Marx's Ground Rent Theory and Innovation of China's Urban Land System

Jiefang ZHU

Department of Finance，Economics and Management，Modern College of Northwest University，Xi'an 710130，China

China's traditional urban land system is established in highly centralized planned economy and it has once played particularly important role in large-scale urban construction in the early days of foundation of new China.However，this land system negates functions of value law and economic law fundamentally and encroaches on state-owned right and state ownership of land，leads to failure to realize land ownership in economy，leads to loss and waste of lot of land resource，and seriously hinders establishment of market mechanism and development of market economy.Therefore，it is required to take Marx's ground rent theory as guidance，combine China's national conditions，and make innovation of urban land property right system，urban land market and urban land price.

1 Brief explanation of Marx's ground rent theory

1.1 Essence of the ground rent Mark said：＂Whatever may be the specific form of rent，all types of it have this in common that the appropriation of rent is that economic form，in which property in land realizes itself，and that ground rent on its part is conditioned on the existence of private property in land，the ownership of certain portions of the globe by certain individuals.＂［1］In different society，since land ownership is different，the ground rentnature，item and form are different.The capitalist ground rent is the surplus value exceeding the average profit delivered by agricultural capitalists to land owners for obtaining land use right.Therefore，its source is the surplus value generated by agricultural employees exceeding the average profit，and it is the form transformed from super-normal profit.

1.2 Types of ground rentThe ground rent in capitalist system can be divided into two basic types：differential ground rent and absolute ground rent.Agricultural capitalists deliver differential ground rent to land owners.According to levels of land rented，the rent amount is different，superior land is higher than medium land，and medium land is higher than inferior land.Different from differential ground rent，absolute ground rent is mandatory for all levels of land.The absolute ground rent is generated due to existence of monopoly of land ownership.Without capital，the absolute ground rent will not be put into use.

1.3 Rent of the building areaAccording to the ground rent theory of Marx，wherever rent exists at all，differential rent appears at all times and is governed by the same laws，as agricultural differential rent.Wherever natural forces can be monopolized and guarantee a surplus-profit to the industrial capitalist using them，be it waterfalls，richmines，waters teeming with fish，or a favorably located building site，there the person who by virtue of title to a portion of the globe has become the proprietor of these natural objects will wrest this surplus-profit from functioning capital in the form of rent［1］.Building area also has differential ground rent and absolute ground rent.The ground rent of building area is significantly different from agricultural ground rent.In the agricultural ground rent，the soil fertility plays a decisive role in differential ground rent，while the location of land plays a decisive role in the differential ground rent for building purposes.Also，due to existence of monopoly of land ownership in building area，there also exists absolute ground rent.

1.4 Land priceLand is natural object，not product of labor，so it does not have value.However，in generalization of commodity economy，all objects are commercialized，so land has price.Marx said，in England，the purchase price of land is calculated in so many years' purchase which is merely another way of expressing the capitalization of ground-rent.It is in fact the purchase price not of the land，but of the ground rent yielded by it－calculated in accordance with the usual interest rate.But this capitalization of rent assumes the existence of rent，while rent cannot inversely be derived and explained from its own capitalization.Its existence，independent of its sale，is rather the starting-point for the inquiry［1］.According to opinions of Marx，land price depends on ground rent and interest rate.Therefore，land price can increase along with increase of the ground rent or with drop of the interest rate.

2 Existing problems in China's urban land use system

2.1 Macroscopic imbalance of land supplySince the appropriation system implements extensive land management，construction land adopts a piecemeal approach，generally firstly selects land parcel，and then land administration department implements approval procedure.This lacks over all planning，leading to macroscopic imbalance of land supply.

2.2 Serious land waste and idle problemSince there is free use of plenty land inevitably，the problem of not paying ground rent is universal，and the public ownership of land exists only in name and fails to obtain effective protection.In this situation，there is problem of waste of land and natural resources.

