**1. Introduction**

Farmland and homesteads are associated with human settlement in rural areas, which provide space for production and for living [1]. However, with increasing industrialization, urbanization and population concentration towards the ever-growing cities, these two types of land use have been facing dilemmas [2–6].On the one hand, noteworthy farmland has been abandoned in many developed countries and some developing countries since the 1950s [7]. On the other hand, as massive numbers of rural migrant workers have flooded into urban areas to earn a living, many rural settlements remain unoccupied seasonally or permanently [8–11]. Traditionally, many countries around the world have long employed rural land consolidation and land reclamation to solve the above problems and revitalize rural development [12–15]. In particular, under its strict cultivated land protection and spatial planning system, China has implemented the increasing versus decreasing balance (IVDB) urban-rural construction land-use policy, which is similar to that of transferable development rights (TDR) in the United States [16].

Generally, the IVDB policy aims to balance the increases in urban construction land with a reduction in rural construction land [17] and this rural construction land will be

**Citation:** Jin, Y.; Zhang, B.; Zhang, H.; Tan, L.; Ma, J. The Scale and Revenue of the Land-Use Balance Quota in Zhejiang Province: Based on the Inverted U-Shaped Curve. *Land* **2022**, *11*, 1743. https://doi.org/10.3390/ land11101743

Academic Editor: Fabrizio Battisti

Received: 17 September 2022 Accepted: 1 October 2022 Published: 8 October 2022

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**Copyright:** © 2022 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).

reclaimed as cultivated land to ensure the dynamic balance of total arable land [18,19]. Since its initiation in 2000, and subsequently formally proposed in official documents in 2004, the IVDB policy has been implemented throughout China. The former Ministry of Land and Resources (MLR) <sup>1</sup> issued the policy document for IVDB in 2005, Proposals for regulating the pilot of increasing versus decreasing balance of urban-rural built land. The policy stipulates clearly that a balanced quota, which is used to control the scale of rural demolition and urban construction, is assigned by the central government in the form of projects and strictly restricted to the scope of counties. Under the guidance of the IVDB policy, the first round of experiments for IVDB was launched in 2006 and 183 projects with 4923 ha of balanced quotas were allocated to Tianjin, Shandong, Hubei, Sichuan and Jiangsu provinces. By 2019, 31 provinces in mainland China have adopted the IVDB policy, with approval of 681,670 ha of balanced quota to implement the pilot projects [20]. In practice, multiple implementations have been created to achieve a spatial equilibrium between urban and rural construction land, including the transfer of the farmland development rights program and flat-for-flat compensation formula in Zhejiang province [21,22] and the land coupon programs in Chongqing [23,24].

Meanwhile, the IVDB policy has kept pace with China's land management tools. For the past few years, the central government incorporated the IVDB policy into the country's poverty alleviation support system [25]. Specifically, poverty-stricken areas and counties were given the right to determine the quantity of the balance quota for as long as they needed to, and the quota could be transferred at the provincial or even national level according to relevant regulations. The CNY 1896 billion cross-provincial quota-transfer funds were channeled to poverty-stricken areas from 2018 to 2020 [26]. During the five-year transition period (2020–2025) of effectively combining achievements in poverty alleviation with rural vitalization, the above provisions continue to be implemented according to the 'Measures for transferring inter-provincial quota linked to the increasing versus decreasing balance of urban-rural built land during the transition period' in 2021. In the context of factors' marketization, the latest evolution of the IVDB policy is that the power to assign the balanced quota is devolved from the central government to the provincial government, as stipulated in the Notice of the Ministry of Natural Resources on the management of the 2020 Land Use Plan. As we all know, the revenue of the balanced quota is the key economic motivation for implementation of the IVDB policy and homesteads are referred to as 'sleeping' land assets figuratively. Therefore, under the background of project-based IVDB policy, what is the relationship between the scale and revenue of the balanced quota? Particularly, as the local government's demand for urban construction land is always enormous, the balanced quota's scale has carried the potential risk of being much too much when the IVDB policy is oriented by the provincial government. It is interesting as to whether there is an optimal scale of the balanced quota to obtain the maximum benefits with the implementation of the project-based IVDB policy. Even furthermore, are there differences in the optimal scale of the balance quota in different regions? The answers to the above questions could improve the efficiency of quota-allocation and provide a scientific basis for local governments to measure the appropriately balanced quota of each IVDB project, which will eventually enhance the overall welfare of the IVDB policy implementation.

