Abstract
The perspective of state entrepreneurialism provides a powerful analytical lens for understanding the pivotal role of the Chinese state in land-centered urbanization. While existing literature has extensively documented the macro-level features of this governance model, its internal mechanisms and potential dysfunctions in practice necessitate further investigation. This paper contributes to the state entrepreneurialism literature by highlighting its key mechanism: the state’s strategic devolution of land development and governance rights to market actors. Drawing on a case study of urban redevelopment in Guangzhou, we argue that when this devolution is not accompanied by robust regulatory oversight, it creates a governance failure and fosters market disorder. This process generates significant reflexive effects, where the market instruments deployed by the state paradoxically undermine its own planning prerogatives and lead to a dual failure of both state and market. Our findings reveal a key tension within the state entrepreneurialism model and highlight the importance of “planning centrality” in stabilizing crises arising from market-oriented and speculative urban development.
State entrepreneurialism and land-centered urbanization
The relationship between government and market is the key to understanding urban development and urban governance in China. China’s urban development has long been entrenched in the growth machine paradigm (Molotch, 1976). This paradigm regards urbanization as the prime mover of economic growth, with the government playing the role of an actor focused on economic interests. Theories such as local government corporatism (Oi, 1989) and local entrepreneurism (Walder, 1995) equate the interests of local governments with those of real estate developers, thereby ignoring the autonomy of the state. The concept of “state entrepreneurialism,” put forward by Wu (2018) provides a valuable summary of the role of the state in China’s urban governance. He pointed out that state entrepreneurialism is a kind of pragmatic state tactic, which mobilizes and uses various forces from market and social to realize governance intentions. It is a development mechanism characterized by “state centrality” and “market for the state” (Wu et al., 2024).
Wu and many scholars have enriched the connotation of the concept of state entrepreneurialism and enhanced its explanatory scope through empirical case analysis. For example, they have explored the flexibility of urban development through “planning centrality” (Geng et al., 2023), the characteristics of green state entrepreneurialism in the construction of park cities (Zhang and Wu, 2024), and the pragmatic orientation of city governments towards social organizations participating in epidemic prevention (Wang et al., 2025). Wu et al. (2020) have also discussed multiple goals and motivations of local government entrepreneurialism, including local cadres’ career incentives, the undeniable authority of the central government (Wu, 2018), and the balance between local economic development and people’s livelihood (Zhang and Wu, 2024).
Currently, there is a heated debate in Chinese academia regarding whether land finance should be abolished. Land finance is a fundamental system in China, consisting of a series of regulations such as state-owned urban land, land expropriation compensation, state-owned land bidding, land use regulation, and the central–local tax distribution system. Land finance has played a significant role in the accumulation of initial capital during China’s urbanization process, shaping China’s modernization path differently from that of the West (Zhao, 2014). Jiang et al. (2010) pointed out that in the capital composition of urban construction in eastern China, land finance accounts for approximately 30%, and land mortgage financing accounts for about 60%. In central and western China, land finance accounts for around 20% of the urban construction funds, and land mortgage financing accounts for about 70%. In the land supply structure of Chinese cities, 40% is for infrastructure and public welfare land, 30% is industrial land, and 30% is commercial land. Amid the competition for investment, the industrial land provided to enterprises is often offered at a low price or “zero price.” Therefore, the only surplus that the government can obtain is from the 30% of commercial land, which must compensate for the requisition of the first two types of land and fund urban and rural infrastructure construction. According to statistics, 60% of the land requisition cost in China is used to compensate original residents (Tang, 2016). Thus, the purpose of local governments in developing urban land extends far beyond land finance, encompassing industrialization, infrastructure construction, and social welfare, aspects that neither the urban growth machine theory nor local government company corporatism can fully explain.
Drawing upon the above phenomenon, Wu (2023) creatively put forward the concept of “state entrepreneurialism” to summarize the role of the Chinese government in land urbanization. State entrepreneurialism refers to “a series of enterprise-like actions taken by the state to achieve the strategic intention of maintaining economic growth, stability and capital accumulation, and then realize its governance capacity.” Here, the relationship between the government and the market implies that the state (government) uses the market to achieve its purpose of developing the local economy, renewing cities, and enhancing social welfare, thereby increasing the state’s power and governance capacity.
The concept of state entrepreneurism is obviously influenced by the concept of urban entrepreneurialism proposed by David Harvey. “The ‘managerial’ approach so typical of the 1960s has steadily given way to more proactive and ‘entrepreneurial’ forms of action in the 1970s and 1980s. In recent years in particular, there seems to be a general consensus emerging throughout the advanced capitalist world that positive benefits are to be had by cities taking an entrepreneurial stance to economic development (Harvey, 1989).” Urban entrepreneurism is fully reflected in the urban land development that Harvey (2013) terms “the urbanization of capital.” Harvey points out that urbanization has always been a key means of absorbing surplus capital and surplus labor. As the growth of industrial production and liquid assets—a critical cycle in the capitalist production system—began to slow, capital moved to the second sector—real estate. In the process of urban expansion, housing is the guarantee of the reproduction of life, society, and politics, so real estate has become the main source of spatial injustice (Lefebvre, 2003). Against the backdrop of capital utilizing urbanization and real estate development as tools for capital appreciation, housing financialization is deepening day by day, becoming the trigger that induces the global economic crisis. The global financial crisis in 2008 shows that housing financialization is essentially a “privatization Keynesian doctrine” with personal debt, mortgage loan expansion, and housing appreciation as the core (Crouch, 2008). “Privatized Keynesianism” promotes the “future welfare” of asset appreciation, implying that home ownership compensates for income and welfare (Watson, 2010). In urban entrepreneurialism, the government acts as the spokesperson for market capital and ensures the operation of the urban market by protecting private property rights, maintaining market order, and guaranteeing the financial system. The relationship between state and market in state entrepreneurialism is quite different from that in urban entrepreneurialism. Wu and Zhang pointed out that state entrepreneurialism, as a new governance technique—employing market instruments, adapting to institutional flexibility, and absorbing social forces—has greatly enhanced the resilience of state governance in cities (Wu and Zhang, 2025).
