Political burden of local government and land insider trading in major Chinese cities

Chinese local governments transfer political burdens through land trading. One key example of this practice is the requirement for for-profit organizations to bid on land when undertaking public welfare projects. By analysing comprehensive data on public welfare project development in major Chinese cities, we conducted regression analyses and endogeneity tests to explore whether there is a causal relationship between the political burdens faced by for-profit organizations and their land trading priorities, with a focus on insider trading characteristics. Our findings reveal that, even in marketized transactions, the land designated for public welfare projects tends to have lower prices and bidding premiums, reflecting key insider trading traits. Price priority is more apparent among private developers, indicating higher compensation for political burdens, while premium priority is more evident among government-controlled enterprises due to increased paternalism.