The impacts of market led land reforms on corruption an empirical study of china

A 2009 survey in Guangdong Province found that the construction and land planning departments were perceived to be the most corrupt among government organizations.3 The magnitude of ille

Chapter 1

Introduction

Background

Corruption has been a major policy concern across the globe because it

is detrimental both to economic development and political stability, and to citizens‘ welfare Countries plagued by widespread corruption often see increasing income inequality, underinvestment and misallocation of resources (Tanzi, 1998) As a country with the world‘s largest population, China has experienced aggravation of corruption since the late 1970s with the start of economic reforms In 2009, Transparency International‘s Corruption Perception Index (CPI) ranked China 79th among 180 countries.1 In the same year, China‘s procuratorates investigated 4,1531 public officials for work-related crime, with the recovered amounts on corruption cases valued at 7,120 million RMB (US$1,100 million or S$1,352 million).2 Corruption has spread across various economic sectors and industries, particularly in capital-intensive sectors such as real estate, construction, finance, customs, taxation, and medical health in China

Among various areas of Chinese corruption, this thesis focuses on corruption related to land management, which has grown to unprecedented

1 See Transparency International, ―Corruption Perceptions Index 2009‖, available at

http://www.transparency.org/policy_research/surveys_indices/cpi/2009/cpi_2009_table 2

See Supreme People‘s Procuratorate of the PRC., ―Zuigao Renmin Jianchayuan Gongzuo Baogao‖ [―Report on the work of the Supreme People‘s Procuratorate‖], available at

proportions in recent decades and become a major focal point in the country (Deng, Zhang, & Leverentz, 2010) Land corruption encompasses a variety of forms such as bribery in land use rights (hereafter LURs) assignment, embezzlement and misappropriation of land-related revenues, land grabbing, land sales in the black market, and other abusive land use behaviors that violate land laws and principles A 2009 survey in Guangdong Province found that the construction and land planning departments were perceived to be the most corrupt among government organizations.3 The magnitude of illegal land use by local authorities is substantial; in the 11-year period from 1998 to

2008, over a million (1,215,117) illegal land use cases involving 534,834 hectares of land were filed by the Ministry of Land and Resources, among which 237,094 hectares were farmland.4

The rise of corruption involved in land development remains among the most contentious social, political and economic issues in contemporary China (Chow, 2006; Lin & Ho, 2005) Land is fundamental to successful marketization and urbanization, and the study of land corruption is of great importance for at least four reasons First, illegal land-use behaviors cause losses of state-owned-assets and government revenues For instance, corrupt officials may sell urban state-owned land to investors at below market prices

in exchange for bribes, making the state suffer from capital losses Second,

3 See Guangzhou Daily, ―Guangzhou Lianzheng Diaocha Xianshi Jianshe Guotu Bumen Ju Fubai Shouwei‖ [―Guangzhou Anticorruption Survey Ranks Construction and Land Planning Department the First‖], available at http://society.people.com.cn/GB/42735/12390009.html 4

Source: China Land and Resources Almanac, 1999-2009, compiled by the Ministry of Land

and Resources

land corruption widens the gap between the rich and the poor by unequally distributing land resources to different groups In rural-urban peripheries, local governments and developers often take farmers‘ land at low cost and sell the LURs at high prices, reaping huge profits from land transference Consequently, real estate developers and those in power are better-off, while the under-compensated farmers become landless and often jobless, suffering from welfare loss Third, land corruption erodes public trust, creates social unrest and political instability It strikes at the legitimacy of the ruling party and affects the wellbeing of citizens in China In urban areas, corruption and

abuse of power are driving massive toll breakdown by force (qiang chai)

Urban residents are constantly reported to protect their property from being destroyed illegally by real estate agencies and local governments In rural areas, peasants‘ petitions and protests against illegal land-use are taking place throughout the country Central government officials acknowledge that 40%

of peasants‘ petitions are likely related to land disputes.5 Forth, the misuse of land leads to farmland loss, threatens food security, adversely affects economic production and suitable development China‘s average area of farmland per capita is only 40% of the world average, and 7,950 hectares of farmland were lost between 1998 and 2008.6 The situation is aggravated by

illegal acquisition and conversion of land in rural-urban peripheries To address the pressure of economic development and urban expansion, large amount of farm land is converted for non-agricultural purposes and food security will become one of the major concerns for the central government To make matters worse, many pieces of land are acquired and converted in violation of resources-protection laws and principles These abusive and illegal land management activities make land resources wasted, overexploited, and ineffectively used

The absence of corruption has a positive influence on the quality of land management From an environmental perspective, proper distribution of land without abuses and corruption considers the responsibilities of protecting natural resources and overall urban planning principles Hence the possibilities

of overexploiting land resources can be reduced Second, proper land distribution without corruption is politically beneficial A corruption-free land administration system promotes citizens‘ sentiment of fairness and alleviate the inequality over land use and serves the interest of local communities and the general public As a result, we expect the occurrence of inequalities, disputes and social unrest can be prevented Third, from the economic perspective, proper and corruption-free land distribution strategies intend to make use of land resources more effectively and more efficiently that land-wasting behaviors cannot be tolerated If land administration officials abuse their power to grant or block access to land, the value of land can be

underestimated and underutilized

In short, numerous social problems such as the loss of farmland, social unrest, environment deterioration, deprivation of human rights, poverty and inequality can be attributed to corrupt and illegal government activities in the land sector, while a proper, accountable and corruption-free land management system contributes to the development of a society and the welfare of its citizens

