple roles, And the essential nature of the government determines that it cannot pursue profits as much as the general enterprise, The dual identity of administrative function and economic subject will inevitably lead to the phenomenon of rent-seeking, the government and the people; The Government, as a rational man, When choosing to grant the land, It is also based on a benefit maximization consideration. Our country’s land system determines that in the land-level supply market, The government is in an absolute monopoly position, Many corporate developers compete, On the surface, the competition is very fierce, But in fact, only the well-funded big developers, especially the state-owned enterprises, can bid for the land, Some small private developers due to insufficient assets, Not getting the land, Forced out of the competition, In this way, A handful of massive property developers monopolize the property market, Leading up to a large number of potential monopoly rents in the real estate market, From this point of view, The birth of the land king is actually the intentional result of the local government, Local governments have benefited very much from the process, High land transfer fees create one land king after another, It also causes the monopoly of the land market-related industries, Leading to a large accumulation of monopoly rent in related industries, Create opportunities for rent-seeking activities [6].

5. Countermeasures and Suggestions

5.1. Introduce Relevant Policies to Avoid Industry Monopoly

Due to the particularity of Chinese land market, the entry threshold of the industry is relatively high, so the monopoly phenomenon of the land market is more serious. Therefore, we need to strengthen the industry policy support. Support small and micro enterprises to enter the land market, enhance the competitiveness of the land market, and avoid the phenomenon of industry monopoly.

5.2. We Will Strengthen Legal Supervision to Prevent Regulatory Loopholes

Another reason for the rent-seeking phenomenon in the land market is that Chinese legal supervision is not perfect. Therefore, in order to prevent rent-seeking phenomenon, it is necessary to strengthen the disciplinary measures of rent-seeking phenomenon and raise the cost of rent-seeking failure. Supervise before, during and after the event. Make prevention in advance, strengthen the training of government personnel and professional ethics; correct rent-seeking timely; review the whole process of the land market afterwards, and ensure the whole process and dynamic supervision.

5.3. Developers Should Follow a Work Ethic and Eliminate Rent-Seeking

As the main body in the land market, land developers should follow on the basis of relevant laws, and developers should realize the harm of rent-seeking phenomenon to the market and themselves, and avoid the occurrence of rent-seeking behavior. At the same time, the land market should punish the industry for the market subjects who have had rent-seeking behavior, and establish a system to measure the credit value of the relevant subjects. For the relevant subjects, the credit value in the industry should be lowered and the entry threshold of the industry should be raised. Prevent rent-seeking from the developers of the land market.

6. Conclusion

Due to the excess profits brought by industry monopoly, the lack of effective supervision of the market, the imperfect real estate market mechanism and other reasons, rent-seeking in land transfer, housing construction, fundraising and all aspects of the tax field emerge in an endless stream. This is a negative situation for the land market, developers and the government. This paper summarizes the causes of the rent-seeking phenomenon in the land market and its various links, and puts forward relevant suggestions for the government and developers, hoping to play a certain role in solving the rent-seeking phenomenon.


1Real estate five cards refers to the “construction land planning permit”, “construction project planning permit”, “state-owned land use certificate”, “construction engineering construction permit” and “commercial housing pre-sale (sales) permit”. The second books are “residential quality guarantee” and “residential use manual”.

Conflicts of Interest

The author declares no conflicts of interest.


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