and government (Nitikin _et al._ 2012).<sup>4</sup> They also undermine security of property rights, investment, land market functioning, and thus the efficiency of land use. Third, use of one-off land transfer revenue to finance recurrent local government expenditure is not viable in the long term and, in light of China’s limited endowment with fertile land, will affect long-term food security. Local governments’ high levels of collateralization of ‘land banks’, accumulation of bad debts, and ‘land hoarding’ all can lead to serious problems in the financial sector (Du and Peiser 2014).<sup>5</sup> As land acquisition has increasingly become a focal point for legal disputes and rural unrest (Whiting 2011), efforts to find solutions focused on two areas. First, there have been calls to increase compensation paid to farmers and to make auctions rather than negotiation mandatory for all cases where land is made available for industry use. But determining an ‘appropriate’ level of compensation in a dynamic market is difficult. More importantly, local governments compete fiercely for industrial investment and auctions have been shown to be easily manipulated so that even their systematic use will not stop corruption (Cai _et al._ 2013). While these problems would be eliminated if direct rural-urban land transfers were allowed, few rural residents would be willing to give up their land unless an equivalent social safety net and source of income in old age was available (Ong 2014). Failure to capture the gains in land value from changing from rural to urban land use in a more sustainable way also undermines local governments’ ability to provide social services. A tax on land or capital gains could help to do so but can only be implemented if institutional preconditions are met, in particular if a proper cadastral database is in place (Nitikin _et al._ 2012).

This suggests that viable reforms would need to pursue a multi-pronged approach, including (i) registration of all rural land; (ii) a possibility for migrants to get an urban _hukou_ that provides access to social services, especially if they give up part or all of their rural land rights; (iii) allowing rural collectives or individuals to enter into direct land transactions at freely negotiated prices, subject to compliance with planning standards; and (vi) taxation of land so as to generate the revenue to support urban welfare packages while also contributing to more efficient land use (Tao and Xu 2007). Several experiments were undertaken to explore available options. These include integration of construction and collective land markets in Shenzen, land security development in Chongqing, urban fringe redevelopment in Beijing, land readjustment in Meitan, and the rural-urban integration in Chengdu to be studied here (World_Bank and DRC 2014). While some appear to have had positive effects, a more systematic evaluation of their impact on household welfare could help distill lessons to inform the potential nature and direction of future policy reforms in this area.

# **2.2 The Chengdu experiment**

> 4 It is estimated that, during the 1987-2001 period alone, 40-50 million farmers lost half or more of their land to expropriation and that only about half of them obtained an urban residence permit ( _hukou_ ) providing access to social services and education for their children (Tao and Xu 2007).

> 5Land thus emerged as a key policy issue (Wong 2014)with multiple institutional challenges (Pan _et al._ 2015).

5