Underestimated impacts: the multi-dimensional roles of land finance in driving regional economic integration – Nature

Executive Summary

This report analyzes the role of land finance in facilitating Regional Economic Integration (REI) within China’s Yangtze River Economic Belt, with a specific focus on its alignment with the Sustainable Development Goals (SDGs). Utilizing data from 108 cities between 2002 and 2020, the study employs baseline, spatial econometric, and machine learning models to assess the multi-dimensional impacts of land finance. The findings indicate a complex and evolving relationship. Initially, during its boom stage, land finance negatively impacted REI, hindering progress towards SDG 11 (Sustainable Cities and Communities) and SDG 8 (Decent Work and Economic Growth) through mechanisms like urban sprawl and real estate bubbles. However, in its subsequent transitional stage, its effect became positive. Spatially, the diffusion effect of land finance on REI shifted from positive to negative, impacting SDG 10 (Reduced Inequalities) by creating inter-regional competition. The analysis reveals that different land finance modes have distinct spatial effects, with the land transfer mode increasingly supporting REI, while the negative impact of the land investment mode has diminished. Furthermore, land finance exhibits significant nonlinear influences on urban development within specific thresholds. These findings provide critical policy insights for governing land finance to support sustainable urban and economic integration, directly contributing to the achievement of multiple SDGs.

1. Introduction: Land Finance and Sustainable Regional Development

Regional Economic Integration (REI) has emerged as a primary strategy for achieving high-quality economic advancement, aligning with SDG 8 (Decent Work and Economic Growth) and SDG 9 (Industry, Innovation, and Infrastructure). In China, fostering collaborative regional development is a key policy objective. Land finance, a system of generating government revenue from land sales and taxes, has been a critical instrument in this process, providing capital for infrastructure and economic projects. However, its implementation has created significant challenges for sustainable development.

1.1. The Challenge of Sustainable Land Finance

While land finance can address fiscal gaps for local governments, its rapid expansion has led to unsustainable outcomes that conflict with several SDGs:

• SDG 15 (Life on Land): Extensive depletion of agricultural land.
• SDG 11 (Sustainable Cities and Communities): Formation of real estate bubbles and unsustainable land utilization patterns, such as urban sprawl.
• SDG 16 (Peace, Justice, and Strong Institutions): Increased local government debt and diminished capacity to service it, creating fiscal instability.

The imperative, therefore, is to transform the land finance system to support efficient, sustainable, and coordinated regional development, ensuring that economic integration does not compromise environmental and social well-being.

1.2. Research Objectives in the Context of SDGs

Previous research has not fully explored the direct, multi-dimensional impacts of land finance on REI, particularly concerning temporal shifts, spatial spillovers, and scaling effects. This study addresses this gap by constructing a comprehensive framework to analyze how land finance influences REI, providing insights relevant to achieving a balanced approach to development that supports SDG 11, SDG 8, and SDG 10 (Reduced Inequalities).

2. A Framework for Analyzing Land Finance’s Impact on Sustainable REI

The influence of land finance on REI is multifaceted, operating through mechanisms of capital accumulation, efficiency, and governance. This report examines these influences from three perspectives critical to sustainable development.

2.1. Temporal Effect: Evolving Impacts on Economic Growth and Sustainability

The impact of land finance on REI is not static but evolves over time, reflecting different stages of development and policy focus.

1. Initial Stage: Land finance helps bridge fiscal gaps and concentrates industries, fostering economies of scale that support SDG 8.
2. Boom Stage: The benefits diminish as agglomeration diseconomies appear, leading to disorderly urban expansion and industrial homogenization, which undermines SDG 11.
3. Transitional Stage: Following policy shifts like the New-Type Urbanization Plan, which emphasizes people-centered development, the relationship between land finance and REI changes again as governments aim to reduce reliance on unsustainable land-based revenue.

