Abstract:

Under China’s national transit priority development strategy, generally, local governments have a high level of incentives for developing urban rail transit systems to meet transport demands in high-population density areas. Usually, rail transit systems bring significant positive external benefits; adopting Land Value Capture (LVC) can significantly relieve financial burdens on local governments and promote the implementation of transit metropolis strategy. Developed regions such as Europe and America have actively implemented diversified land tax-oriented LVC programs to finance rail transit systems. Chinese cities mainly focus on land development-oriented LVC programs as a financing tool; however, this financing model’s implementation mechanism and effectiveness on rail transit development face a lack of systematic research. Since 2011, Dongguan, a city in China’s Pearl River Delta, has issued a series of active policies promoting land development around rail transit sites and feeding rail transit financing with land added values. However, implementation methods of the development based LVC in Dongguan and how to legitimately evaluate policy frameworks and implementation processes to reach LVC policy goals remains unclear. These issues are crucial for local governments in China to promote LVC’s potential to finance rail transit. This article attempts to explore these issues and reveal LVC policy framework and effectiveness at financing urban rail transit systems. A case study of the LVC financing tool in Dongguan, China, was conducted using policy analysis methods. This study concludes that 1) the concept of LVC internalizes positive externalities in a specific way. Compared to land-tax-based LVC programs in the United States, LVC practices in China largely follow a rail and property joint development concept. 2) LVC in Dongguan involves a series of relevant institutional arrangements, including transit-oriented development planning, land controls and reserves around transit-served areas, transfer of land development rights, and distribution of land development benefits induced by rail transit investment. 3) Land development around rail stations can generate financial gains, potentially accounting for more than 20% of the rail transit system’s funding demand in Dongguan. LVC policy and implementations still require certain policy innovations to improve economic efficiency and the fair distribution of added land values. This study can provide policy implications for other local governments planning to use LVC as an additional financial source for rail transit investment needs. A better LVC implementation not only relies on coordination between transportation and land-use planning, but also a high-level connection between spatial planning and the urban fiscal system. Establishing a new spatial planning system in China would provide a new opportunity for LVC to fund rail transit systems. In the future, LVC could also be applied to other urban and regional development fields relevant to financing issues.

Key words: rail-transit finance, land development, Land Value Capture, policy interventions, Dongguan