The most successful land banking system story took place in Hangzhou, capital of Zhejiang Province, where the Hangzhou Public Land Banking Centre, set up in 1997, became the sole supplier of local land in the second half of 2000.

By the end of this January, the centre had purchased 204.3 hectares of land at 7.43 billion yuan (US$895.66 million), and the use rights for half of the land have already been sold for 6.91 billion yuan (US$832.5 million).

At the same time, average prices for commercial housing in Hangzhou rose from 2,700 yuan (US$ 325.30) per square metre in 1997 to 5,000 yuan (US$602.40) by the end of last year. A plot of land near the city's famous West Lake was even auctioned for 18 million yuan (US$2.17 million), or 27,000 yuan (US$3,250) per square metre.

Yet, similar centres in other cities are still not strong enough to influence the market.

The Shanghai Land Development Centre has purchased more than 200 hectares of land, but 500 to 600 hectares of land have been released onto the market for commercial use.

Beijing's centre bought six parcels of land by the end of last year, but only one has been sold while auctions of the rest failed - again, because developers can acquire land through other channels.

Besides, the land development centres might pose new financial risks, said Li Jinkui, a famous urban development researcher based in Shenzhen. Apart from coming up with a limited sum of start-up capital, all of the centres depend on bank loans to purchase land.

If land demand dips as a result of slow economic growth, the centres will create new bad loans, said Zhao Yanqing, a researcher with the Ministry of Construction.

At peak times, the Hangzhou centre alone borrowed 2.4 billion yuan (US$289 million) worth of loans.

And local governments' growing dependence on land transfer revenues also imposes a risk on fiscal balance. Hangzhou, for instance, raised one-quarter of its fiscal revenue from selling land use rights last year, and such revenue has been growing at 56 per cent annually in recent years.

China Daily news

(HK Edition 06/27/2003 page1)