2.2. Spatial Effect: Inter-regional Competition and SDG 10

Land finance strategies in one city impact neighboring regions, creating spatial dynamics that can either foster or hinder equitable development under SDG 10.

• Competition Effect: Local governments compete for investment by manipulating land prices, leading to a “race-to-the-top” in some areas and a “race-to-the-bottom” in others. This can fragment regional markets and inhibit cooperation, undermining SDG 17 (Partnerships for the Goals).
• Spillover Effect: Competition can drive industrial relocation and specialization, accelerating industrial integration and information exchange across regions, potentially supporting SDG 9.

2.3. Scaling Effect: Urban Hierarchies and Inclusive Development (SDG 11)

The impact of land finance varies significantly with city size and economic status, affecting the goal of inclusive and sustainable urbanization (SDG 11).

• High-Ranking Cities: Tend to use land resources more efficiently and intensively, focusing on advanced industries and reducing reliance on land finance to drive REI.
• Lower-Ranking Cities: Often employ extensive and inefficient land conversion strategies, leading to complex debt structures that can spread financial risk and impede regional integration.

3. Methodology

3.1. Study Area and Data

The study focuses on 108 cities in China’s Yangtze River Economic Belt (YREB), a critical region for national development strategies. Data from 2003 to 2020 were collected, covering three distinct stages of land finance evolution. Socioeconomic and land finance data were sourced from official statistical yearbooks and the China Land Market Website.

3.2. Analytical Approach

A multi-model approach was adopted to provide a robust analysis of the complex relationships:

1. Ordinary Least Squares (OLS): To establish a baseline understanding of the temporal effects.
2. Spatial Durbin Model (SDM): To analyze the spatial spillover effects of land finance on REI, crucial for understanding impacts on SDG 10 and SDG 17.
3. Random Forest (RF) Model: A machine learning approach used to identify the relative importance of different factors and uncover nonlinear relationships and threshold effects, offering nuanced insights for creating sustainable policies (SDG 11).

4. Key Findings

4.1. Temporal and Spatial Disparities in REI and Land Finance

Both REI and land finance show significant growth and spatial diffusion from the eastern to the central and western regions of the YREB. Higher-level cities, particularly in the Yangtze River Delta, exhibit higher REI levels and are transitioning away from heavy reliance on land finance. In contrast, many smaller and mid-sized cities remain in a phase of intensive land development to drive integration, posing risks to sustainable development goals like SDG 11 and SDG 15.

4.2. Evolving Role of Land Finance on REI

The OLS results confirm the temporal effects hypothesized in the framework:

• Pre-2003 (Initial Stage): The impact was negligible.
• 2004–2014 (Boom Stage): Land finance had a significant negative effect on REI, indicating that its rapid, unchecked expansion was detrimental to coordinated and sustainable regional growth.
• 2015–2020 (Transitional Stage): The effect became significantly positive, suggesting that policy reforms aimed at promoting high-quality development have started to realign land finance with sustainable integration goals.

4.3. Spatial Spillover Effects on Regional Equity

The SDM results highlight the importance of inter-city dynamics:

• The spatial diffusion effect of land finance on REI was initially positive but later turned negative, reflecting a shift from cooperative to competitive dynamics that can exacerbate regional inequalities (SDG 10).
• The ‘land transfer mode’ (market-oriented) increasingly has a positive spatial effect, promoting efficient resource allocation.
• The ‘land investment mode’ (agreement-based, often to attract industry) shows a diminishing negative spatial effect, though its legacy of fostering inefficient competition remains a concern for SDG 9.

4.4. Nonlinear and Threshold Effects

The RF model revealed that the relationship between land finance and REI is nonlinear, with distinct thresholds. Land finance values that are either too low (below 2.5 billion RMB) or too high (above 105 billion RMB) are not conducive to REI. This finding is critical for creating balanced land use policies that support SDG 11 by avoiding the negative consequences of both insufficient investment and excessive, speculative-driven development.