Research Questions and Objectives

Land corruption has become synonymous with, and surging alongside, market-oriented land reforms in contemporary China Both urban and rural areas have witnessed gigantic reconstruction within the land administration system, but urban land reforms are more influential and appear to be the driving force behind rural land reforms in many places Therefore, this research focuses on urban land, with occasional reference to rural land

Urban land reforms in contemporary China have centered around the commercialization of LURs; more specifically, the introduction of paid land leasing system and abandonment of free administrative allocation of land under the socialist land management system (Zhu, 1999b) The transformation from the state-led to market-led land allocation paradigm has been accompanied by a rise in rampant land corruption in the 1990s (Gong, 1997; Deng, Zhang &Leverentz, 2010) At the initial stage of land reforms (late

1980s to mid-1990s), the level of marketization was very low and urban land supply was still subject to heavy state control Restrictions on land transference and limited access to land encouraged illegal land transactions in the black market, besides, power was abused to obtain inside land-use information for personal gains In part to address the rampant corruption and black market in the land sector, the Chinese central government decided to reconstruct the urban land supply system A deepening adoption of market-driven urban land leasehold was witnessed in the 2000s The previous free and discounted allocation methods were gradually replaced by market-led land pricing and allocation modes such as public tender, auction, and quotation The main objective was to end the perceived government monopoly

in resources allocation and to restrain local officials‘ discretion in land licensing and permitting, in hopes that it would curb unprecedented land-related corruption The Ministry of Supervision, which worked aggressively with the Ministry of Land and Resources to promote the new policy, claimed that these tender, auction and quotation modes could reduce government intervention in the land market and protect principles of openness and fairness, and would be able to prevent corruption at its source.7

However, it is debatable whether this new policy has succeeded in reducing corruption Firstly, very few empirical studies have explored the

7

See ―Guotuziyuanbu Jianchabu Guanyu Luoshi Gongyeyongdi Zhaobiao Paimai Guapai Churang Zhidu Youguan Wenti De Tongzhi‖[― Notice of the Ministry of Land and Resources and Ministry of Supervision on the Implementation of the Assigned System of Commercial Lands by Means of Public Bidding, Auction or Hanging out in a Shingle‖], available at http://www.law-lib.com/law/law_view.asp?id=198388.

association between new land policy and corruption Secondly, there is no consensus among existing literature on the outcomes of the new policy Tao, Zhang and Li‘s (2010) empirical study reported that the tender and auction modes may reduce corruption in land sector, while negotiation and quotation modes may lead to opposite effects Similarly, Cai, Henderson and Zhang (2009) found that the auction mode has been successful in reducing corruption, whereas quotation (or two-stage auction) fosters corruption However, according to Liang (2009), the adoption of market-led urban land supply policy (tender, auction and quotation) in 2002 was found to be positively associated with corruption in the years that followed Deng, Zhang and Leverentz (2010) reported an escalation of land corruption between the late 1990s and 2008, which seemed to imply that the new policy had failed to curb corruption Given the unresolved debate in the existing small body of literature, there is a perceived need to empirically investigate the relationship between recent land reforms and corruption in China

This research attempts to analyze the impact of the market-led urban land supply mechanism: specifically, the impact of the tender, auction and quotation modes on the occurrence and severity of land corruption in China The primary objectives are to examine how corruption operates in urban land sector and how it is shaped by market-led land supply modes Hence, I propose following research questions in this thesis

I Has the introduction of market-led land leasing modes reduced

corruption as academics and practitioners claimed?

II If not, what are the factors that account for its failure?

To answer these questions, I empirically tested the relationship between market-led land supply modes and land-law violations Two hypotheses that capture the features of urban land supply system in contemporary China—rapid transition toward market-led land supply system

in the 2000s and growing financial dependence on land resources—were derived from the literature review Deepening adoption of the market mechanism in land supply is expected to help reduce corruption Conversely, capitalization on land provides financial motives for local governments to engage in illegal land use Descriptive and regression analyses were performed on a set of panel data to test these hypotheses As it turned out, the market-led land supply system failed to curb land corruption Drawing on an institutional approach, I explore reasons why the market mechanism has failed

to deter corruption through examining the legal and institutional loopholes in the current system

Research Design

This research used both quantitative and qualitative approaches: quantitative methods, to test the two hypotheses in the first research question, and qualitative method to explain the causal pathways through which

corruption is fostered or curbed by market-led urban land supply system to address the second research question Figure 1 illustrates how this research was carried out

Figure 1 Research Framework

Firstly, quantitative research is carried out to estimate the relationship between market-oriented land reforms and corruption on the basis of spatial characteristics and time effects Two explanatory variables capturing the major attributes of current urban land market are used to operationalize land reform practice: transition toward market-led urban land supply system, particularly the adoption of a new land supply policy in 2002, and financial dependence on land-related revenues Additionally, I control for various factors that may affect corruption as encompassed by the panel model, such as law enforcement, civil servants‘ wage, government size, and so forth A set of panel data collected from 31 provinces between 1998 and 2008 is analyzed using panel data analysis model The focus of this thesis is on the 1998-2008 period because 1998 is the start of an epoch-making point for China‘s land

administration regime In 1998, a comprehensive revision to the Land Administration Law was launched; more importantly, the Ministry of Land and Resources was created in March 1998, marking the beginning of a nationwide land reform I chose provinces (rather than municipalities or counties) as the unit of analysis, for two reasons: (1) in China‘s administrative hierarchy, provincial-level administrative units are the most important sub-national level authorities Central regulations and policies are often redefined or modified at provincial level so that policies remain consistent within the jurisdiction of a provincial unit, and any revision to the original regulations by municipal or county governments has to be approved by provincial governments (2) Statistics are usually compiled and published by provincial governments, and these were the only available data to systematically study land issues in China Municipalities and counties rarely published their data in a comprehensive and longitudinal manner