The theory of state entrepreneurialism offers a valuable point of dialogue with the theory of local government corporatism and urban growth machine, both of which have had a significant influence in China. The theory of local corporatism emerged from studies of micro-level rural experiences and is mainly used to describe the local government’s pursuit of economic interests in a manner similar to enterprises. However, this theory does not fully extend to the field of urban government action. This experience of town governments participating in and sponsoring collective economies was largely confined to the period of the 1980s and 1990s in China. In the 21st century, the Chinese central government mandated that town governments withdraw from collective economic operations, and the phenomenon of governments directly participating in enterprise operations largely diminished.
In contrast, while urban growth machine theory discusses the government’s actions as a spokesperson for capital from the perspective of capital urbanization, it largely overlooks the aspect of state autonomy. Some studies propose the promotion tournament theory, based on local governments’ GDP data, which argues that officials are committed to promoting local economic growth to achieve career advancement (Li and Zhou, 2005). In fact, the implementation of policies, loyalty, and other informal factors also play an important role in the official position promotion (Jiang, 2018; Jiang and Zhang, 2020). The concept of state entrepreneurialism shows the complexity and authenticity of the logic behind government behavior in China’s urbanization, extending beyond the theories of the urban growth machine and local corporatism. This concept is rooted in the Chinese experience and reflects the diverse ways in which global capital influences urbanization. State entrepreneurialism originates from the process of capital accumulation and the political strategies derived therefrom, understanding this logic within the historical trajectory and critical junctures of China’s engagement with global geopolitics (Wu and Zhang, 2025).
Rethinking state entrepreneurialism through the redevelopment history of Guangzhou
A critical review of state entrepreneurialism and its tensions
Theories of urban entrepreneurialism and the growth machine have provided insights into how local states forge coalitions with market capital to pursue growth. These perspectives typically emphasize a process of strategic alliance, or even collusion, where the state and capital’s interests align to drive accumulation, often at the expense of broader social welfare. Building upon this, state entrepreneurialism, as conceptualized by Wu (2023), offers a more nuanced view specific to the Chinese context. SE posits that the market is not merely a partner for collusion, but a strategic instrument deployed by the state to fulfill its governance objectives, from economic growth to social stability. This reframes the state-capital relationship as one where the state maintains a strong intentionality, consciously utilizing market mechanisms to serve its evolving strategic goals. However, a common thread unites these perspectives: they all presuppose a proactive state that actively initiates, shapes, or co-opts market processes, whether for profit-seeking or for strategic governance.
This paper, however, illuminates a different facet of SE by examining the case of Guangzhou. While Guangzhou is a key exemplar of Chinese entrepreneurial governance, its trajectory reveals a critical counter-narrative to the dominant theme of state proactivity. As the historical analysis in the following section will detail, Guangdong’s unique pathway originated from a powerful, bottom-up urbanization process driven by village collectives and private capital since the 1980s. This created entrenched stakeholders and a de facto development order to which the local state was often compelled to react, rather than direct. In this context, the state’s role shifted from that of a proactive orchestrator to a reactive legitimator, progressively institutionalizing a development path it did not initially design. This highlights a crucial, yet under-explored, dimension of SE: it can also manifest as a series of state responses to pre-existing, self-organizing market and societal forces.
The concept of a controllable “market instrument” becomes problematic when we dissect the complex actors that constitute “the market.” The market in Guangzhou’s redevelopment is not a monolith but a dynamic arena of powerful agents. As Kan (2019) finds in her Guangzhou study, the state’s strategy relies on the “strategic enrolment of rural communities,” effectively coopting them as “corporatist market players” in regimes of rent-based accumulation. These are not passive subjects but active participants. Similarly, Guo et al. (2018), in their case study of Liede Village, reveal that urban villagers become “entrenched interests in the redevelopment process,” capable of both activating and de-activating the growth machine. This complex web of actors is further broadened by what Liu and He (2025) term a “shareholder-value machinery,” where homeowners and buyers are transformed into “investor-citizens,” deeply implicating household finances in the speculative urban process. This multi-actor reality suggests that the state is not operating on a passive object, but navigating a complex coalition of interests, each with their own agency and goals.
This entanglement of diverse actors inevitably generates feedback loops that challenge the state’s instrumentalist intentions. As Wu’s (2008) seminal work on China’s transformation argues, the state’s presence in the economic sphere and its regulation “may strengthen the market logic rather than reducing it,” ultimately establishing a “market society.” Liu and Yau (2020) extend this insight by identifying the “reflexive effects” that arise from this dynamic, where the state and market become deeply entangled, each shaping and being shaped by the other. Their ethnographic study in Guangzhou shows this entanglement manifests as a “state–market–society nexus” where the boundaries blur. This theoretical lens helps to explain the governance failures observed in our case: when the state unleashes these market forces without sufficient regulatory capacity, the ensuing “reflexive effects” can lead to market disorder and undermine the state’s own governance objectives.
Therefore, this paper contributes to the SE literature by dissecting these two critical tensions. First, we challenge the implicit assumption of state proactivity by providing a historical narrative for “the other side” of SE—a reactive form forged in the unique context of Guangdong’s bottom-up development. Second, by incorporating the concept of “reflexive effects,” we analyze how the state’s engagement with the market, regardless of its initial stance, entangles it in a web of mutual influence and feedback loops, potentially leading to governance failures when regulatory capacity is absent. As Wu et al. (2025) suggest, such failures and the crises they engender are precisely what may be driving the recent “managerial turn” in Chinese urban governance. By examining this dysfunctional variant of SE in Guangzhou, we aim to provide a more comprehensive and critical understanding of the complex, contradictory, and evolving nature of state–market relations in China.
