Funding China's Urban Infrastructure: Revenue Structure and Financing Approaches

With the rapid increase in the need for urban infrastructure, the issue of infrastructure funding has become more and more essential. This paper focuses on the following three issues: first, it clarifies the trend and regional pattern of infrastructure funding. Second, this paper further discusses funding mechanisms from the perspective of government and market. Third, this paper will evaluate current trend and pattern based on the five theoretical dimensions. Concerning the trends of infrastructure funding, the growth of market financing is faster than fiscal revenue; therefore, the importance of fiscal revenue has decreased. Regionally, the east has the highest reliance on fiscal revenue, which is largely due to its high land transfer fee. Municipality has the highest proportion of market financing. From the perspective of government and market, the importance of government-leading mode has decreased, while UDIC-leading and private sector involvement play a more and more essential role. The authors and the University of Minnesota do not endorse products or manufacturers. Any trade or manufacturers' names that may appear herein do so solely because they are considered essential to this report. Executive Summary This report concentrates on the revenue structure and financing approaches of China's urban infrastructure. First, this paper briefly reviews the history and contemporary literatures. Second, it provides a detailed discussion on the national trends and regional patterns of urban infrastructure funding and financing. Third, beyond the description, it also tries to frame the research question in five theoretical dimensions. The study of China's urban infrastructure funding and financing is very important because of the insufficiency of revenue sources and the significance of urban infrastructure in economic growth. With the rapid growth of urbanization and in China's economy, higher-quality urban infrastructure has become increasingly important. Not only does it affect the welfare of the citizens but it also influences the progress of the society as a whole. Much literature has proved the positive relationship between economic growth and urban infrastructure. However, compared to the high growth rate of the economy and population, the provision of urban infrastructure is seemingly insufficient. Several major infrastructure projects, such as paved local roads and streets, grew at a much slower pace after the economic reform (1978) as opposed to before. One of the most important reasons for the slower infrastructure growth is low government spending on infrastructure, which is caused by limited resources of urban infrastructure funding [1]. Therefore, innovative mechanisms of …