Financing urban land development in underdeveloped small cities in western China: The role of earmarked funds

Previous studies suggest that market forces and the strategic behavior of local governments regarding land development jointly contribute to rapid urban expansion in China. In underdeveloped small cities in Western China, the market is weak, and local governments lack the conditions required to promote land-centered urbanization. Surprisingly, these cities have experienced an expansion of urban space faster than the national average. This study presents a significant funding model of urban land development within the framework of the project system. Within this model, central and provincial governments are key providers of land development funds. Local governments design, apply for, package, and implement land development projects. Private developers cooperate with local governments rather than functioning as real initiators of and investors in land development projects. The findings provide new and supplementary evidence about how rapid urban expansion occurs in China, particularly in underdeveloped areas. • We focus on the rapid urban expansion in underdeveloped small cities in Western China. • The funding mechanism of land development using earmarked funds is presented. • China's central government is an important provider of land development funds. • Local governments apply for, package, and implement land development projects.