The quantitative analysis relies on official statistics compiled by various government bodies Major sources of data include China Land and Resources Almanac, China Statistical Yearbook, China Financial Yearbook and provincial yearbooks, whose features are summarized in Table 7 Admittedly, corruption is inherently difficult to measure Land issues strike at the legitimacy of the ruling party hence land corruption data is usually considered confidential and not accessible to the public However, we can find alternative measures to indirectly capture the level of land corruption This

paper selects land-law violations defined by the Land Administration Law as

proxies of land abuses and corruption It should be acknowledged that official land corruption statistics—land-law violations—have limitations in their quality and reliability First, the number of land-law violations has seen remarkable fluctuations between 1998 and 2008, which is perhaps caused by shifts in the intensity of land-law enforcement from time to time These fluctuations may affect the validity of regression results To address this problem, I integrate the variable of law enforcement in the regression analysis

to ensure the fluctuations in official land corruption statistics are under control

By controlling the variations of law enforcement, we can also control the gap between actual land corruption level and revealed land corruption level as many scholars argue that official statistics only reflect the intensity of enforcement rather than the actual level of corruption Consequently, official land corruption statistics can provide a proper indicator of trends in the actual land corruption level

The second limitation of the quantitative data is that these land-law violations do not equal to land corruption because some violations are committed by urban residents or peasants, which have no connection with corruption Despite these limitations, land-law violations are entangled with bribery, abuse of power, and fraudulence hence are able to reveal illegal and corrupt government behaviors in land management Based on above reasons, official land-law violation statistics can be employed as a reasonable proxy of

corruption in the land sector

At the second stage, I use a qualitative method to interpret the regression results and to explain the causal mechanisms through which market-led land supply policy affects corruption If the coefficients of two explanatory variables showed expected signs, then hypotheses in this study are confirmed—i.e., marketized urban land supply system indeed helps to reduce corruption However, if the explanatory variables showed opposite signs, I would then use the qualitative approach to explain the failure of market-led land supply policy in curbing corruption To obtain the qualitative data, I conducted fieldwork in Beijing, Hebei and Shanghai between November 13,

2010 and December 18, 2010 In-depth interviews with public officials, businessmen, college professors and local residents were carried out The selection of participants was based upon the assessment of participants‘ potential to provide valuable information on land corruption and anti-corruption policies First, public officials‘ knowledge and experience drawn from government positions are useful for understanding the implementation of land policies and anticorruption polices The selected public officials consists of two groups: one group come from land administration organizations representing experienced influential decision makers who demonstrate the practices of land management, the other group was from procurators, policemen, and officials of petition office who possess experience of handling corruption cases Second, college professors and

journalists specializing in public administration and urban issues may offer unique insight into the outcomes of new land policies and anticorruption policies Real estate developers can tell stories of how they compete for land use rights in tender, auction and quotation More importantly, they are able to provide information on the state-business relations which demonstrate a hotbed for corruption Finally, local residents and peasants as main stakeholders are directly involved in land use activities such as toll breakdown and land expropriation, they can provide in-depth knowledge about government behaviors in land use Their perceptions on local governments are extremely important for understanding the scope and definition of land corruption Based on the above considerations, I contacted my acquaintances

in China to find qualified participants and used a snowballing technique to establish a valid sample frame Existing participants who willingly agreed to engage in the research made recommendations of other qualified participants Finally, 26 male and female respondents aged above 24 were chosen and interviewed: eighteen bureaucrats, two scholars, two real estate developers, two villagers and one journalist The bureaucrats held positions ranging from department chief to ordinary staff member in land administration offices, inspection and judicial system, and other government bodies that could be vulnerable to corruption The interviews were conducted face-to-face or via the internet, using self-administered list of questions As requested by the interviewees, and to ensure anonymity, no names or workplaces are mentioned

in the thesis The questions proposed during interviews can be categorized according to the following:

1) The perceived level of corruption and illegality in urban land market 2) The policy-making and implementation in land administration

3) The governance and transparency in the assignment of LURs

4) Government-business relationship in land market

5) The supervision and penalty of officials involved in land corruption cases 6) The interaction between land administration officers and citizens

It should be noted that there were difficulties encountered in obtaining reliable and systematical data through interviews Interviewees tended to withhold information and refused to reveal any abusive and corrupt activities existing in their workplaces As such, the contents of the interview may not accurately reflect land corruption with a high degree of certainty Moreover, the informants‘ personal perspectives and their relationship with the researcher may lead to biased statements that could negatively influence the empirical analysis In an attempt to overcome such difficulties, many participant observations and informal conversations were carried out I also conducted documentary research by reviewing existing archives, reports, documentaries, newspapers and websites to collect valuable information related to land corruption

Significance of This Study

This thesis finds that the newly established market-led urban land supply regime fails to resolve problems of land abuses and corruption, which have grown continuously over recent decades While the central government and several scholars have articulated the virtues of the tender, auction and quotation modes in reducing corruption (Cai, Henderson &Zhang, 2009; Tao, Zhang &Li, 2010), this paper demonstrates the inability of market-led land supply modes to curb corruption It shows that institutional loopholes in the urban land supply regime and a lack of parallel supervision mechanism have made corruption in land sector uncontrolled Meanwhile, the central policies are often manipulated by local states because of the conflicting interests of state agencies at various levels, resulting in failure in policy implementation

Based on the above findings, this research is expected to contribute to the literature of corruption and land leasing in China in the following aspects:

Firstly, this study contributes to current corruption literature by empirically studying land corruption issue in the Chinese context Although it has been agreed that current land reforms are at the root of many social conflicts, empirical studies on land management problems are few in number

