Holding the market under the stimulus plan: Local government financing vehicles' land purchasing behavior in China

Abstract

China's stimulus plan in 2009–2010 brought local government financing vehicles (LGFVs) and new types of land finance into the spotlight. This paper uses national parcel-level land transaction data to examine the causes and consequences of LGFVs' land purchasing behavior in China. We found that LGFVs overbid significantly in terms of land prices. We explore channels through which LGFVs bid high prices for land. The stimulus plan induced local government to increase debt and rely more on land-based mortgages and land leasing revenue. Fiscal pressure led to an increase in LGFVs bidding for land. We found that the stimulus plan changed local governments' control over land leasing and land finance. Local governments hold more of the land market and inflate land prices following implementation of the stimulus plan.