Land leasing policy, industrial land price and industrial investment in China

For a long time, the industrial land leasing price is purposely controlled at a very much low level by the local government especially through private one-to-one negotiation with industrial etherises, which acted as a cross subsidies. The phenomenon has been recognized as government competition. After the 2007 new land leasing policy issued by central government, the informal land subsidies were strictly forbidden. The thesis conduct an empirical study on China’s industrial land leasing price and its impact on industrial investment since 2007. The research utilized city-level panel data and interviews for analysis. The regression models are run separately by using city data of Eastern China, Middle China and Western China to test the different effect of industrial land. Combined with interviews, the research found out that, in general the lower industrial price and government competition has been obstacles for increase of industrial investment. However, when looking at different regions, we noticed that, due to the different development level, the land prices have different influences on investment. The lower land price impeded the investment in Eastern China as land is becoming less available, while in Middle China the price competition weakened the comparative advantage over the east, and Western China could still use land price as leverage under the relatively poor local investment environment. In the future, the land policies and economic development policies should be made based on the differentiation of the regions to avoid vicious government competition and to improve the land market.