Some studies have been conducted to analyze the determinants of a balanced quota and associated recommendations are provided under specific contexts in China. Peng and Huang (2021) suggest that the balanced quota be incorporated into municipal or county spatial planning indicators for unified management and use [27]. Cai and Liu (2021) insist that the scale and transferring scope of the balanced quota should be determined and adjusted by the market [28]. Combined with a case study of IVDB policy implementation, Zheng (2020) recommends that collective organizations and farmers participate in determining the quantity of quotas to consolidate the achievements of poverty alleviation [29]. In a case study of Huantai county in Shandong province, Long, et al. (2012) argue that the IVDB policy implementation with a top-down decision-making mechanism should incorporate

elements of bottom-up planning [17]. In fact, the deep involvement of local villagers is a common feature of most successful IVDB cases [30]. Additionally, focusing on the revenue of the balanced quota, scholars analyze cases of measurement and distribution [31,32] and the direct or indirect effects on economic growth. However, few studies have revealed the appropriate scale of the balanced quota in the process of the project based IVDB implementation. There is also a lack of research on the relationship between the quota's scale and revenue supported by empirical data. The existing scattered case analyses are not enough to show the overall situation of the IVDB policy implementation within a region, which means that it is difficult to effectively guide the further improvement of the IVDB policy. As such, knowledge of the relationship between the balanced quota's scale and revenue based on the IVDB projects is still rare. What is more, the knowledge gap, if filled, could provide the support of economic theory and method for the decision-making of local government, which has been leading the IVDB implementation since 2020. Meanwhile, the moderate scale quota plays a crucial role in improving the performance of IVDB policies.

By 2019, 31 provinces in China (excepting Taiwan, Hong Kong and Macao) have adopted the IVDB policy [20]. Among them, Zhejiang is the first province to explore the transferring quota in an urban setting, through construction land replacement, rural land consolidation and reclamation and so on 2. After being integrated in the IVDB policy, the province has taken the lead in carrying out a county-level comprehensive land consolidation project 3. In addition, Zhejiang province, with rapid economic development, is faced with many problems such as limited land space, insufficient reserve cultivated land resources, high population density and a large gap in the urban construction land index. There is no doubt that the IVDB policy has become a long-term mechanism to relieve land shortage in Zhejiang. Therefore, we took Zhejiang as a representative case area to explore the relationship between the scale and the revenue of the project-based balanced quota.

The rest of this article is organized as follows. Section 2 analyzes the theory of the relationship between the balanced quota's scale and revenue. Then we put forward the research hypothesis. Section 3 explains the methodology and data sources used and provides insight into the descriptive statistics. Section 4 provides the empirical results, followed by discussion and key policy implications in Section 5. The final section summarizes the main findings and points out deficiencies.

#### **2. Theoretical Analysis and Hypotheses**

According to the Economies of Scale Theory, as the output of the enterprise increases, the marginal cost gradually decreases, which can realize the benefit of scale. However, if the scale continues to expand, the cost will increase due to factors such as uneconomical management. Then the Theory of Moderate Scale is derived. Further, the moderate scale operation refers to the practice of moderately expanding the scale of production and operation units under the existing conditions, so that the allocation of various production factors tends to be reasonable and the best operating benefits can be achieved. In the field of land management, whether it is agricultural land or urban land, there is an inverted 'U' curve relationship between input and output. For example, the scale of farmland and agricultural efficiency and/or farmers' income shows an inverted 'U' curve relationship [33,34] and there are moderate scale boundaries in land transfer and land trusteeship [35].Similar research studies the optimal scale of towns and urban construction land, etc. Based on the above theories and research results, we try to make general logical inferences concerning the implementation of the project-based IVDB policy; as the scale of the balanced quota increases, the capital, labor and other factors of production input in each process, such as demolition, resettlement and new construction, will gradually approach the optimal combination ratio, which shows an increasing trend of marginal revenue; when the whole inputs reach the best combination, the marginal earnings of the IVDB project achieves the peak and the optimal scale of the balanced quota is realized. With the expansion of the quota's scale, the ratio of production factors gradually deviates from the optimal combination ratio,

