The National Audit Office (NAO) has started auditing the collection and use of the fees levied on the transfer of land use rights in 10 cities in order to better regulate the funds.
Such fees are a major source of income for local governments.
As the nation's property and real estate markets have heated up, funds have flowed into local government coffers.
The 10 cities include the four municipalities - Beijing, Shanghai, Tianjin and Chongqing - as well as six provincial capitals - Harbin, Hefei, Jinan, Changsha, Guangzhou and Chengdu.
For various reasons, land transfer fees are not included in government budgets, though they are still at the disposal of local officials.
As the trade in land has boomed, income from transfer fees has come to account for almost half of local financing in recent years.
But unlike budgeted funds, local governments often do not keep clear records of how the transfer fees are collected or used.
A communiqu from the Ministry of Land and Resources said that last year, fees from the transfer of land use rights contributed about 767 billion yuan (US$100 billion) to local finances.
However, the 21st Century Business Herald quoted Ping Xinqiao, a Peking University professor, as saying that a more realistic estimate would be 1 trillion yuan.
The State Council last year ordered all land transfer fees to be included in government budgets.
The fresh audit is aimed at getting a clear picture of the scale of land transfers and whether the money collected matches that amount, the NAO said.
The audit will make sure that all fees are included in government budgets and sniff out any waste, embezzlement or the loss of State assets in the collection and use of the money.
Land-related corruption cases brought down a slew of officials last year. Some of them influenced the land approval or bidding process or siphoned off money.
Renmin University of China professor Yan Jinming described the loss of State assets in the form lower land transfer fees as "worrying".
"Local governments tend to attract investment with preferential policies like promising much lower land fees for industry, which has led to huge losses," he said.
"This is because of the investment-driven economy. Economic performance still decides an official's political future."
On the other hand, local governments earn a lot from inviting public bidding for land designated for property development, he said.
Yan said local governments can tamper with their accounting in order to free up more funds for their use.
(China Daily July 11, 2007)