China’s plan to give away cheap land to factories is backfiring—it’s actually shrinking their whole economy by 13%.
March 20, 2026
Original Paper
Land as Industrial Policy: The Spatial Consequences of Preferential Land Allocation in China
SSRN · 6441738
The Takeaway
While it looks like a growth strategy, local governments intentionally use these land distortions to boost their own tax revenue and fiscal power, even though they know it causes massive national inefficiencies and reduces the welfare of their residents.
From the abstract
This paper quantifies the aggregate efficiency and spatial equity implications of China's preferential land allocation policies. We document a "space-industry" dual preference structure in land supply, where preferential land allocation to strategic industries varies systematically across regions. To evaluate this policy, we develop a quantitative spatial equilibrium model featuring input-output linkages, agglomeration economies, and heterogeneous government land preferences. Our counterfac