Main players in fixed capital investment in China

There are three main players encouraging fixed capital investment. They are local governments, developers, and four state-owned commercial banks. The central government is in charge of major projects at the national level, using budgetary finance. Local governments above the provincial-level cities also take the ini- tiative for provincial-level projects. Under the supervision of provincial govern- ments, county and county-level cities have been very active, especially in the construction of industrial parks and commercial sites.

Once projects are given recognition by government at various levels, they are undertaken by developers, most of which were separated from governmen- tal organs during the 1990s and are supposed to be independent construction enterprises. The projects are financed mainly by the four state-owned banks. After the completion of a development project, the government sells the land to users through bidding. At this stage, a land price emerges, and local governments

including city governments can get fairly significant amount of revenues through these sales and through land tax. Developers also get a large profit, which is esti- mated to be 30 to 40 percent of the final sale price. Governments at the county or county-level city get around 20 to 30 percent (of the sale price), while towns and village governments get about 10 to 20 percent. In contrast, peasants, whose land is expropriated, get only several percent of the final sale price. The profits of developers are so high that banks are willing to give them loans, even though the central bank and/or the central government often issues orders to restrict financing to them. We thus have a trinity of local governments, develop- ers, and banks. It is the symbiotic relationship embodied in this trinity that is one reason behind the extraordinarily high fixed capital investment ratio observed in current China.