In particular, corruption in land development is under-explored This research reveals the various forms of corrupt practices in urban land supply, such as extracting bribes, stealing land-related revenues and violating land protection rules and so forth, adding to the body of knowledge on how corruption

actually operates in urban land management

Secondly, this research project presents empirical evidence for the effects of market-led land supply regime on corruption in land management It makes use of both quantitative and qualitative research methods in a multidisciplinary framework Panel data analysis is complemented by qualitative data obtained from intensive interviews with local officials, business people, journalists and experts The combination of two types of methodology enables us to overcome the deficiencies of relying on a single method, so that more valid and convincing conclusion can be drawn Moreover, this thesis employs a multidisciplinary approach incorporating public administration, economics, sociology and geography to study how corruption is shaped by China‘s land reforms

Finally, the findings of this research have important implications in the policy arena This research intends to show the problems in current urban land management system and provides recommendations for improving land use efficiency and protecting land resources Additionally, this research goes beyond the land sector and situates the issue of land corruption within the broader context of the central-local relationship and the national legal environment and, hence, sheds light on the bigger picture of institutional reforms in contemporary China Furthermore, it would provoke future studies

in the area of land policy especially in rethinking and redesigning the tender, auction and quotation system

Organization of This study

The structure of this thesis is as follows:

Chapter 2 presents the basis for understanding the manifestations and

causes of corruption in China‘s land sector An operational definition of land corruption is provided, followed by a narrative report describing the forms and characteristics of land corruption based on 20 corruption scandals Existing literature on land corruption in global and domestic contexts is then reviewed The focal point of literature review is on the controversial relationship between market-led land supply system and corruption

Chapter 3 identifies the research questions by tracing the

transformation of China‘s urban land supply regime After analyzing the major characteristics of current land reforms, two hypotheses are derived to predict the relationship between land corruption and market-led land supply system

Chapter 4 utilizes descriptive analysis and regression analysis to test

the two hypotheses Coefficients of independent variables are estimated by panel data analysis and the results are interpreted accordingly

Chapter 5 explains why the market-led land supply system has

unexpectedly failed to curb land corruption Institutional and legal loopholes that produce risks of corruption in urban land supply process will be examined

Chapter 6 summarizes the contributions and limitations of this

research and offers suggestions for future study Finally, policy recommendations are made to enhance accountability and integrity in urban land management system

Chapter 2

Literature Review

This chapter reviews recent literature on abuse of public authority springing from China‘s land reforms in recent decades The objectives of this chapter are to organize the knowledge about land corruption in China and to discuss the contributions as well as shortcomings of existing literature Firstly,

an operational definition of land corruption will be presented based on the literature review to identify the boundary of this research Then, the patterns and characteristics of land corruption in China are described using 20 sample corruption cases Finally, major studies of land corruption in global and domestic contexts are outlined and discussed

Working Definition of Land Corruption

Corruption is commonly defined as the exploitation of public power for private gains (Guo, 2008; Rose-Ackerman, 1978; Shleifer & Vishny, 1993) In the Chinese context, forms of corruption include graft, bribery, misappropriation, collective illegal possession of public funds, unstated sources of large properties, abuse of power, dereliction of duty, and fraudulent practice In addition, many misconducts that do not constitute corruption crime but that violate morality or communism ideology are also considered as

corruption, such as excessive banqueting and entertainment, womanizing, seeking privileged jobs for relatives, and purchasing excessive facilities (Liu, 1983) Given the unique political culture in China, the concept of corruption shall be broadened in its scope and deepened in depth Any government behaviors that violate laws, prevailing norms or codes of conduct should be regarded as corruption

Land corruption shares some common features with corruption in other economic sectors; yet, it demonstrates distinct features because land is the fundamental factor in economic production This thesis proposes an operational definition of land corruption to clarify the boundary of this research Land corruption is defined in this thesis as the abuse of public power over land resources for private gains or organizational interests, or which violates regulations, principles or prevailing norms of land use The forms of corruption related to land encompass all types of illegal land use behaviors by local government officials In this thesis, the terms ―corrupt‖ and ―illegal‖ land use behaviors are used interchangeably as both types of behaviors pursue private gains at the expense of public interests Furthermore, both are handled

by the Central Commission of Disciplinary Inspection (CCDI) and Ministry of Supervision, two major anti-corruption agencies in China Major types of illegal land use behaviors, such as the illegal purchase, sale and transfer of LURs, unlawful approval of land occupancy, and granting of land at a lower price, directly or indirectly involve abusive and unlawful behaviors of local

bureaucrats Finally, two types of illegal land use activities—illegal approval

of land requisition and illegal transfer of land use rights at lower prices—are classified as malfeasance by the criminal law.8 Given the close links between corruption and illegality in land development, the two terms shall be read as referring to the same issue

The next question then arises: how is corruption manifested in the urban land sector? The presence and characteristics of corruption vary significantly from sector to sector; thus, it is necessary to thoroughly investigate the manifestations of corruption in land management However, given the sensitive and secretive nature of land corruption, it is extremely difficult to accurately describe how corruption operates Notwithstanding, I collected information on 20 land corruption scandals from newspapers articles, anticorruption report and online medias from early 1990s to 2010; these are presented in Appendix A While these land corruption cases represent only the tip of the iceberg, they shed light on the forms and characteristics of corruption

in the urban land sector; hence, a basic understanding of land corruption can be drawn from these cases