5. Policy Implications and SDG Alignment

The findings lead to several policy recommendations aimed at aligning land finance with the Sustainable Development Goals.

5.1. Reforming Land Finance for Sustainable Urban Development (SDG 11 & 16)

Local governments must transition away from excessive dependence on land finance. This requires strengthening institutional capacity (SDG 16) and diversifying revenue sources.

• Optimize the allocation of land-related income and avoid haphazard expansion of agreement-based land transfers.
• Explore alternative revenues, such as property and environmental taxes, to create a more stable and sustainable fiscal foundation for cities.

5.2. Fostering Collaborative Governance to Reduce Regional Inequalities (SDG 10 & 17)

The significant spatial spillovers necessitate a shift from inter-regional competition to cooperation.

• Develop regional development strategies that account for cross-city impacts, enabling smaller cities to share the benefits of intensive land use in larger hubs.
• Establish coordinated land use plans that guide development in a way that promotes regional synergy rather than fragmentation, fostering partnerships for sustainable growth (SDG 17).

5.3. Implementing Scaled Policies for Inclusive Growth (SDG 8 & 11)

Recognizing the threshold effects of land finance is crucial for effective policymaking.

• Maintain land finance within a sustainable scale to maximize its positive impact on REI while avoiding negative externalities like urban sprawl and financial risk.
• Promote the market-oriented allocation of land to improve efficiency and allocate greater land development rights to high-performing cities that demonstrate sustainable and productive returns.

6. Conclusion

Land finance has played a multi-dimensional and often underestimated role in driving Regional Economic Integration in China. While it can be a tool for economic growth (SDG 8) and infrastructure development (SDG 9), its excessive and poorly governed application has posed significant risks to sustainable urban development (SDG 11), terrestrial ecosystems (SDG 15), and regional equity (SDG 10). This report demonstrates that the impact of land finance is not uniform; it varies over time, across space, and by scale. The shift from a negative to a positive influence in recent years suggests that policy interventions aimed at high-quality, sustainable development can be effective. To fully align regional integration with the SDGs, future policies must focus on transforming land finance into a sustainable fiscal tool through institutional reform, inter-regional cooperation, and evidence-based governance that respects its inherent thresholds and nonlinear effects.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article on land finance and regional economic integration (REI) in China’s Yangtze River Economic Belt addresses several Sustainable Development Goals (SDGs). The core themes of economic development, urban planning, infrastructure, land use, and governance create direct and indirect links to the following SDGs:

• SDG 8: Decent Work and Economic Growth

  The article’s central theme is “regional economic integration (REI)” and achieving “high-caliber economic advancement.” It analyzes how land finance, as a tool for capital accumulation, influences economic growth, productivity, and the development of regional economies. This directly aligns with SDG 8’s aim to promote sustained, inclusive, and sustainable economic growth.

• SDG 9: Industry, Innovation and Infrastructure

  The article explicitly states that land finance is used to fund “transportation infrastructure supply capacity” and “infrastructure construction.” This connects directly to SDG 9, which focuses on building resilient infrastructure, promoting inclusive and sustainable industrialization, and fostering innovation. The study examines how infrastructure development, financed by land sales, facilitates economic integration between cities.

• SDG 11: Sustainable Cities and Communities

  This is one of the most relevant SDGs. The article discusses key aspects of urban development, including “urban sprawl,” “disorderly urban expansion,” “housing prices,” and the need for a “land finance system that facilitates efficient and sustainable coordinated development.” These topics are central to SDG 11, which aims to make cities and human settlements inclusive, safe, resilient, and sustainable.

• SDG 15: Life on Land

  The article highlights the negative consequences of the land finance system, specifically mentioning the “depletion of extensive agricultural land” and “unsustainable land utilization.” This directly relates to SDG 15, which seeks to protect, restore, and promote the sustainable use of terrestrial ecosystems and halt land degradation.

