TY  - JOUR
AU  - Cai,Hongbin
AU  - Henderson,J. Vernon
AU  - Zhang,Qinghua
TI  - China's Land Market Auctions: Evidence of Corruption
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15067
PY  - 2009
Y2  - June 2009
UR  - http://www.nber.org/papers/w15067
L1  - http://www.nber.org/papers/w15067.pdf
N1  - Author contact info:
Hongbin Cai
Guanghua School of Management and IEPR
Peking University
Beijing 100871
China
E-Mail: hbcai@gsm.pku.edu.cn

J. Vernon Henderson
Department of Economics
Box B
Brown University
Providence, RI 02912
Tel: 401/863-2886
Fax: 401/863-1970
E-Mail: j_henderson@brown.edu

Qinghua Zhang
Guanghua School of Management
Peking University
Beijing 100871
China
E-Mail: zhangq@gsm.pku.edu.cn
AB  - This paper studies the urban land market in China in 2003--2007. In China, all urban land is owned by the state. Leasehold use rights for land for (re)development are sold by city governments and are a key source of city revenue. Leasehold sales are viewed as a major venue for corruption, prompting a number of reforms over the years. Reforms now require all leasehold rights be sold at public auction. There are two main types of auction: regular English auction and an unusual type which we call a "two stage auction". The latter type of auction seems more subject to corruption, and to side deals between potential bidders and the auctioneer. Absent corruption, theory suggests that two stage auctions would most likely maximize sales revenue for properties which are likely to have relatively few bidders, or are "cold", which would suggest negative selection on property unobservables into such auctions. However, if such auctions are more corruptible, that could involve positive selection as city officials divert hotter properties to a more corruptible auction form. The paper finds that, overall, sales prices are lower for two stage auctions, and there is strong evidence of positive selection. The price difference is explained primarily by the fact that two stage auctions typically have just one bidder, or no competition despite the vibrant land market in Chinese cities.
ER  -