2.3 Unfair competition of enterprisesLand factor has great influence on operating effect of enterprises.If land is used without compensation，enterprises with superior geographical position and more land will have more income.If such differential income is not regulated，enterprises will have unfair competition.

2.4 Land transaction is not standardizedThe administrative appropriation system expressly stipulates that land transfer is not allowed.However，there exists certain hidden land transaction.Such hidden transaction brings non-operating ground rent income to economic units of land，leads to waste and overstock of land，and increases costs of market transaction.

2.5 Serious problem of seeking private profit by taking advantage of administrative powersThe state is nominal owners of land.Actual powers are decentralized to local government at all levels.Those really exercising powers are people and entities holding powers.Central authorities in charge of the land lack effective binding force for their approval of lease.Asa result，in actual operation of land transfer，relevant organizations and people abuse powers and are random in determination of area，price，position and years of land transfer，and their motive is often power money deal.In addition，many institutions use the land price difference between appropriation system and lease approval mechanism to change land use purpose without authorization.

2.6 The entire price system tends to become unreasonableLand is the essential production element，land market is upstream market in the market system，and the twisted land price penetrated into commodity price at midstream and downstream market leads to the entire price system increasingly unreasonable.

3 Innovation of China's urban land system

3.1 Innovation of China's urban land property right system

3.1.1 Content of urban land property right.The urban land property right is a group of rights of the party for urban land，rather than a single right.The urban land property right includes urban land ownership，use right and usufruct.TheConstitution of the People's Republic of Chinastipulates that land in urban districts shall be owned by the State.But for land use right，the state owned land can be given to units owned by the whole people.Land owned by the State and land collectively owned by peasants may be allocated to be used by units or individuals according to law.Units or individuals using land shall be responsible for the protection，management and a rational use of the land.Land use right can be transferred，rented，mortgaged and inherited.The assignment of the right to the use of the land refers to the act of the State as the owner of the land who，within the term of a certain number of years，assigns the right to the use of the land to land users，who shall in turn pay fees for the assignment thereof to the State.Transfer of land use right is the act of land users transferring land.Rent of land use right is the act of land users as lessor renting land use right together with things attached to the land to lessee，and the lessee should pay rental to the lessor.

3.1.2 Differential ground rent of urban land.According to Marx's ground rent theory，location is the decisive factor of urban land differential ground rent.Nevertheless，with the development of urban construction，the urban area is constantly increasing and the central area is also constantly changing.The trend of urban development is central diversification and specialization.Especially，with changes of communication conditions，development of road construction，and improvement of traffic means quantity and quality，location advantage of urban land will constantly change.Therefore，the differential ground rent of urban land is mainly obtained from increasing investment in urban land with certain location advantage，or from conversion of extra profit through increasing investment in land with excellent location.

3.1.3 Absolute ground rent of urban land.In socialist marketeconomic condition，urban land ownership system and urban land ownership are objective reality.Thus，absolute ground rent of urban land is also objective economic thing.The existence of state ownership system of urban land and the state ownership generated accordingly are fundamental reason for absolute ground rent of urban land，while the condition for absolute ground rent of urban land is deduction before equalization of profit in higher rate of nonagricultural surplus value.

3.1.4 Principles for innovation of China's urban land property right system.Firstly，it is required to adhere to the principle of nationalization of land.This is determined by fundamental feature of socialist system and also important measure for ensuring effective utilization of urban land resource.Secondly，it is required to adhere to the principle of effectiveness.This contains two meanings：（i）effectiveness of subject of urban land property right，namely，the subject of urban land must be personified subject of act and legal person and natural person having economic capacity of right and economic capacity of action；（ii）the subject of urban land property right must have qualification of action that can be implemented and bring actual economic benefits for its right subject.Finally，it is required to adhere to principle of the decentralization of urban land property right.Apart from ensuring the ownership of land is owned by the state，it is required to decentralize other rights of urban land property right，give consideration of benefits of right subjects，breakdown elements of urban land property right，allocate to different urban property right subjects，and form diversified urban land property right structural types.In ad-dition，on the condition of satisfying the demands of above principle，it is required to take various measures to make innovation on the land property right system［2］.

