The Chinese government on Tuesday issued new rules aimed at tightening land supply in another bid to prevent overheating of the economy.

The new rules warn local leaders that they will be penalized if they fail to stop or investigate illegal land sale cases in the areas under their jurisdiction, according to a State Council notice.

Under the new rules, the use of farm land for construction purposes will no longer be approved by the State Council for each project, but should be reported to provincial governments and submitted to the State Council for approval on an annual basis.

Land management authorities must keep a closer watch on local governments and stop land supply applications from local governments that may breach regulations, according to the notice.

Civil servants who have violated the land supply rules shall be disciplined and prosecuted if they have broken the law, the notice said.

The Ministry of Supervision in collaboration with the Ministry of Land and Resources and other central departments shall soon launch a nationwide crackdown on irregularities in land supply, the notice said.

China recorded an economic growth of 10.9 percent in the first half this year on the back of a 30-percent growth in fixed asset investment, both the highest in recent years.

In its bid to prevent a possible economic meltdown, China has repeatedly raised the benchmark interest rate and clamped down on unauthorized investment projects.

The government believes that illegal land supply is a leading cause of the runaway investment.

A survey of 16 cities by the Ministry of Land and Resources last year showed that nearly 50 percent of the new land under development was acquired illegally. The figure was as high as 90 percent in some cities.

To stop local governments from giving land to investors free of charge or at very low prices, the notice said the central government will impose a minimum price tag on land, which will vary according to what it is used for. Officials who sell land at prices lower than the minimum price will be prosecuted, the notice said.

The government will also raise taxes from investors for the use of land. These tax revenues will be used for the protection and development of new farmland.

Analysts say the new move will raise the cost of land and help improve the efficiency of land usage.

The notice also bans the lease of lands from farmers for construction purposes, which is increasingly used by some local governments and investors to dodge taxes associated with land sales and approvals by higher authorities.

The notice includes new policies aimed at protecting the interests of farmers whose land is sold by local governments.

It said revenues from land sales must be first used to pay for the resettlement of farmers and compensation for their crops.

The notice made clear for the first time that if the sale price of any piece of land is not enough to cover the cost of resettling farmers, local governments must pay from its pool of land sale revenues.

Local governments should make sure that farmers who have lost their land are properly trained for new jobs and provided with new means to support their life in a sustainable way, the notice said.

Zhang Xinbao, a senior official from the Ministry of Land and Resources, said reining in the local government is a major target of the new policy, as "local governments are actually behind almost all the major cases of illegal land uses".

There are many reasons for this, but the main reason is interest as land sale revenues has become a major source of fiscal income for many local governments, Zhang said.

As a solution, the new policy provides that land sale revenues must incorporated into local budgets so that they can be scrutinized by higher authorities.

This is a big departure from the current practice where local governments have total freedom to spend the money as an extra-budget revenue.

Editor: Yan