Chinese govt tackles overheated investment by raising industrial land prices

China is currently experiencing a development period characterized by overheated investment. On the one hand, such investment results from spontaneous market reaction to demand; on the other hand, in most regions of China, the huge number of investments is stimulated and encouraged by local governments for the purposes of the local economy's rapid development. Normally, investments would certainly be interrupted if they didn't conform to the state's policies. However, the facts are not so in China. Due to deficiencies in the state management system, China can resemble somewhat a decentralized country where local governments are often not seriously punished for conduct and decisions which are inconsistent with state policies. Therefore, most local governments continue to welcome and actively attract more investment in spite of the overheated situation and the state policies. The management of lands destined for industrial purposes is an important matter related to investment, especially to fixed assets investment. Strict control of lands used for industrial purposes is an effective means to cool overheated investment. China's central government has become aware of the local governments' serious negative contribution to the control of the overheated investment situation and has recognized that this results from the excessive independence of the local governments. As a result, the China State Council issued its notification number 31 in 2006 to the efffect that China's government will increase the sales prices of all lands to be used for industrial purposes by 40 - 60 percent and that the various minimum sales prices in the various regions will be decided and issued by the state. In the current situation, China's total land resources for industrial purposes can be divided into two categories. The first includes land in eastern China and the coastlands while the second takes in the central and western areas. Due to rapid economic development in eastern China and the coastlands, the availability of lands for industrial purposes has become more scarce and prices have increased sharply. In these areas, the sales prices of lands are often decided by auction where prices are not limited. However, due to the fierce competition from neighboring regions, many local governments steer clear of public auctions and lease the lands at a low price level to attract investment projects. Such examples occur universally, especially in the central and western areas of China, because it's not easy for local governments to attract investment projects to the local undeveloped economy and infrastructure. To attract external investment, local governments even welcome high pollution projects or other projects with serious side-effects. Along with the issuing of the China State Council's notification number 31 in 2006, the right to decide the sales prices of lands targeted for industrial purposes is to be withdrawn by the central government. If this policy is implemented effectively, then competition for new projects between regions will be more open and fair. Thus the negative contribution of local governments to the situation of overheated investment will perhaps be lessened to a certain degree.