3.2 Innovation of China's urban land market

3.2.1 Levels of urban land market.Urban land market is in dispensible part of the urban land system.Opening and establishing urban land market is to change appropriation without compensation to paid transfer.This is not favorable for long-term planning of urban construction，but also favorable for increasing comprehensive benefits of land use.At present，urban land market of China is generally divided into3 levels：（i）the first level urban land market is the market monopolized by real estate organizations of the state，in other words，the state requisitions collectively owned land with compensation，and transfer land use right of state-owned land；（ii）the second level urban land market is land development market，namely，land development companies with legal person status conducts integrated development and operation；（iii）the third level urban market is the market land established by land use organizations for transaction of urban land use right.The above three levels of market are interdependent，interconnected，interacted and complemented，and jointly form China's integral land market.

3.2.2 Innovation of urban land market.To realize prosperous urban land market，it is required to make innovation of urban land market.Basic ideas of China's urban land market innovation：Firstly，government can take three methods，auction，bidding and agreement to transfer land use rights.Secondly，on the precondition of land use rights not becoming due，it is also allowed to transfer land use right.Thirdly，types of urban land market innovation include buying shares at a discount，interchange of urban land use right，and mortgage of urban land use right.

3.2.3 Preventing and putting an end to invisible land market.In the process of transaction of land use right，it is required to prevent and put end to generation of invisible land market.The invisible land market refers to illegal transaction activities，such as appropriation of state-owned land，lease and transfer of use right in hidden and disguised manner.Invisible land market also brings about a series of negative result.Firstly，it encroaches and damages state ownership of land and results in great loss of state-owned land assets.Secondly，it disturbs operation and development of normal land market.Thirdly，it will deteriorate disorder of urban land property right and be not favorable for reinforcing land management.Fourthly，it damages unified planning of cities and is not favorable for optimized allocation of urban land.Therefore，in the process of innovation of urban land market，it is required to prevent and put an end to negative influence brought about by invisible land market.

3.3 Innovation of China's urban land price

3.3.1 Important function of urban land price.The existence of urban land market means existence of urban land price.The formation and operating mechanism of urban land price are the stimulation and restriction of determination and variation of urban land price on land circulation.Urban land price is the largest parameter involving widest and chain action in the market mechanism.It is unique natural and economic feature of urban land，and its structure is also different from general commodity price.

3.3.2 Factors influencing urban land price.Factors influencing urban land price mainly includes（i）location，shape and slope of urban land；（ii）limitation of urban land use，mainly referring to urban land planning and other planning requirements；（iii）feature of urban land；（iii）appreciation of urban land（with the development of urban economy and elapse of time，urban land price takes on constantly increasing trend）；（v）degree of perfection of urban infrastructure；（vi）urban economic structure，mainly referring to urban industrial structure and urban economic feature.

3.3.3 Estimation of urban land price.Since there are many factors influencing urban land price，it is not able to make precise calculation and it has to make estimation by certain method.In the world，the general method is income capitalization approach，also called ground rent capitalization method（used to value commercial and investment properties.Because it is intended to directly reflect or model the expectations and behaviors of typical market participants，this approach is generally considered the most applicable valuation technique for income-producing properties，where sufficient market data exists）［3］.Using the income capitalization approach to estimate land price includes three steps：firstly，survey land production capacity and make statistics of average annual net income；secondly，select proper interest rate as standard interest rate of capitalization；finally，study non-economic benefits of the land parcel，and make adjustment of calculated land price，deduct the land investment，depreciation，consumption and other costs，and the balance is the net land income.In the estimation process of urban land price in China，apart from this method，it is recommended to consider current situations of urban land use system and formulate practical urban land price policies.

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