As shown in Appendix A, the magnitude and severity of land-related corruption seem substantial Many land corruption cases involve high-ranking

officials (yao an) and large sums of money (da an) It is commonplace to find

8 See ―Zuigaorenminjianchayuan Guanyu Duzhiqinquan Fanzuianjian Lianbiaozhun De Guiding‖ [―Standards of Malfeasance Crime Registration set by the Supreme People‘s

instances of provincial governors or Party secretaries accused of corruption in the land and property market Of the 20 sample cases, 14 involve provincial or ministerial level officials; 10 officials were sentenced to death, demonstrating the severity with which land corruption is punished Deng, Zhang and Leverentz (2009) found a positive relationship between the ranks of corrupt officials and the amount of land involved: the higher the official‘s rank, the larger the amount of land that was being illegally used The average land area involved was 3.31 hectares for provincial officials and 1.25 hectares for city officials The bribe size is also substantial: at least hundreds of thousands of RMB (several hundred thousand in US and Singapore dollars) are paid to local officials as bribes, as reflected by the Jing Fusheng and Liu Zhihua‘s cases

Secondly, corruption cases in land leasing suggest a massive scale that lead many scholars to label such acts ―organizational corruption‖ (Lin, 2009;

Lu, 2000) or ―collective corruption‖(Gong, 2002) Urban land leasing regime

is built on a division of labor, with each land leasing deal requiring permits and approvals from various government departments Horizontally, corrupt land leasing deals require collaboration among multiple government bodies, including party and executive leaders, land and housing officials, urban planning officials, and even banking and judicial officials Vertically, land related corruption is usually initiated or protected by the chief leaders or the

―first-in-command‖ (yibashou) If the ―first-in-command‖ is involved in

corrupt deals, the subordinates have to follow suit,9 as exemplified by Mu Suixin and Ma Xiangdong‘s gang corruption cases One local land administration official stated the group behaviors as such:

There is no real estate developer who does not have guanxi with

chief party and government leaders in our area Normally corrupt land deals have been ‗approved‘ by the leaders; we are just following that command We land administration officials do not possess such discretion to initiate corrupt land deals.10

Thirdly, forms of corruption such as bribery, nepotism and favoritism are frequently observed in land corruption cases Among the 20 sample cases,

at least 15 officials were accused of accepting bribes, while other forms of corruption such as embezzlement and misappropriation appeared to be regarded as less serious than bribery This finding is consistent with Wederman‘s study (2004) Continuous budgetary reforms may have prevented the occurrence of direct theft of public assets such as embezzlement and misappropriation, while public-to-private corruption prevails in the reform era, along with a thriving real estate industry Real estate companies that want to maximize profits tend to bribe local officials to obtain land at the lowest possible costs

The preceding section presented the operational definition and major

9 This behavior is described by the report ―Ten Characteristics of Chinese Corruption‖, China Report 2004, 40, p.107

10

forms of corruption in China‘s urban land sector The next section reviews current literature to understand why land corruption prevails in both global and national contexts

Studies of Land Corruption in a Global Context

Corruption is a phenomenon that exists in many economic sectors, but

it is only in recent years that land-related corruption has attracted close attention at the international level Land administration is now perceived to be one of the most corrupt sectors in many countries Transparency International (2009) finds that after the police and the court, land services are the most prone to corruption, ―in the Middle East and North Africa, the most bribe-prone institutions are reported to be those handling procedures related to buying, selling, inheriting or renting land In EU countries these land services along with healthcare are most vulnerable to petty bribery‖ (p.3) However, detailed documentation of corrupt activities in the land sector is a relatively recent phenomenon For many years, corruption studies have focused on decentralization, liberalization and privatization of state-owned enterprises (SOEs) while land-related corruption has been given scant academic attention Nevertheless, corruption in the land sector has emerged an important research subject in urban economics and corruption studies

Recent newspaper articles and scholarly works suggest that developing countries and transitional economies are plagued by corrupt land management

that impedes sustainable development (Knox, 2009; Strong, 2003) In a study

on urban land privatization in Ukraine, Strong (2003) reported that in Kyiv a builder must pay bribes at various stages of land and construction permitting

In addition, prospective investors had no access to information related to land, which then discouraged investment Improper land leasing modes also produced risks of corruption, ―a preference for negotiated sales of land rather than auctions sometimes reflects favoritism and bribes in the privatization process‖ (p 200)

Another post-socialist country, Vietnam, has also been plagued by serious corruption in the land sector The World Bank‘s (2011) report,

Recognizing and Reducing Corruption Risks in Land Management in Vietnam,

argued that ―corruption is most likely to occur when an official or office has a

monopoly, when the official or office has a great deal of discretion over how

the decision is taken, and when there is little accountability for that decision or

transparency, which might make it harder for the corruption to proceed

unabated‖ (p xiv) The risks factors for corruption embedded in Vietnam‘s land management system include poor dissemination of land-related information, unnecessarily complex and time consuming procedures, improper and non-transparent settlement of complaints, ineffective oversights of media, and so forth Information dissemination and transparency in land management

was also emphasized in another World Bank report on Vietnam, titled Survey

Report on Information Disclosure of Land Management Regulations (Nguyen,

Nguyen, Tran, Prickett, Phan, 2010) Focusing on the disclosure of land related information in Vietnam, this study insisted that land related information was not readily available and accessible in Vietnam, ―in many cases local officials cannot locate the information,‖ and ―individual citizens do not seem to be aware of their right to access to information in general and land related information in particular.‖ (p 49) Therefore, the report suggested that accessibility to land information had to be improved to reduce opportunities for corruption As post-socialist countries in the developing world, China and Vietnam share considerable similarities in land administration, including public ownership, separation between ownership rights and utilization rights, and the introduction of public land leasehold and, hence, the World Bank reports on land corruption in Vietnam would shed light on the same issue in China

