Abstract  This project explains the dramatic population decline in recent years in China from the perspective of political and spatial economics, attributing it as an unintended consequence of local governments’ land allocation decisions, and explore how they shape the country’s human capital dynamics in the long run. I develop a spatial-OLG framework to capture the interplay of governments’ land allocation, population controls, and public education expenditures on household family planning decisions. Model estimation indicates that cities with higher productivities and amenities tend to disproportionately allocate more land to industrial use instead of residential use, which explains the dramatic population decline observed in China in recent years. Compared with a free land market equilibrium, local governments tend to prioritize industrial land usage, aiming at a higher industrial output, while at the expense of lower fertility rates and real income. Notably, under the One Child Policy, the realized fertility rate is significantly below the fertility rate needed for natural population replacement, but shifting to a free land market could potentially help China address this fertility rate gap from replacement level by 16.33%.