The alternative pathway: Guangdong’s urbanization lineage
Guangdong’s experiences echo China’s tradition of policy experimentation (Wang and Yang, 2025), in which “experimenting units try out a variety of methods and processes to find imaginative solutions to predefined tasks or to new challenges that emerge during experimental activity” (Heilmann, 2008). Policy experimentation generally takes two forms. The first follows a top-down approach, typically initiated by the central government to conduct local experiments for specific policy objectives, which may later be scaled up or institutionalized as formal laws. The second type, though commonly found in federalist polities, also exists in China, such as in Guangdong, as a form of bottom-up or spontaneous experimentation, in which local policy actors independently explore solutions with limited intervention.
The origins of Guangdong’s unique land urbanization model can be traced back to the reform era of the 1980s. The “three-plus-one (三来一补)” processing trade model—a form of processing trade involving custom manufacturing with materials, samples, or components supplied by foreign partners—thereby initiating the region’s early industrialization and urbanization. However, as neither the government nor enterprises could provide sufficient employee dormitories, factory buildings, and warehouses, the local government allowed peasants and rural collective enterprises to build housing on their own land and rent it to enterprises and migrant workers. Thus peasants benefited from the non-agricultural use of land at an early time. This fostered a distinctive initial condition, creating economically powerful village entities and a local state accustomed to a more regulatory, hands-off role, in stark contrast to other regions where the state’s direct control over urban land remained paramount.
This path dependency became critical after the 1994 Tax-Sharing System reform. Although the reform imposed nationwide fiscal pressure on local governments to seek extra-budgetary revenue, their responses varied. In many parts of China, this pressure spurred the mainstream model of state entrepreneurialism, in which local states monopolized land expropriation and sales. In other Chinese cities, land development is predominantly characterized by government-orchestrated land expropriation. Local governments usually establish urban investment companies to carry out land requisition, demolition, reservation, auction, and listing. Market capital enters the land development process only during land bidding and listing. The government uses the market to develop land and build cities, pursuing multiple goals such as economic development, infrastructure improvement, social employment, and enhancement of residents’ living environment. Here, the government is not only in charge of land planning and development rights but also responsible for the smooth completion of resettlement housing projects for households and the maintenance of social order. The government’s land development activities are accountable. Local government officials will be severely punished once their corruption, violations, and infringement of residents’ rights in land development are verified.
However, the Pearl River Delta region has been appealing to the central government for more preferential policies and administrative autonomy for many years. Besides offering substantial policy-based incentives to the Pearl River Delta region, the central government has created a favorable environment for experimentation by allowing extensive leeway for trial and error and tolerating possible missteps in the region’s self-driven exploration of governance paradigms. In terms of the land development mode, considering the complex property rights relationship, strong clan influence, and widespread illegal construction, the local government in the Pearl River Delta region actually abandoned the mode of land acquisition and development by the state and continued to rely on a model in which village collectives and market forces were the primary drivers of development.
As urbanization continues, Guangdong Province becomes one of the first provinces in China to pilot the renovation of the “Three Olds (old urban areas, old industrial zones, and old villages)” around 2010. Guangzhou, the capital city of Guangdong Province, granted the land development rights to the market, giving rise to a land development model that is market-driven and features cooperation between villages and enterprises. Around 2010, the government gave the land development rights to the indigenous households, allowing them to develop independently or cooperate with enterprises.
A typical event is the reconstruction of old land in Liede Village, Guangzhou in 2007 (Tan et al., 2012). Liede Village was the first village where market enterprises participated in the reconstruction of old villages. The role of enterprises in the land development of Liede Village is to purchase part of the construction land area with funds, but they do not participate in the development, distribution, and governance process of village land development. By selling part of the construction land to the enterprise, the village obtains the funds needed for the reconstruction of the old village, and develops and allocates the land completely independently. This process usually involves the negotiation of house demolition with each peasant household, which is directly related to whether the space allocation is just, whether the social governance is orderly, and whether the overall interests of the city represented by the government can be realized. Extensive democratic participation and democratic consultation governance by villagers have become essential forms in the renovation of old villages. However, in some cases, such participation has degenerated into a form of formalism where villagers only seemingly participate in decision-making, while in other instances, it has transformed into covert bargaining between developers and villagers.
In the village-enterprise cooperative model, the government’s role transitions from a direct implementer to a supervisor. The government retains its statutory spatial planning right, which involves defining the macro-level parameters for the project, such as land use function, floor area ratio, and public facility requirements. However, the land development right is effectively devolved to the market actors (the village collective and its partner enterprise). This means these market actors are granted the authority to manage the entire on-the-ground implementation process, including land consolidation, resident negotiation and relocation, and the physical construction of the project, all while operating within the government’s pre-approved planning framework. The non-rule-based game of space allocation between villagers and enterprises has led the government to face a large number of imbalanced space-allocation problems. Therefore, an in-depth analysis of Guangzhou’s land development model is essential. Particular attention should be paid to the relationships among the government, the market, and rural residents.
Therefore, the formal “Three Olds” renovation policy, piloted in Guangdong around 2010, was not a radical invention but rather a state-led institutionalization of this long-standing, bottom-up reality. It was a strategic response to regulate and harness the dynamic but often chaotic development patterns that had evolved over decades. By formally devolving development rights to villagers and enterprises, the policy acknowledged and legitimized the “market-oriented side” of China’s land urbanization, cementing a distinct regional model.