In addition to the World Bank, the U4 Anti-corruption Resources Center, a research agency operated by Chr Michelsen Institute and Transparency International jointly, also dedicates efforts to examine corruption related to land management One of the queries initiated by this research center focused on corruption in land administration in Kosovo The

publication Corruption in land administration / land management in Kosovo

(Nawaz, 2008) proposed multiple reasons for rampant land corruption in Kosovo, such as the manipulation of documents, ineffective inspection system, improper enforcement of laws and regulations, uncoordinated and confusing

land use process, weak role of civil society, and so forth The author suggested reform programs aimed at improving institutional qualities to resolve land corruption problem in Kosovo

Another Transparency International (2010) research project involved a national corruption perception survey in Pakistan, a country that is also plagued by corruption The survey results suggested that land administration was perceived to be the third most corrupt sector in Pakistan in 2010 At least

8 in 10 (82.04%) of 5,200 respondents reported that they encountered corruption in their interactions with land administration officials The report cited the lack of accountability in the land administration system as the most important cause of corruption, followed by discretional power, non-transparency, low salaries, land supply shortages, red tape-ism, and so forth

These studies have made significant contributions to the body of knowledge on corruption in land sector; in particular, they provide theoretical and empirical insights into studies on land corruption in developing and transition economies One important implication is that land corruption occurs due to both sectoral and environmental factors Sectoral factors such as monopoly of land resources, discretion of land administration officials, qualities of land administration institutions, government accountability and transparency exert direct influence on the incidence of corruption Systematic factors, such as weak civil society, poorly-designed legal framework, and a

lack of the rule of law, can also exacerbate land corruption The implication is that land corruption cannot be addressed by merely focusing on land administration itself; instead, comprehensive institutional reforms have to be carried out to build a clean social and political environment

Studies of Land Corruption in China’s Domestic Context

As a post-socialist country with developmental objectives, China is unexceptionally suffering from rampant corruption in land management A combination of factors—loss of arable land and food insecurity—in recent decades has raised public awareness on land protection in China Scholars have devoted their efforts to exploring why corruption prevails in China‘s land sector These particular perspectives can be divided into the following: (1) central-local contentions and the fierce interregional competition triggered by decentralization reforms may have encouraged rampant land lawbreaking; (2) ambiguous land property rights in China is believed to cause chaotic land management which facilitates corruption; and (3) state control in the ownership and allocation of land resources is the root of land corruption These perspectives will be thoroughly investigated in the following literature review

Contentious Intergovernmental Relations

Intergovernmental relations, including both vertical and horizontal

aspects, have been largely redefined in the era of fiscal and administrative decentralization Decentralization is regarded as a strategy to promote economic growth in local areas; however, it has created conflicts between central and local governments and stimulated contentions among local governments themselves, which can lead to abusive and illegal use of land resources The causal pathways are described as follows: firstly, fiscal reforms

in contemporary China have resulted in a recentralization of fiscal revenues toward the central government and created a fiscal shortage for local governments (Ko & Zhi, 2011) The lack of sufficient financial resources makes local authorities trapped in a dilemma of delivering public goods with insufficient fiscal revenues To bridge the gap between revenues and expenditures, local governments look for multiple sources to boost their revenue stream; the soaring prices of land and real estate properties have, in this regard, become an important source of capital Land expropriation and selling are strategies undertaken by local officials to increase their financial power, and these have created to problems in the land sector Guo (2008) claimed that massive acquisition and selling of land resources have triggered rent-seeking, corruption, and have caused harm to peasants‘ welfare Lin (2009) also pointed out that overexploitation of land has led to irrational land grabbing and widespread illegal land sales in the black market

The association between fiscal decentralization and illegal land use is also supported by empirical evidence Liang (2009) conducted a regression

analysis using a set of panel data between 1999 and 2005 to explore the relationship between fiscal decentralization and land corruption After controlling for per capita GDP, provincial population, land revenues and some features of land administration sector, the author found that fiscal decentralization had significantly augmented land law violations by local governments Scholars also believe that a decentralized land management system can contribute to abusive and corrupt land use activities in local areas

In the era of administrative decentralization, local governments have been given broad discretion in land requisition, conversion, and allocation, such that central government is now facing difficulty controlling these local-based, individual fiefdoms Meanwhile, local governments continue to focus on local development, effecting policy measures and preferences with their self-interests

at heart (Zhu, 1999) Broad discretion in land development has allowed local authorities to act against the central policies for local interests, making the principal-agent problem difficult to control Gong (2006) drew on the principal–agent approach to explain land corruption in China‘s local areas Gong asserted that China‘s local states have acquired both monopolistic power and responsibilities in decentralization process Land corruption occurs as localities—the agents—betray the interests of central government—the principal—in pursuit of their own interests She explained the causal mechanism as follows:

What has taken place in China‘s decentralization process is an increase in all three; that is, while the degree of discretion of local officials has increased to the extent of forming monopolized powers, accountability and transparency of exercising these powers are not established Such a structure of governance provides enough room for local officials to render favorable treatment to special interests in exchange for personal gain This is most evident in land-related corruption activities in recent years (p 89)

Elaborating further on the principal-agent problem, Cao, Feng and Tao (2008) pointed out that local governments which have strong incentives to compete for manufacturing investment will always find ways to evade central policies and that it would be difficult for the center to exert effective supervision over such practices

Zhang, Xu and Wang (2011) conducted an empirical study to examine the effects of central-local contentions on corruption Using panel data of land law violations between 1999 and 2007, the authors found that when provincial governors were selected from the corresponding province, a situation they termed ―local coalition,‖ the severity of land law violations measured by the amount of illegally-used land areas would likely increase by over 30% This empirical study confirmed that land-law violations occur because local officials may act against central policies to protect local interests

