Using land use rights to finance subway construction in Shenzhen

To alleviate traffic pressure from private vehicles, major cities develop urban rail transit systems. Rail transit construction requires large investment, which cannot be re-cooped through short-term earnings. Large-scale construction requires strong financial support to be completed within a limited time frame. Currently, capital comes mainly from fiscal investment and governmental credit guarantee; however, these sources are inadequate to cover costs. Therefore, major cities have proposed a sustainable development concept of “rail transit plus property development” to fund rail construction.

Shenzhen was one of the first cities to build a subway in China. In 2009, Shenzhen proposed a “rail transit plus property development” strategy for sustainable rail transit development. The city acquired use rights for several properties through targeted bidding, auction, listing, and land use rights contribution.

There have been three distinct phases of financial investment in Shenzhen’s subway construction. Total investment in phase one was approximately 10.5 billion yuan and was primarily financed using a single investment mode: 70 percent came from direct government investment and the balance was provided through bank loans.

Total investment in the second phase was approximately 80 billion yuan and was split between two main sources: 50 percent of the financing was from the government fiscal account and the balance was from bonds, short-term financing, bank loans, and BT (built and transfer). During the second phase of construction, the Shenzhen Metro Group acquired land development rights through bidding, auction and listing. In addition, the Shenzhen government adopted the "Three Resolutions" policy on rail transit development, which allowed the Shenzhen Metro Group to use the value of land as a source of capital for subway construction.

The third phase of Shenzhen’s metro construction adopted a more diversified investment and financing mode. With the approval of the National Development and Reform Commission, the government sold land use rights to the Shenzhen Metro Group and the latter used the development rights to finance subway construction.