showing a trend of diminishing marginal income. In general, there may exist an inverted 'U' curve relationship between the scale and revenue of the balanced quota (Figure 1).

**Figure 1.** The inverted u-shaped curve diagram of balanced quota's scale and revenue.

Specifically, when the project-based balanced quota is within the moderate scale (0 to *M\** in Figure 1), the quota will promote revenue mainly through an incremental and cost-saving mechanism. In terms of the incremental mechanism, the larger the balanced quota, the larger the scale of demolition in rural areas and new construction in urban areas. After deducting part of the resettlement land of farmers in the demolition areas, the scale of surplus land that can be transferred to urban construction is relatively large. Under the premise of a certain unit price of the quota, the larger the scale of the saving, the higher the total income. Taking five IVDB projects in Dongbao District of Hubei province as an example, under the control of the balanced quota, the scale of the demolition areas is 100.71, 64.20, 30, 20, and 18.91 ha, respectively, and the area of residential land for resettlement farmers is 21.91, 12.72, 5.36, 4.03, and 3.00 ha, respectively. Therefore, the new construction land quota that can be transferred to cities and towns is 80.06, 51.55, 24.64, 16.39, and 17.19 ha, respectively [32] 4. Through the analysis of this case, we can intuitively find that the scale of the balanced quota is directly proportional to the revenue of the savings indicator that can bring economic benefits. In terms of the cost-saving mechanism, the input costs involved in the implementation of the IVDB policy mainly include the demolition and compensation of farmers' homesteads, land reclamation, infrastructure construction and resettlement housing construction. On the one hand, a certain scale of demolition and reclamation is convenient for mechanized operations and can surely reduce labor costs 5. On the other hand, the average total cost of infrastructure construction such as for water and electricity will decrease along with the increase in supply.

When the quota exceeds the moderate scale (the right side of *M*\* in Figure 1), it will inhibit the return of the quota. This phenomenon is mainly caused by the law of increasing marginal costs and diminishing marginal returns. Firstly, transaction costs can be more expensive if the scale of the balanced quota is too large. The large scale means that the number of farmers involved is huge and the government needs to spend too much time and funds on mobilizing demolition, determining compensation and resettlement methods and coordinating disputes over ownerships. All these lead to higher transaction costs for demolition and resettlement. Secondly, the unit return will be lower. On the premise that the urban construction land will not expand indefinitely, the larger the balanced quota, the more the new urban construction scale can be transferred, which is likely to cause a buyer's market because of the oversupplying. An extreme example is that, according to China's rate of urbanization (the population urbanization rate will be 75% to 80%), there will be nearly 200 million farmers moving to cities or towns in the next two decades; at the same time, about 2 million ha of newly added urban construction land is needed, on the condition of an urban construction land planning standard of 100 square meters per person. However, the current rural homestead area is as high as 13 million ha. So, under the circumstance that the scale of rural homesteads is huge while the demand for newly constructed urban land is limited, the benefit of the saving quota formed by the reclamation of homesteads

can only be determined by the lowest price of many quota-sellers. The price will be close to the cost of demolition. Additionally, the inputs will be inefficiently allocated. There is a certain investment combination ratio between land input and other production inputs such as capital and labor. If the balance quota exceeds an appropriate scale, it will not be able to effectively cooperate with other factors to form economies of scale. This will cause low efficiency and even inefficient allocation of production factors.