• SDG 16: Peace, Justice and Strong Institutions

  The study delves into the role of local governments, fiscal policies, and governance structures. It discusses the “fiscal constraints on government spending,” the need for “precise governance of land finance,” and the creation of an “efficacious mechanism for regional coordination.” This aligns with SDG 16’s goal of building effective, accountable, and inclusive institutions at all levels.

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the issues discussed, several specific SDG targets can be identified:

1. Target 8.1: Sustain per capita economic growth in accordance with national circumstances

   The article’s entire focus on fostering “high-quality regional economic integration” and analyzing its drivers is aimed at understanding and improving mechanisms for sustained economic growth in the 108 cities studied.

2. Target 9.1: Develop quality, reliable, sustainable and resilient infrastructure, including regional and transborder infrastructure, to support economic development and human well-being

   The article repeatedly mentions that land finance is used for “augmenting transportation infrastructure supply capacity” and “infrastructure construction” to reduce “traffic expenditure” and connect urban clusters, which is the core of this target.

3. Target 11.3: By 2030, enhance inclusive and sustainable urbanization and capacity for participatory, integrated and sustainable human settlement planning and management in all countries

   The research directly addresses this target by analyzing the impacts of land finance on “urban sprawl” and “disorderly urban expansion.” The policy implications aim to guide “urban planners and policymakers” on creating a more sustainable system for coordinated regional development.

4. Target 11.a: Support positive economic, social and environmental links between urban, peri-urban and rural areas by strengthening national and regional development planning

   The concept of “regional economic integration (REI)” is the practical application of this target. The study analyzes the economic links between cities within the Yangtze River Economic Belt and advocates for policies that strengthen coordinated development.

5. Target 15.3: By 2030, combat desertification, restore degraded land and soil, including land affected by desertification, drought and floods, and strive to achieve a land degradation-neutral world

   The article’s concern about the “depletion of extensive agricultural land” and “unsustainable land utilization” as negative outcomes of the land finance model directly relates to the goal of preventing land degradation and ensuring sustainable land use.

6. Target 16.6: Develop effective, accountable and transparent institutions at all levels

   The study’s analysis of local government behavior, fiscal disparities, and the need for “precise governance of land finance” points to this target. It explores how institutional mechanisms (like the land finance system) impact development outcomes and suggests policy reforms for better governance.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article mentions and uses several quantitative measures that can serve as indicators for the identified targets:

• Regional Economic Integration (REI) Index:

  The study develops its own composite index to measure REI. As described in the “Measuring city-level REI” section, this index is calculated using variables such as city population (P), Gross Domestic Product (GDP) (V), and urban flow intensity (F). This custom index is a direct indicator for measuring progress towards Target 11.a and Target 8.1.

• Land Finance Scale:

  The article uses “land conveyance fees” as a primary proxy indicator for the scale of land finance. It provides concrete data, stating that fees “surged to CNY 59.827 trillion in 2020.” This serves as an indicator for analyzing fiscal policy under Target 16.6.

• Area of Land Transferred:

  The research uses the “area of land transferred” as a key explanatory variable, breaking it down into two modes: the ‘land transfer-oriented mode’ (LTM) and the ‘land investment-oriented mode’ (LIM). This data is a direct indicator of land use patterns and intensity, relevant to Target 11.3 and Target 15.3.

• Urban Sprawl:

  The article identifies “urban sprawl” and “disorderly urban expansion” as critical outcomes of land finance. While it does not calculate a specific rate, its analysis implies the relevance of SDG Indicator 11.3.1 (Ratio of land consumption rate to population growth rate) as a measure of sustainable urbanization.

• Government Fiscal Data:

  The article discusses how land finance is used to “alleviate the government’s financial disparities” and serves as an “extrabudgetary revenue” source. This implies the use of indicators related to local government budgets, fiscal gaps, and revenue sources, which are relevant for measuring institutional effectiveness under Target 16.6.

4. Summary Table of SDGs, Targets, and Indicators

Source: nature.com