New regulations aimed at strictly supervising the availability of land for development were announced by the Chinese government on Tuesday in a further effort to prevent overheating of the economy.

The new rules warn local leaders that they'll be penalized if they fail to stop or investigate illegal land sales in the areas they're responsible for, according to a State Council notice.

The new rules state that the use of farm land for construction purposes will no longer be approved by the State Council on a project by project basis but should be reported to provincial governments and submitted to them for consideration on an annual basis.

Land management authorities must keep a closer watch on local governments and stop land supply applications from them which breach the regulations, states the notice. Civil servants who violate the regulations will be disciplined and prosecuted if they’ve broken the law, it adds.

The Ministry of Supervision along with the Ministry of Land and Resources and other central departments will soon launch a nationwide crackdown on irregularities in land supply, the notice explains.

China recorded an economic growth of 10.9 percent in the first half this year on the back of a 30-percent growth in fixed asset investment. Both these figures are the highest in recent years.

In its bid to prevent possible economic meltdown China has repeatedly raised the benchmark interest rate and clamped down on unauthorized investment projects. The government contends that illegal land availability is a leading cause of runaway investment.

A survey of 16 cities by the Ministry of Land and Resources last year showed that nearly 50 percent of land under development had been acquired illegally. The figure was as high as 90 percent in some cities.

To stop local governments from giving land to investors free of charge or at very low prices the notice says central government will impose a minimum price tag on land. This will vary according to what it's to be used for. Officials who sold land at prices lower than the minimum market rate would be prosecuted, the notice explained.

The government will also raise the taxation levels on investors for land use. The tax revenues would be used for the protection of existing and development of new farmland. Analysts observed that the new regulations would raise the cost of land and help improve the efficiency of how it was used.

The notice also bans the lease of land from farmers for construction purposes. This method is increasingly used by some local governments and investors to dodge taxes associated with land sales and approval from higher authorities.

The notice also includes new policies aimed at protecting the interests of farmers whose land is sold by local governments. It says revenues from land sales must be first used to pay for the resettlement of farmers and compensation for their crops.

It makes clear for the first time that if the sale price of any piece of land is not enough to cover the costs of resettling a farmer local government must assist from their pool of land sale revenues.

Local governments should ensure that farmers who've lost their land are trained for new jobs and provided with means to support themselves, the notice states.

Zhang Xinbao, a senior official from the Ministry of Land and Resources, said reining in local government was a major target of the new policy as "local governments are actually behind almost all the major cases of illegal land use."

There were many reasons for this but the main motivation was the fact that land sale revenues had become a major source of income for many local governments, Zhang said.

To address these problems the new regulations state that land sale revenues must be incorporated into local budgets so they can be scrutinized by higher authorities. This is a significant departure from the current practice where local governments have total freedom to spend the money as extra-budget revenue.

Source: 06/09/06, Xinhua.