Based on the above analysis, the core hypothesis of this study is put forward as follows: there may exist an inverted U-shaped curve relationship between the scale and the revenue of the project-based balanced quota, and there is an appropriate quota scale that maximizes the revenue.

#### **3. Materials and Methods**

### *3.1. Econometric Model*

The discussion above provides the theoretical analysis for the scale and revenue of the balanced quota in the IVDB policy implement. Based on this, referring to [33,35], we establish the following quadratic econometric model, with the project as the research unit in this study:

$$R\_i = a\_0 + a\_1 Area\_i + a\_2 Area\_i^2 + \sum\_{j=1}^2 \beta\_j Con\_{ij} + \sum\_{j=1}^6 \gamma\_j Eco\_{ij} + \text{Reg}\_k + \varepsilon\_i \tag{1}$$

where *Ri* is the revenue of the *i* project; *Areai*, *Area*<sup>2</sup> *<sup>i</sup>* respectively are the scale and squared scale of the balanced quota in project *i*; *Conij*, *Ecoij* and *Regk* are three types of control variables, with *Conij* used to control the characteristics of the balanced quota, *Ecoij* and *Regk* respectively, control the socioeconomic and regional characteristics of the county where the project is located; *α*, *β* and *γ* represent the parameters to be estimated of explanatory variables; *ε<sup>i</sup>* represents the random error term.

## *3.2. Variables and Definition*


rural residents are included in the control variables. The third group is the regional characteristic control variables (*Reg*). Our study selects municipal administrative units as dummy variables to further control external environmental factors, such as natural environment, resource endowment and other social or economic conditions in different project areas. Except for the municipal-level dummy variable, all other variable definitions and descriptive statistics are shown in Table 1.


**Table 1.** Variable definitions and descriptive statistics.

#### *3.3. Data Resource and Description*

Data in this paper include two main categories: the project data of IVDB and the socioeconomic data. The former was obtained from the 'Online supervision system for increasing versus decreasing balance of urban-rural built land' by the MNR. The data includes the approval, establishment, implementation process and acceptance inspection of each project. The statistical indicators include the scale of the balanced quota and reclamation, the newly added scale of rural and urban construction land, the total project investment and the revenue of the quota, number of farmers and per capita annual income before and/or after the implementation of the project, etc. Due to the projects that have not yet been completed, the inspection cannot obtain key information such as the revenue of the balanced quota, so our research object deals with 1907 projects of the IVDB in Zhejiang province, which had completed the acceptance inspection by the end of 2018 and could clearly locate the county administrative units of every project 6, so that 1097 projects are distributed in 62 counties of 11 cities in Zhejiang (Figure 2).

**Figure 2.** Distribution area and quantity of the increasing versus decreasing balance projects in Zhejiang province.

As far as a single project is concerned, the largest scale of the balanced quota was approved during the second batch of IVDB projects in Jiande county, Hangzhou city in 2012, reaching 67.30 ha; while the smallest project was the civil aviation navigation station program in Nanxun District, Huzhou City in 2006, with a scale of only 0.01 ha. In 2012, the comprehensive improvement project of rural land in Beitangtou & Highland in Qinmin Village of Haining prefecture obtained 3revenue of CNY 302.22 million and the approved balanced quota was 23.65 ha. The comparison of the scale of the balanced quota with benefits for 11 cities in Zhejiang province is plotted in Figure 3. The above intuitive statistics show that the scale of the quota and the revenue are not completely positively correlated and the relationship between the two needs to be further demonstrated.

In addition, the total population, GDP, output value of tertiary industry, total fiscal revenue and general public budget expenditure per capita disposable income of urban and rural residents and other social-economic data of the 62 counties were extracted from the statistical yearbooks and statistical bulletin. The urbanization rate was calculated according to China's Seventh Census. Meanwhile, in order to maintain consistency with the IVDB projects statistical time node as far as possible, most social and economic data are from the year of 2019. The mean and standard deviation of each index are shown in Table 1.

**Figure 3.** The comparing of the scale of the balanced quota with the benefits of 11 cities in Zhejiang province.

#### **4. Results**
