Funding China's Urban Infrastructure: Revenue Structure and Financing Approaches

Article excerpt

ABSTRACT

Urban infrastructure has become increasingly important in China with its rapid urbani-zation and economic development. However, many questions remain unanswered about how different levels of governments in China gather financial resources to fund its urban infra-structure development, and whether the system is sufficient or sustainable. This article ex-amines financial resources for China's urban infrastructure investment in recent decades. First, the article traces the history of China's urban infrastructure investment since 1949. Second, using data mainly from the China Urban Construction Yearbook (2000-2008), it examines revenue structure and financial approaches for China's urban infrastructure finance, its recent trends and patterns, and disparities across provinces. Finally, the article evaluates unique characteristics of the China-style urban infrastructure investment, and dis-cusses some issues regarding the use of quasi-governmental authorities and land transfer fees.

1. INTRODUCTION

With rapid urbanization and economic development, high quality urban infrastructure has become increasingly important in China. Not only does it affect the welfare of the citizens but it also influences the progress of the so-ciety as a whole. Much literature has proved the positive relationship between urban infrastructure and economic growth (Wu, 2008; Chen et al., 2007). In recent decades, anecdotal observations and media studies have both shown rapid development of urban infrastructure, especially in the coastal regions. Some scholars, however, find that the provision of urban infrastructure in-vestment in China is insufficient compared to the high growth rate of the economy and population (Lin, 2001). In addition, Wu (2008) posits that sig-nificant regional disparity occurs in urban infrastructure investment, which obstructs the economic development in infrastructure-insufficient regions. Many questions remain unanswered about how China gathers financial re- sources to fund its urban infrastructure development, how the Chinese gov-ernment allocates the resources among different areas or different units of governments, and whether the system is sufficient or sustainable. This article examines revenue sources and financial approaches of China's urban infra-structure investment in recent decades. First, it traces the history of China's urban infrastructure investment since 1949. Second, using data mainly from the China Urban Construction Yearbook (Department of Finance, Ministry of Housing and Urban-Rural Development of China, 2000-2008), it examines financial sources for China's urban infrastructure finance and related trends and patterns. Finally, it evaluates specific characteristics of the China-style urban infrastructure investment, and discusses some issues regarding the use of quasi-governmental authority and public land finance.

In a broad concept, infrastructure is defined to provide -basic services to industry and household" (Lee & Martini, 1996). Generally, infrastructure in-vestment includes: -energy (power generation and supply); transport (toll roads, light rail systems, bridges, and tunnels); water (sewerage, waste water treatment, and water supply); telecommunications (telephones); social infra-structure (hospitals, prisons, courts, museums, schools, and government ac-commodation)" (Grimsey & Lewis, 2002, p.108). A narrower definition of urban infrastructure, used by the Ministry of Housing and Urban-Rural De-velopment of China, includes public utilities (water supply and drainage, resi-dential gas and heating supply, and public transportation), municipal works (roads, bridges, tunnels, docks, and sewerage), parks, sanitation and waste management, and flood control in urbanized areas (Wu, 1999). This is also the working definition of urban infrastructure used in the China Urban Construc-tion Yearbook (Department of Finance, Ministry of Housing and Urban-Rural Development of China, 2000-2008), which serves as the major data source for analysis in this article. …