Value capture in industrial land renewal under the public leasehold system: A policy comparison in China

Value capture in urban renewal is a controversial issue. The equality and efficiency of value capture in urban renewal is influenced not only by the percentage of value capture but also by transaction costs. A framework analyzing the transaction costs of value capture in the urban renewal process helps us understand how value capture mechanisms influence the outcomes of industrial land renewal. Our study found a new type of value capture mechanism in addition to active value capture under a public leasehold system: the value constraint mechanism. In the policy innovation of industrial land renewal in China, the government has used diversified active value capture tools in self-renewal to replace land-banking mechanism and have greatly reduced negotiation costs, but they have also increased the costs of maintaining the government’s legitimacy. As a result, the government introduced value constraint mechanisms to reduce legitimacy costs by putting constraints on land user, planning conditions and transactions to limit the land holders’ profit space and ensure industrial renewal generates the expected outcomes (for example, upgrading industry, stimulating technology R&D, providing jobs and taxation). However, these constraint mechanisms may once again increase information and enforcement costs and become the new main hindrance to renewal. A comparison of the policies of Shanghai and Shenzhen illustrate the government’s tradeoff between maintaining political legitimacy and reducing other transaction costs through combining different value capture mechanisms in industrial land renewal policies.