In addition to central-local conflicts, interregional contentions have also been blamed for encouraging abusive and corrupt land-use behaviors

among local officials Liang (2009) explained that China‘s political system remains highly centralized by controlling the appointment and promotion of local cadres Under the current cadre promotion system, economic growth is a major criterion in evaluating cadre performance and the motivation of improving economic achievements has stimulated fierce interregional competition Land holds special status in economic production, as a major market resource to be consolidated and mobilized so as to stimulate economic growth, which provides further incentives and opportunities for cadres to misuse land resources Wu, Xu and Yeh (2007) described the behavior of local cadres thus:

This (assessment of officials based on economic performance and achievement in office) stimulates the officials to develop concrete projects to demonstrate their record The physical form of the built environment-such as city squares, elevated roads, metro-mass-transit, and development zones-by its nature allows easier visualization of the achievement than ‗intangible‘ social development and public opinion (p 14)

Such political motives of local officials often lead to irrational and shortsighted activities including excessive land grabbing and an overinvestment in infrastructure regardless of urban planning and land protection regulations Zhu (1999) claimed that vicious interregional competition and local cadres‘ objective of short-term development has made

rent seeking prevalent in the land sector Ho (2001) also noted that, ―the ambition to achieve in their term of service causes cadres to approve the construction of factories, office-towers and apartment buildings on agricultural land, which opens up large opportunities for corruption‖ (p 409)

A Lack of Protection on Property Rights

Another factor on land abuses springs from ambiguous land property rights and its resultant lack of protection Ambiguity in the definition of property rights exists in both rural and urban land markets; this literature review focuses on urban land areas with occasional reference to urban-rural fringes

According to China‘s Constitution, urban land is owned by the state, while land in the suburban and rural areas is owned by the collectives However, it is not specific as to who represents the state (Ho, 2001) As Ho pointed out, there is a legal twilight zone with regard to the concept of the state as owner of urban land, which brings about confrontations between state institutions He acknowledged: ―the imprecise definition of state ownership is the underlying cause of arable land loss as local governments illegally and indiscriminately sell land for construction‖ (p.403) Because of ambiguity in rural collective land ownership, state-collective confrontations can happen in suburban areas during the tide of urban sprawl, a major manifestation of which is that ―collective land and sometimes entire collectives have been sold

or appropriated without formal change of land ownership titles‖; worse yet, collective ownership often becomes a hollow clause as ―the decision for land sale is often taken in the cadres‘ private capacity‖ (Ho, 2001, p 410), leading

to a severe problem of land loss

Lin and Ho (2005) also believed that ambiguous property rights, particularly in rural areas, is one possible explanation for the existence of illegal conversion and transactions in the black market The authors claimed that rural collective ownership brings forth a confused definition Both rural collectives and peasants believe they have the right to dispose of the land In reality, peasants‘ rights and related benefits are very limited; often, it is the collective, the villagers‘ committee, which decides on how land is to be used, reaping the lion‘s share of profits in return

The problem of ambiguous property rights was further discussed by Zhang (2006) The author elaborated three types of ambiguities in current land management laws: firstly, the definition of public interest is vague; secondly, compensation to peasants deprived of land is not clearly specified; thirdly, peasants‘ rights to rural land are not stipulated by law which, in effect, allows the village committee to exercise the executive power These legal ambiguities weakened individual property rights to land and facilitated land grabbing, rent seeking and corruption in localities (Zhang, 2006)

State Monopoly and Dual-Track System

Within the land management system, debates on the sources of and solutions to land corruption have centered on role of state monopoly Some scholars employ a public choice perspective to explain how rent seeking and corruption occur under public land ownership Economists of the public choice school assume that state monopoly in the operation of economy encourages corruption (Tanzi, 1998) Given that China maintains strict state monopoly in land ownership, rent seeking and corruption can be expected Chow (2006) criticized public ownership of land and bureaucratic power as an important source of corruption, and suggested further reduction on publicly-owned land and the government administrators‘ power to control corruption As the author put it:

by reducing the role of the state, including the sizes and number of state-owned enterprises and banks, the amount of publicly owned land (to be sold by auctions for example as in the case of Hong Kong), the number of government bureaus having authority to grant permit and licenses (some of which are necessary and desirable) and the number of government development projects, we can hope to reduce the amount of corruption substantially (p.281)

Deng, Zhang and Leverentz (2010) also argued that ―officials at various levels use every possible means to seek rent through monopoly in the economic areas that had not been open for market competition‖ (p 79), which

is exemplified in the urban land sector The authors explained the relationship

between state monopoly and corruption in land requisition as follows:

Because only the state had the right to obtain land from farmers at very low prices, officials frequently abused their power to approve land acquisitions from suburban or rural areas and then let their relatives or associates act as land brokers to transfer land to developers Frequently, developers identified good locations for their projects and contacted officials or land brokers to persuade government officials to get land from farmers at low costs (p.79)

State monopoly gives rise to local officials‘ individual control of land and property market, which provides opportunities for corruption Gong (1997) claimed that ―the authority over land (including planning, developing and leasing, etc.) has provided government officials with means of money making Possessing the power to decide whether, how, to whom, and at what price to lease the land, they could easily abuse power by requesting bribes from interested individuals or institutions‖ (p 280) Deng, Zhang and Leverentz (2010) also believed that ―urban land reforms featured by reassignment of property rights provides opportunity for corruption because officials have the power to decide who control property, who have the right for land-related income flows, and who have the right to assign ownership‖ (p 77)

