Through improving the contractual structure, the China Fortune Land Development Co. model has been approved to be a more efficient way than traditional PPPs to promote large-scale comprehensive developments by reducing transaction costs

Rising private city operators in contemporary China: A study of the CFLD model. Yongli Jiao, Yang Yu. Cities, Volume 101, June 2020, 102696. https://doi.org/10.1016/j.cities.2020.102696

Highlights

• Through improving the contractual structure, the CFLD model has been approved to be a more efficient way than traditional PPPs to promote large-scale comprehensive developments by reducing transaction costs.

• We can reconsider and reexplain the urbanization process in China from the perspective of transaction cost economics.

• China’s market reform is characterized by the dual-track structure in which the state-led and grassroots reforms co-exist. And we summarize the interactive mechanism of the state-led and grassroots reforms as “ex ante hands-off, ex post endorsement”.

• The emergence of the CFLD model means that China’s market reform has reached the core of planned economic system and market forces have extended from private goods to public goods.

Abstract: In the past decade, with the rise of private investment in urban development in China, there has been a profound transformation from government-led to market-led urban growth. These changes have created a boom in private city operators who have become involved in large-scale urban development and established long-term close public-private partnerships with local governments, integrating and optimizing all of the resources in a city or region. In this new business environment, China Fortune Land Development Co., Ltd. (CFLD) has undoubtedly been the earliest and most successful private city operator. This study uses the framework of transaction costs to analyze the CFLD model in detail, using the case of Gu'An New Industry City. We illustrate how it has reduced the principal-principal problem, the firm hold-up problem, and the government-led hold-up problem, the three types of transaction costs inherent in public-private partnerships, by improving the contractual structure. We believe it will become a far-reaching institutional innovation as an alternative to the land finance system to promote urbanization in contemporary China and beyond.

Keywords: Private city operatorTransaction costsContractual structurePublic-private partnershipsThe CFLD modelGu'An New Industry City