The Guangzhou model: A state-orchestrated, market-oriented approach
In 2007, Liede Village of Guangzhou launched the old village reconstruction project, the first such project after the Guangzhou Municipal Government lifted the prohibition on developer participation in old village reconstruction. A market-oriented urbanization model, distinct from the traditional state-led expropriation and development model, has emerged in the Pearl River Delta region of China. In July 2022, we conducted field research in District H of Guangzhou for more than 20 days, interviewing more than 40 township cadres, village cadres, villagers, and managers of old village reconstruction companies. This involved an in-depth investigation into the development process of old village reconstruction. District H serves as the pilot area of the “Three Olds” renovation in Guangzhou. With the exception of two rural revitalization demonstration villages, over 80 villages in the district have participated in the old village reconstruction project, making their experience representative. Based on the case of District H, the following section will illustrate the market-oriented urban land development process and the resulting spatial allocation injustice.
Guangzhou’s “three old reconstruction” policy transformation
Benefiting from the policy dividends applicable to pilot villages, Liede Village took two key actions. First, in line with the second national land survey (completed on October 31, 2009), it regularized previously illegal houses. Second, it implemented a compensation mechanism for illegal houses constructed after the second national land survey, offering 1,000 yuan per square meter to cover material losses. The renovation of Liede Village involves two core links. One is the process of land property rights transactions among the village committee, the government, and the developers. The other is the process of defining spatial property rights and reallocating spaces between the village committee and ordinary villagers. In this process, ordinary villagers are mostly passive participants. There is a serious information asymmetry between ordinary villagers and village committee cadres. Many villagers participate in the old village renovation project through extra-institutional means such as petitioning and filing lawsuits (Tan et al., 2012).
However, most rural areas lack the ability to independently develop village construction land. Consequently, cooperation with enterprises in land development has become the primary approach for the reconstruction of old villages in Guangzhou. In 2016, “The Implementation Measures for the Renewal of Old Villages in Guangzhou” proposed three main modes for the comprehensive reconstruction of old villages: the traditional government expropriation mode, the villagers’ independent reconstruction mode, and the village-enterprise cooperation reconstruction mode. This clearly grants villagers the right to develop land independently. The village-enterprise cooperation renovation model exhibits three key characteristics: First, the government must approve both the implementation plan for the village renewal project and the resettlement compensation plan. Second, the cooperative enterprise must be publicly selected through the Municipal Public Resources Trading Center. Third, the villagers’ committee can apply to transfer the financing land plot by agreement to a new enterprise jointly established by the village and the enterprise, or directly transfer it by agreement to the cooperative enterprise. In the process of village renovation, constructible land plots are classified into three types: land plots for the compensation and reconstruction of villagers’ houses, financing land plots for enterprises to sell for profits, and public land plots used for the construction of public facilities and green space. The formula for calculating enterprises profits is the sales revenue from the financing land plots minus the costs incurred in the old village renovation (including financial interest costs).
In 2018, Guangdong Province issued “Notice of the Department of Land and Resources on Issuing the Implementation Opinions on Further Promoting the ‘Three Olds’ Renovation Work” (Document No. 3 [2018]). Subsequently, a large number of village-enterprise cooperation reconstruction projects have been launched. Article 12 of the Notice (Document No. 3 [2018]) clearly points out that for those who renovate by village or through cooperate, the land use rights could be directly transferred to: a rural collective economic organization or its wholly-owned subsidiary; a cooperative company established by a rural collective economic organization and a publicly selected market entity, or a rural collective economic organization and a publicly selected cooperative entity agreeing to act as one of the development and construction units.
Process of village-enterprise cooperative development
The process of village-enterprise cooperative reconstruction of old villages typically unfolds as follows: First, after the government approves the village renovation plan, the village seeks potential developers through private consultations and subsequently establishes a formal cooperative relationship via the government’s investment promotion platform to comply with regulatory standards. Second, following the villagers’ meeting approval of the compensation plan, the village and the enterprise sign the agreement and commence the project implementation. Third, the enterprise conducts door-to-door negotiations and enters into specific compensation agreements with the villagers. Upon the villagers signing a contract to vacate their houses, the developers proceed with demolition and issue relocation allowances. Fourth, the developer undertakes the construction of both resettlement housing and financing housing, ensuring the ongoing payment of relocation allowances. Fifth, under the joint oversight of the enterprise and the villagers’ committee, villagers select their resettlement houses. Sixth, after the developers sell the properties in the financing area, they conclude their involvement in the area. All expenses associated with the provision of public facilities, the construction of resettlement housing, and land acquisition and demolition within the old village reconstruction area are borne by the developer. The developer and the village committee staff also complete the relevant tasks.
To balance the costs of enterprises, the government determines their financing space by dividing the total cost by the agreed land transfer price. The government commits to transferring the quota of construction land within the reconstruction area to the enterprise at pre-determined price, equivalent to 20% of the market price of comparable land sold through public auction and listing (招拍挂). According to this calculation, a higher reconstruction cost for the enterprise results in a larger financing area. Consequently, developers have an incentive to inflate the costs of old village renovation to maximize their financing space. Conversely, to control development intensity and protect the city’s overall development interests, the government aims to regulate reconstruction costs. This creates a relationship of mutual supervision between the government and the enterprises. In October 2019, Guangzhou issued the “Cost Accounting Method for Comprehensive Reconstruction of Old Villages in Guangzhou,” which explicitly specifies that the cost of old village reconstruction primarily encompass preliminary costs, construction and installation costs, relocation costs, demolition costs, municipal infrastructure costs, agricultural land conversion costs, and contingency costs. Preliminary expenses include the initial work expenditures for the project, such as basic data investigation fees, basic data verification fees, area planning scheme preparation fees, project implementation scheme preparation fees, financing floor land price appraisal fees, and land survey and demarcation fees. The most substantial cost items in old village reconstruction are construction and installation fees and temporary relocation fees. Construction and installation fees refer to the reconstruction fees for resettled villagers, while temporary relocation fees cover the transitional period from when residents agree to demolition until they move into their selected new houses, calculated at a rate of 35 yuan per square meter per month based on the legal construction area.
