Land marketization and industrial restructuring in China

Abstract

This study examines how land marketization without privatization in China influences industrial structure by utilizing China’s urban land transactions data from 2003 to 2015 and the data covering 29 industries in China’s industrial and manufacturing sector. The baseline panel-data analysis shows that a one standard deviation increase in the degree of land marketization will lead to a significant increase in the rationalization level of industrial structure, indicated by a decrease in the Theil index by 0.01, which is around 66.7% of the average annual change. The transmission mechanism is that land marketization boosts firm entry rate and market competition, leads to a lower proportion of state-owned enterprises, and also reduces the dispersion degree of firms’ TFP and improves the efficiency of resource allocation at the firm level. The systematic generalized method of moments and the instrumental variable approach are employed to deal with the possible endogeneity problem, and the main results are found to be robust. This study enriches our understanding of the reform of land marketization in developing countries: while maintaining land ownership unchanged, we can still make land use rights allocated through market means like auctions, which can result in a better industrial structure and a higher level of economic efficiency.