The 1994 tax-sharing reform recentralised the bulk of tax revenue to Beijing while leaving local governments with heavy spending duties, opening a structural fiscal gap. Because cities controlled the conversion and leasing of land, they turned to selling land-use rights and to land-backed borrowing through financing vehicles to fund infrastructure and services. This "land finance" tied municipal budgets to a continuous cycle of expropriation, servicing and sale of land at the urban edge. It became a powerful driver of sprawl, debt and the pace of city expansion.
It made land sales the fiscal lifeblood of Chinese cities, embedding rapid physical expansion in the structure of local public finance.
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