To prevent enterprises from unduly inflating the costs of old village reconstruction through practices such as “private collusion, measurement of water release, and false high data.” the “Guangzhou Old Village Renewal Implementation Measures” stipulates that if the total error in survey data during the project implementation plan preparation stage and the area planning stage exceeds 5% without sufficient and justifiable reasons, the responsible parties shall be held accountable in accordance with Articles 54 and 55 of the “Guangzhou Urban Renewal Measures.” 1 Under normal circumstances, 50% of the floor area designated for housing construction in old village renovations is allocated for financing purposes, with the remaining 50% dedicated to the reconstruction of residents’ housing. Should the cost of old village renewal surpass the anticipated budget, it can lead to issues such increased development intensity in the area, a reduction in the area of public construction land, and disruption of the overall urban planning layout. Consequently, the effective control of old village renewal costs has become a central concern in urban governance.
Game structure of space redistribution
Compared with the traditional land development model, the village-enterprise cooperative development model has a more complex distribution structure and interest game relationship, and the relationship among the government, enterprises, and villagers is as shown in Figure 1.
Space redistribution in village-enterprise cooperative development.
The relationship between government and developers
The district-level government, particularly its Urban Renewal Bureau, serves as the primary regulator. It is responsible for overseeing the project’s macro-level aspects, such as controlling development intensity, ensuring the completion of resettlement housing, and verifying crucial reconstruction data like population and housing information. At the grassroots level, sub-district offices (街道办), in coordination with law enforcement units like the Chengguan (城管), are tasked with on-the-ground enforcement, including demolishing existing illegal structures. For all these state actors, developers are dual-natured: they are the “god of wealth” (财神爷) driving construction, but also profit-seeking entities prone to inflating costs. This creates a central tension between cost expansion and control, where the government’s main governance tools—data verification by the Urban Renewal Bureau and law enforcement by the Chengguan—become critical.
The relationship between developers and villagers
Villagers, like developers, also aim to maximize their own interests in land development, primarily through practices such as illegal construction and legal household division. While villagers seeking profits from illegal construction undoubtedly increase the cost of old village reconstruction, this aligns with the interests of developers who seek to maximize the financing area. Consequently, collusion between villagers and enterprises to inflate the cost of old village reconstruction has become a common occurrence. However, given the government’s strict scrutiny and verification of reconstruction data, developers can only report data that is policy-compliant. Otherwise, they will have to bear the consequences of data promised to villagers but rejected by the authorities. Therefore, the relationship between developers and villagers can be characterized as a dual dynamic: on the one hand, a collaborative effort to increase the cost of old village renovation, and on the other hand, a strategic interaction to gain approval for seemingly non-compliant data.
The relationship between the government and the villagers
After the government grants the land development right to the villagers, its primary role shifts to compliance governance. A key aspect of this is overseeing the compensation process for demolished properties. To safeguard the interests of villagers, the Guangzhou Municipal Government has outlined three official accounting methods for reconstruction area, the specific details of which are summarized in Table 1: the “building-based,” “household-based,” and “person-based” methods. As the ‘Practical Operation Scenarios’ column in Table 1 suggests, the choice of method has significant real-world consequences. In practice, local villages almost universally adopt the ‘building-based’ method. The main reason is that the data for this method—the number and area of family houses—is often ambiguous and can be inflated through illegal construction. In contrast, the “household” and “person” methods are based on clear official population data, offering limited scope for negotiating additional compensation.
Available compensation methods provided by the government and their practical operation scenarios.
This institutional design incentivizes villagers to engage in large-scale illegal construction before redevelopment projects begin. They may also attempt to legalize these areas by adding registered household members or creating jointly-owned properties. Even for buildings that cannot be fully legalized, developers are often required to provide compensation for construction costs (e.g., 1500 yuan per square meter for certain structures built before a 2009 deadline), which further encourages such strategic behavior. Therefore, the fairness and effectiveness of the local government’s law enforcement against illegal construction directly affects the villagers’ sense of justice and the overall cost of the reconstruction.
As evidenced by the preceding analysis, the government has transitioned from a direct leader in land development to a supervisor ensuring the compliance of land-development activities. Real-estate enterprises and villagers operate under the action logic of maximizing their interests, employing various means to deliberately inflate the costs of old village reconstruction and increase their respective spatial gains. However, this pursuit can lead to urban governance dilemmas such as an excessively high development intensity in the regional space, disruption of overall urban planning and construction, and challenges in securing land for public facilities.
The governance failure under the market-oriented land development
In the village-enterprise cooperation model, the government grants the right of land development to both villagers and enterprises. Subsequently, enterprises, acting on behalf of the government, exercise the power of land acquisition and demolition and directly negotiate with villagers. This shift marks a change in land development model from the traditional “planning centrality and market instruments” to “market centrality and planning instruments.” However, the lack of effective public regulations in this model contributes to issues such as law enforcement failures, data distortion, and distribution imbalances.
Failure of illegal construction control
Villagers in the suburbs of Guangzhou have engaged in large-scale illegal construction driven by substantial rental income and the anticipation of demolition and renovation. Despite investigations and penalties for illegal construction in District H, villagers have generally been able to complete various forms of unauthorized construction activities as scheduled before the commencement of old village reconstruction projects, indicating that the local government’s control over illegal construction has been largely ineffective.
During periods of illegal construction, villagers usually arrange lookouts at village entrances to closely monitor the movements of government law enforcement officers, while others proceed with construction activities. The strategy of building at night and resting during the day has become a commonplace. When law enforcement officers arrive, villagers typically cease construction and may even cooperate by demolishing a portion of the illegal structures. However, the continuous presence of law enforcement officers is impractical, and they often avoid direct confrontation with villagers. Through these guerrilla-style illegal construction tactics, villagers have effectively gained de facto control over village space (Certeau, 1998). Although sub-district and town governments have conducted several large-scale campaigns to demolish illegal buildings, a significant amount of unauthorized construction area persists in each village. Villagers have reportedly calculated that even if their illegal buildings are demolished fewer than five times, the 1500 yuan per square meter compensation makes it a profitable venture. In villages where complete demolition has not occurred, it is common to see tall buildings exceeding four stories. Some villagers even incorporate existing trees from their courtyards into the interior of their houses. The walls of many houses are constructed with only a single layer of bricks, making them appear extremely fragile. In the two natural villages of Group 1 and Group 2 in Yingshanhong Village, District H, where demolition has been completed, a total of 619 households with 1,091 residents occupied 556 houses. The demolished housing area reached an average of 250 square meters per person. Notably, one household in this village had a demolition area of 10,000 square meters, highlighting the scale of the illegal construction issue.
