The Evolution of Property Rights in China: A Breakthrough in Shenzhen City

This essay adopts a bundle-of-rights approach that allows the examination of the gradual and incremental change in a specific stick: the right to transfer land in China. This study investigates the recent policies on urban redevelopment in Shenzhen – a coastal city was chosen by the central government to explore possible solutions to problems happened in urban renewals. In these policies, institutional evolutions are made on the delineation of land property rights. The Shenzhen government formally grants the land transfer rights to the villagers who initially only have land use rights when they pay a fixed price to the government. The puzzling question is why the government that benefits from the monopoly control over land would be willing to promote policies restraining their own power? In this essay, I design a political model to identify four conditions for the occurrence of the institutional evolution: (1) the resource is scarce, (2) the government and individuals compete for the resource, (3) to enforce or operate the current institutions incurs great costs on the government, impeding it to acquire the resource. (4) the costs of changing institutions are much lower than the costs of operating the current institutions. I assume that when these four conditions were satisfied, the evolution of property rights over the resource would take place. This theory is tested and proved in Shenzhen case.