China’s rural industrialization, which flourished in the 1980s, has suddenly declined since the mid-1990s. Based on the perspective of institutional change of rural collective construction land, this paper discusses the reasons behind the rise and fall of China’s rural industrialization. Using the empirical tests of China’s provincial panel data from 1987 to 1997, it is found that from the 1980s to the mid-1990s, the government relaxed the regulation of collective construction land and allowed its transfer, which was the institutional basis for the rapid rise of China’s rural industrialization with township and village enterprises (TVEs) as the main form. Furthermore, this paper takes the government’s policy of prohibiting the circulation of collective construction land from the mid-1990s as the breakthrough point, and uses the “Land Administration Law of China” promulgated in 1998 as a quasi-natural experiment to examine the causal relationship between restricting the circulation of collective construction land and the decline of TVEs. It is found that the restrictions on the circulation of collective construction land caused by the implementation of the law significantly hindered the development of TVEs. After the implementation of the Land Administration Law, in areas affected more by the law, the development scale of their TVEs shrunk even more. The analysis of this paper shows that deepening the reform of the system of property rights on agricultural land and ensuring farmers’ rights of land circulation are important ways to revitalize the rural areas.

Since China adopted the policy of transferring land through public tender, auction, and listing-for-sale (guapai), listing-for-sale has become the primary channel through which local governments intervene in the land transfer market. However, the existing literature has generally treated tender, auction, and listing-for-sale uniformly as market-based transfer mechanisms, paying relatively little attention to the decision logic behind local governments’ use of listing-for-sale to intervene in land transfers, or to its economic consequences. Using a panel dataset compiled from multiple sources and covering 2007–2020, this paper examines the effect of listing-for-sale transfers of industrial land on firm innovation and the mechanisms through which this effect operates. We find that local governments’ intervention in the land transfer market through listing-for-sale significantly impedes firm innovation: the higher the share of industrial land area transferred via listing-for-sale in a city, the greater the suppressive effect on the innovation of industrial firms in that city. This finding holds for both the quantity and quality of firms’ invention patent applications, and is robust to instrumental-variable estimation and a battery of robustness checks. Heterogeneity analysis shows that this innovation-suppressing effect is more pronounced in cities with relatively abundant land resources and greater pressure to attract investment, and in industries with weaker market competition. Mechanism analysis shows that intervention in the land transfer market suppresses firm innovation through three channels: intensifying firms’ extensive, land-dependent growth; lowering the quality of investment attracted; and fostering government-business collusion. This study offers implications for policymakers seeking to promote firm innovation by reforming the land transfer market.