Developers largely accommodate villagers’ illegally constructed houses. This approach not only expedites the contract-signing process and accelerates capital turnover but also aligns with their objective of inflating the costs of old village renovation. Consequently, this practice directly incentivizes villagers to engage in illegal construction.
Distortion of reconstruction data
The final stage of the interest-driven interactions among various stakeholders in old village renovation involves the solidification of relevant data. There are two primary methods through which villages and enterprises collude to fraudulently inflate compensation data. The first method involves exaggerating the floor area during the measurement of residents’ housing. Prior to July 2019, the measurement of residents’ building areas was conducted by third-party companies hired by the enterprises, which often led to significantly inflated results. To prevent collusion and fraudulent activities between villages and enterprises during housing area measurements, the government implemented a lottery system after July 2019 to select measurement companies for residents’ building areas. However, enterprises can still exert influence on these government-selected third-party companies to fraudulently inflate the housing area, although the extent of the inflated area at this stage is usually kept within a relatively acceptable range. Excessive inflation could damage the reputation of the surveying and mapping company, and the measurement data would likely fail to pass the government’s scrutiny.
“If we try to add 10 square meters to the area of a house, we definitely can’t make it happen. The ‘error’ should be within a reasonable range,” said the manager of an old village renovation company nearing completion of their project. “The actual floor area of the renovation area is 170,000 square meters, and the data we submitted and passed the review is 175,000 square meters, with an inflated part accounting for 2% to 3%.”
The second method involves legalizing the illegal area, which primarily refers to unauthorized housing and overbuilt portions. The legalization of illegal floor area is mainly achieved through policy coverage (for instance, government-issued documents recognizing houses built before December 31, 2009, as legal), reapplication for homestead certificates, and household division. Household division is a common strategy for villagers to maximize their compensation area. The household registration management department in Guangzhou permits family children who have reached the age of 18 to register as independent households, providing a legal avenue for residents to obtain the maximum possible housing compensation. In some villages, even married-out daughters are allowed to transfer their household registration back to their natal village. In rural China, upon marriage, a woman’s household registration typically transfers to her husband’s place of residence, making her a registered member of the local government and community collective in her husband’s village, where she enjoys corresponding rights to land (the right to contract agricultural land), housing (the right to use homesteads), and public services.
Furthermore, villagers can also have houses exceeding the legal floor area jointly owned by two households; with a certificate issued by the village committee, this can be considered legal. Moreover, agreements between the village and the enterprise can also recognize villagers’ illegal and excessive construction. For instance, in 2016, the village committee of Fenghuang Village signed an old village renovation agreement with a company and, in 2018, issued a public announcement for preliminary measurement, effectively legalizing all buildings constructed between 2009 and 2018. Given the context of collusion between the village and the enterprise, coupled with the local government’s strategic allowance of exceptions, the government’s initial aim for reasonable and legal building floor areas has become unattainable. Consequently, the local government has been compelled to adhere to the fundamental principle of not exceeding the planned carrying capacity and the absolute limit of not surpassing the total existing building floor area, resulting in the maximization of development intensity within the regional space.
Space redistribution imbalances
The village-enterprise cooperation development model granted land development rights to villagers. Through strategies such as illegal construction, household division, and inflated measurement areas, villagers have obtained benefits significantly exceeding legal stipulations. However, prominent issues regarding spatial distribution justice persist.
In rural communities, villagers’ perception of fairness often arises from relatively equitable distribution outcomes among themselves. However, the demolition and reconstruction agreements in the village-enterprise cooperation model are privately negotiated between individual villagers and enterprises, and their contents are not publicly disclosed. The compensation received by villager households heavily depends on their individual bargaining power. In rural society, these private compensation agreements often inevitably become known among relatives and friends. Villagers who have received less compensation may seek to renegotiate their agreements, demanding increased compensation from the enterprise. Simultaneously, villagers who have not yet relocated may demand higher compensation to avoid perceived losses, leading to compensation outcomes that deviate from equitable standards.
Comparisons of compensation outcomes across different villages also generate strong feelings of unfairness. In some villages, village cadres organize extensive illegal housing construction, subsequently signing demolition and resettlement agreements with enterprises that legalize these unauthorized structures. In contrast, villages that refrain from illegal construction witness their per-capita building area for demolition and resettlement being significantly lower than others, creating substantial inequity. For instance, in District H, the per-capita demolished floor area exhibits considerable variation, ranging from 250 square meters in some villages to as low as 110 square meters in others. This unequal treatment of law-abiding villages results in significant psychological imbalances among villagers. Another less explicit issue concerning spatial distribution justice involves the return of the collective reserved land quota to the village collective. According to local government regulations, the villagers’ collective can retain 5% of the collective construction land for self-development and construction. However, given the tendency for both villagers and enterprises to inflate the costs of old village/community renovation, pushing the situation close to or even beyond the regional development intensity limits, the construction land quota in the renovation area often becomes negative. To safeguard the economic interests of the financing area, enterprises engage in strategic interactions with the government, such as halting development and delaying delivery. The government’s typical response involves transferring the reserved land quota of the village collective to the developers, with the government paying the village collective an annual rent of 20,000 yuan per mu. To summarize, the issues of spatial distribution justice in the renovation process are presented in Table 2.
