On April 25, 2019, Prof. Zhao Yanjing, former director of Xiamen Urban Planning Bureau, gave a speech titled “The Code of Growth” to students of the Institute of South-South Cooperation and Development at Peking University Public Policy Forum International.

It is essential to know green urban growth with key factors of land, labor, and capital. From Prof. Zhao’s presentation, we could know a different point of view, regarding the role of land capital for China’s urbanization. He mentioned that the combination of labor and capital is what the standard neo-classical production function calls -- a complete circle with capital substituting for labor as corporations maximize their productivity via technological innovation.

However, scholars like Ryan Collins vehemently argued that the theory of marginal productivity under certain assumptions, including perfect competition, market equilibrium, will be overthrown when the marginal cost of an additional unit of capital or labor is equal to its marginal revenue. The theory has remained a heated topic of debate, which mainly focuses on what is really meant by capital, the role of interest rates and whether it is perfectly substitutable for labor.

Peeping through the louvres, it is a known fact that there is another factor of production which is critical to many countries including China, and that's land. Many economists have ignored land in their production stages. Bringing the students into the intellectual surging, Prof. Zhao made an intriguing report on how land makes contributions to the economic growth of China. According to him, China’s development could be largely attributed to the vast land, which was put into infrastructure used by the government.

Prof. Zhao’s point of view was supported by the theories of classical political economists like David Ricardo, John Stuart Mill and Adam Smith -- who were the pioneers of modern economics, with a well-established emphasis that land has unique qualities which are distinct from capital and labor, and it can affect the dynamics of production. The pioneers of modern economics had realized that land was scarce fixed assets.

Speaking of Ricardo’s concept of economic rent, Prof. Zhao believed that the gains accruing to landholders from their absolute ownership of scarce resources with agricultural land make the land unproductive at times for the betterment of the nation, and he also believed that the landowner may not be free to choose the economic rent he or she could charge. Rents were thus driven by the marginal productivity of land, not labor as the population theorist Thomas Malthus had argued about. On the flipside, as Adam Smith noted, nor did land rents reflect the efforts of the land-owner.

Prof. Zhao stressed that urbanization is caused by several factors, for example, resources of a city -- including public goods, if public goods were available in the city and government was ready to make full use of them.

It is evident that China is able to construct infrastructure because there is plenty of farmland to be urbanized. Unlike other countries where the land property is owned by both citizens and government, China nowadays only shares territory’s use right with its citizens for several decades.

In his conclusion, Prof. Zhao reminded that if government policies are going to focus on development, it is necessary to understand that land plays the greatest role in economic development.