Closely related to state monopoly, the dual-track land allocation mechanism and suppression of market forces are also believed to facilitate corruption Deng, Zhang and Leverentz (2010) further argued that ―the dual

price policy created huge price differentials that in turn provided an enormous opportunity for corruption‖ (p 74) This is particularly so with regard to urban land sector, which still maintains the dual pricing mechanism

Firstly, under dual-track allocation system, land can be allocated either free of charge, or based on payment The existence of free and discounted land supply modes, namely administrative allocation and negotiation, gives rise to bribery and corruption (Yeh & Wu, 1996; Zhu 2002; Lin & Ho, 2005; Yeh, 2005; Xu, Yeh & Wu, 2009) The land rents created by the price gap between free allocation and paid acquisition encourage land buyers to be rent seekers Deng (2003b) pointed out that corruption was a direct problem brought about

by free administrative allocation, as real estate developers may bribe local officials to obtain land through free administrative allocation rather than expensive market modes Negotiated sale of land, which involves partial state control, was also believed to facilitate corruption (Yeh & Wu, 1996; Zhu, 2002; Deng, 2003b; Lin & Ho, 2005; Yeh, 2005; Xu, Yeh & Wu, 2009) As investors can buy land at a much lower price through private negotiations (Deng,

2003b), they may approach land deals through guanxi networks, bribery and

fraud (Wong & Zhao, 1999) This argument was supported by Tao, Zhang and Li‘s (2010) empirical study, which reported a positive association between negotiated land deals and illegal land use activities

Secondly, a dual-track allocation mechanism nurtures a black market where illegal purchase, sale and transference of state-owned land prevail

Work-units illegally lease administratively allocated land to other users through the black market, and peasants illegally transfer rural farmland to investors (Yeh, 2005; Yeh & Wu, 1996; Zhang, 1997) Such behaviors may lead to a capital loss of state assets and damage to invaluable farmland On the other hand, Zhu (1994, 1999a) rejected the notion that dual-track mechanism hinders the land market and suggested instead that the dual land market could become an implicit program to nurture local enterprises and developers, a means of fostering local government-enterprise coalitions, and an instrument

to strengthen local government‘s position in local development

Nevertheless, the Chinese central government strongly believes that land corruption is the result of heavy state intervention and low level of competition in urban land market Led by a neo-liberal paradigm, the central government initiated a series of land reforms to cope with land corruption by building a full-fledged land market A major reform practice is the abandonment of free and negotiated land deals and strict adoption of tender, auction and quotation methods in urban land leasehold The state has articulated the merits of tender, auction and quotation modes as a solution to abusive and corrupt land use.11 For instance, an article by Zhang Yanhua, deputy general director of the Department of Land and Resources in Zhejiang Province, stated that the tender, auction and quotation modes can help

11 See ―Jianchi He Wanshan Tudi Zhaopaigua Guiding, Baochi Dijia Pingwenheli Tiaozheng‖ [―Insist and Improve the Land Rules of Tender, Auction, and Quotation, Ensure Land Prices are Stable‖], http://house.people.com.cn/GB/14627461.html; see also ―Guoziwei: Tudi Jiaoyi Zhaopaigua Zhi Shi Haozhidu, Ke Fangzhi Fubai‖ [―SASAC: Tender, Auction, and Quotation are Good Rules to Prevent Corruption‖], http://finance.people.com.cn/GB/11188332.html

improve the quality of land administration, maximize the value of land assets, and prevent corruption by ensuring transparency and fairness (Zhang, 2002) Chinese scholars such as Qiu (2006) also strongly support the new land supply regime However, the marketization of urban land supply as a solution to corruption turns out to be debatable Paradoxically, the new land supply policy generates new opportunities for corruption, as suggested by recent studies Liang‘s (2009) empirical research found that the adoption of market-led urban land supply policy (tender, auction and quotation) in 2002 was positively associated with illegal land use in the years 2002, 2003 and 2004 Cai, Henderson and Zhang‘s (2009) theoretical model and empirical evidence revealed that the quotation mode, or ―two stage auction,‖ as termed by the authors, leads to less competitive bidding and more corruption than one-stage auction This finding was further confirmed by Tao, Zhang and Li (2010), whose empirical study reported a positive relationship between quotation mode and land lawbreaking Given such debates, the effects of market-led land leasing modes on corruption remains largely unknown

Implications of Literature Review

The literature review has several important implications Firstly, although corruption has been intensively analyzed by political scientists and economists, corruption related to land development is inadequately discussed

by scholars; in this regard, only World Bank and Transparency International

have occasionally launched research projects on land corruption; hence, our knowledge about land corruption in the global context is limited In China‘s domestic context, documentation of government behaviors in urban land use is new to the academic world, and there are only a few theoretical and empirical works available to disclose why corruption is rampant in China‘s land sector Besides, causal arguments are often derived from anecdotal evidence or individual cases rather than systematic observations and analysis, hence, many have gone untested Probably because of methodological challenges, empirical studies on Chinese land corruption are rather limited in current English literature (Cai, Henderson & Zhang, 2009) Among Chinese literature, only a handful of local Chinese scholars have studied the land corruption issue using

an empirical approach (Liang, 2009; Tao, Zhang & Li, 2010) Given such limited scholarship on the land corruption issue, there is a strong need to thoroughly investigate how and why corruption occurs in China‘s land sector

A major controversy within the current land corruption literature concerns the relationship between marketized urban land supply policy and corruption Advocates of the neo-liberal theory attribute land corruption to state monopoly in land ownership and land leasehold Led by neo-liberal ideology, the Chinese central government has carried out market-oriented land reforms to reduce state monopoly in urban land supply However, scholarly works have reported the failure of marketized land allocation mechanism in preventing corruption (Liang, 2009) Considering such disagreement, this