Justice problems of space redistribution in the village-enterprise cooperative development mode.
The aforementioned spatial redistribution problem has become entrenched in a seemingly irresolvable situation due to factors such as timing, policy constraints, villagers’ varying capacities, and mutual breaches of contract. Local governments attempt to transfer the risks and governance responsibilities inherent in land development by granting land development rights to villagers and enterprises. However, they find it challenging to extricate themselves from the framework of political contestation over spatial distribution. Owing to Chinese villagers’ trust in the government, as well as the government’s stated commitment to “serving the people,” numerous issues concerning the distribution of spatial justice, arising from the interactions between villagers and enterprises, have been transferred to the government for resolution. When the government is compelled to respond to villagers’ demands for spatial justice, it discovers that it has already relinquished its governance rights and capabilities to a significant extent.
Market disorder under the transfer of governance rights
The devolution of land development rights from the state to market actors, intended to reduce direct government intervention, has paradoxically resulted in a dual failure of both state and market governance. These governance failures, along with ensuing spatial justice issues, stem from a critical deficit in planning control. This deficit is a direct consequence of the state creating a regulatory vacuum in its transfer of power, which ultimately fosters market disorder.
The devolution of governance rights to market actors
The rights of land development include not only the right to benefit from land development but also governance rights in the process, encompassing the power of management, distribution, and disposal of people, resources, and properties involved. In the traditional expropriation model, the government, acting in accordance with established regulations and with the cooperation of local cadres, directly mobilizes villagers to demolish structures. Local governments are responsible for the entire process of land clearance, resettlement, and distribution, while real estate enterprises are primarily responsible for land development and construction. These enterprises do not directly engage with villagers and do not share the management rights of the land development process. However, in the village-enterprise cooperative development model, under government authorization, villagers’ collective economic organizations and real estate enterprises directly negotiate compensation agreements for demolition and resettlement, and real estate enterprises undertake land development, resettlement, and distribution. Developers directly interact with villagers and share the rights of land development and process governance.
Given the collusion between villagers and the market driven by profit, the government’s planning and governance rights have been undermined. This failure, to a certain extent, illustrates the shift in China’s urban management from singular government control towards multi-subject urban governance. From the perspective of power allocation in urban governance, villagers and enterprises hold a significant portion of the power, as detailed in Table 3.
Allocation of governance rights in land development.
The process of land development reveals a shift where the market’s role has evolved from a mere instrument to the dominant force, while the government’s role has transitioned from a leading to an auxiliary one. Consequently, a market-oriented pattern of land development and spatial distribution has been established. As illustrated in Table 3, the traditional land development model was characterized by “market instruments, planning centrality,” whereas the new model exhibits “market centrality, planning instruments.” The authority of planning governance, representing the state’s sovereign will, is compromised by the collusion between enterprises and villagers driven by profit. The government has effectively relinquished its governance authority in the negotiation of compensation schemes, the accuracy of compensation data, and the redistribution of space.
Regulatory vacuum and market disorder
The cooperative development model is predicated on a direct transaction of land development rights between village households and the enterprise. While this process emulates a market transaction, adhering ostensibly to principles of voluntary negotiation, it is fraught with inherent power imbalances and regulatory gaps. Land development right transactions are not typical market exchanges; for villagers, they are often a once-in-a-lifetime event for which they lack specialized expertise and negotiation experience.
Nonetheless, in transactions concerning land development rights, villagers often lack transactional acumen and specialized expertise, and such opportunities may arise only once in their lifetime. Although market transactions between rural households and real estate enterprises may appear to exhibit equality, a significant disparity exists in market position and professional knowledge. When real estate enterprises resort to signing private agreements, driven by concerns about potential losses in demolition compensation, villagers tend to maximize the floor area of illegal construction and demand compensation exceeding legally permitted thresholds.
Consequently, the outcome of spatial allocation largely depends on the developers’ credible commitments and individual villagers’ negotiation capabilities. A key challenge in this model is that within communities characterized by close social ties, the details of confidential agreements are often prone to disclosure. If rural households that have already entered into compensation agreements become aware that other villagers have received more substantial compensation, they may seek to rescind their agreements and compel enterprises to increase the compensation amount.
To a considerable extent, the difficulties in contract performance between villagers and enterprises can be attributed to the absence of effective government regulatory policies. The government has classified the quasi-market transactions between villagers and enterprises as entirely self-regulated market activities, subsequently implementing a laissez-faire policy. This approach has led to disorder within the market, undermining the stability and predictability crucial for fair and efficient transactions.
Discussion
Since 2010, a distinctive land development paradigm, characterized by the state’s strategic empowerment of market actors, has emerged in regions of the Pearl River Delta like Guangzhou. While this approach is a manifestation of state entrepreneurialism aimed at accelerating urban redevelopment, our case shows that it has also precipitated significant social governance and spatial justice issues. When the government transfers land development rights to society, rather than enhancing public welfare, it can enable market actors to prioritize profit maximization, often through strategic behaviors that skirt the edges of legal compliance. This dynamic reveals the complex and often contentious interplay between the state, market, and society that can arise when market instruments are deployed within a state-led development agenda.
In urban governance, the power equilibrium between the state and the market does not conform to a zero-sum paradigm. When the government relinquishes its direct implementation role without establishing robust regulatory oversight, this does not inherently lead to more efficient market mechanisms. Instead, as our case demonstrates, it can foster unrestrained competition and strategic maneuvering in land development. Concomitantly, a series of deleterious phenomena, including fraud, breaches of trust, regulatory breakdown, and intense bargaining, permeate the process of land and spatial allocation.
The case of Guangzhou vividly illustrates a land development conundrum characterized by the co-existence of an “ineffectual government” and a “malfunctioning market.” Confronted with fiscal exigencies and the imperative to transfer governance risks, local governments seek to delegate land development rights and the responsibility for providing public goods to the market and village collectives. Despite local governments avoiding capture by land elites, market capital eludes effective government oversight. Market actors, in collusion with villagers, erode the state’s planning prerogatives and spatial governance capabilities This outcome exposes a key tension within state entrepreneurialism: the market instruments deployed by the state can generate reflexive effects, producing logics and behaviors that challenge the state’s own governance capabilities. This internal contradiction, as Wu et al. (2024) argue, transforms essentially coherent agendas into temporary and customized governance arrangements in practice, resulting in the deviation of national governance goals.
State entrepreneurialism has been explicitly defined by Deng (2023) as the process of achieving structural coherence between capital accumulation and the multiple logical frameworks of the state. Existing research demonstrates how the state achieves successful cooperation between developers and village communities in the Pazhou redevelopment (Ye et al., 2024), although our study identifies multiple conflicts. Indigenous residents have obtained material gains well in excess of their legally mandated compensation. New urban migrants face severe housing affordability constraints due to soaring property prices. Low-income renters, predominantly from the floating population, experience disproportionate increases in rental costs. Urban innovative enterprises are burdened with elevated industrial land prices and office rental costs. All of the aforementioned phenomena undermine rather than strengthen the spirit of entrepreneurialism.
The state transforms its leading role in development when structural coherence, as described by Deng (2023), is disrupted by powerful community based forces (Li, 2022). Therefore, market instruments do not always lead to flawless governance when they are employed. According to Cai et al. (2025), local governments in Guangzhou are experiencing capacity gaps that create a dangerous trade-off between market reliance and public enforcement. It is in line with our observation of reflexive effects through which market instruments create self-sustained logics that go beyond the control of the state. The situation is complicated further due to the recent restoration of state authority, which has come in the form of strict planning controls, which can make the urban renewal process expensive and reduce market activity (Tian et al., 2025). The new growth machine is moving towards fragmented and customized governance systems, a phenomenon which has been seen in our case to lead to ineffectual government and malfunctioning markets (Li, 2022).
Conclusion
In the 21st century, China’s urbanization serves as a significant engine for global economic development (Stiglitz, 2015). However, in the traditional model of land urbanization, market capital typically participates in urban land development after the government has completed land acquisition. Prior to this stage, the government, rather than enterprises, negotiates with residents and undertakes land expropriation and housing demolition. The government’s actions are generally characterized by stability, fairness, accountability, and ex-post compensation. Consequently, most policy issues or instances of spatial distribution inequity can be rectified under the guidance of higher-level authorities. The compensation received by villagers tends to be relatively balanced, mitigating severe polarization between the wealthy and the less affluent. State entrepreneurialism has been a crucial driver of China’s rapid urbanization and its economic achievements.
After more than three decades of land urbanization, the fiscal revenues generated by the land expropriation model have significantly declined. Conversely, the risk of conflicts arising from local governments’ land expropriation and demolition activities has been continuously increasing. Against the backdrop of the central government’s increasingly stringent supervision of local governments’ land expropriation behaviors, local governments tend to utilize the market to accomplish the tasks of urban renewal and land development.
Under the policy experimentation mechanism, the Pearl River Delta region began to allow market entities to participate in old-village renovation projects, and the leading power of land development shifted from the government to market entities. As can be seen from the case of Guangzhou, the government’s withdrawal from the land development governance process has not enhanced the effectiveness of market governance and social governance mechanisms. Instead, there has been a phenomenon of triple failures in market governance, government governance, and social governance. The behavior of villagers and enterprises in pursuing their own interests without principles has led to the disorder of land development governance. The case also illustrates that the effective exertion of the government’s planning and governance power necessitates the government’s full participation in the land development process to effectively supervise real estate enterprises and villagers in carrying out development in compliance with regulations and rationally allocating space.
Confronting these mounting challenges, China is undergoing a significant “managerial turn” away from purely entrepreneurial governance (Wu et al., 2025). Locally, this is evident in the Guangzhou government recalibrating its development strategy. It is pivoting from a model of empowerment that over-relied on market actors and lacked sufficient regulatory oversight, to a new approach that prioritizes social stability and strategically aligns market forces with national goals. Nationally, this local shift is consistent with China’s wider structural transformation of governance in the post-COVID era. Spurred by the crises of excessive financialization and speculative urbanism, the central state is now stressing the need to curb land-based financial accumulation, elevate coordinated regional development above pure profit motives, and foster community co-governance. This ultimately demonstrates that urban entrepreneurialism was never an end in itself, but rather a contingent tool in China’s statecraft, subject to adaptation and change as the national agenda evolves.
In 2019, China introduced the concept of building a “people’s city,” aiming to counterbalance capital-led urbanization with the theories of spatial difference and spatial justice from post-urban Marxism, thereby emphasizing the central position of “people” in urban governance. This necessitates a public governance mechanism that transcends the interests of the market and small social groups. “Planning centrality” remains an irreplaceable approach for effective urban governance.
Footnotes
Acknowledgements
We thank the Editor and reviewers for their time and helpful comments on this manuscript.
Ethical considerations
This study is a land development of non-ethical-relevant research, and thus does not require ethical approval.
Consent to participate
This study does not involve human participants, so the consent to participate is not applicable.
Consent for publication
This study does not involve any personal-identifiable information of participants, so the consent for publication is not required.
Author contributions
Chenglin Wei and Yansen Ding completed this research.
Funding
The authors disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: the National Social Science Fund of China(Grant Number: 23BDJ011)
Declaration of conflicting interests
The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Data availability statement
This study did not generate new data, as it is mainly based on existing literature and conversational interview.
Informed consent/Patient consent
This study does not involve human subjects, as it is a land development of research. Thus, informed consent is not required.
Trial registration number/date
This study is not a clinical trial, so there is no trial registration number and date.
Grant number
23BDJ011
Other journal specific statements as applicable
All software used in this study is open-source.