Land System Reform and China’s Economic Development 9819967325, 9789819967322

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Land System Reform and China’s Economic Development Shouying Liu

Land System Reform and China’s Economic Development “The land issues seem simple, but if you go deep from the outside to the inside, you will find the treasure hidden in them. The author of this book insists on conducting first-hand investigations in the real world, and insists on exploring the logic surrounding behavior concerning land under real premise. It is not difficult for friends who care about China’s land issues to find a reason to read this book often.” —Qiren Zhou, Professor, National School of Development, Peking University “Thanks to the reform and opening up, there are probably not a few people who were born in farming families and have been able to hold high government positions or important positions in academic institutions. It’s a pity that most of them lost interest in the countryside when they jumped out of the countryside, and even rushed to draw a line with the country folks as newly acquired urbanites. Shouying is an unusual person. It is so unusual that after he was admitted to Fudan University by virtue of his diligence and talent, he was not only still proud of being born in a farming family, but also paid more attention to agriculture, rural areas and farmers’ issues, and extended his perspective to urban areas that are the key to solving the “three rural” issues. What’s even more unusual is that Shouying refuses to rely only on books or superiors, whether he is working in a central government agency or transferring to a higher education institution to teach. When everyone avoids the minefield of the land system, Shouying, who insists on realism, has been bravely facing up to the necessity of reforming the land system. For more than 30 years, he traveled between urban and rural areas, made in-depth investigations and repeated deliberations, which made this painstaking work come into being. This is extremely valuable given today’s eagerness for quick success. This book will definitely become an indispensable and important work for the study of contemporary Chinese rural issues, especially land issues.” —James G. Wen, Professor of Economics and International Studies, Emeritus, Trinity College

“Over the years, Shouying Liu has visited all parts of China, from rural areas to cities, to conduct in-depth investigations and research on complex land issues. Whether at home or abroad, Professor Liu’s research is among the top. For readers who want to understand China’s land issues, this is a must-read book.” —James Kai-sing Kung, Sein and Isaac Souede Professor in Economic History, Business School, the University of Hong Kong

Shouying Liu

Land System Reform and China’s Economic Development

Shouying Liu Renmin University of China Beijing, China

ISBN 978-981-99-6732-2 ISBN 978-981-99-6733-9 (eBook) https://doi.org/10.1007/978-981-99-6733-9 Jointly published with China Renmin University Press The print edition is not for sale in China (Mainland). Customers from China (Mainland) please order the print book from: China Renmin University Press ISBN of the Co-Publisher’s edition: 978-7-300-25918-5 This book’s publication is subsidized by Chinese Fund for the Humanities and Social Sciences. © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publishers, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publishers nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publishers remain neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover illustration: Maram_shutterstock.com This Palgrave Macmillan imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore Paper in this product is recyclable.

Contents

Part I General Introduction 1

The First Half of China’s Land Reform, and the Next Stage 1 The Land System Reform Process: A Retrospective Evaluation 1.1 Collective Ownership and the Household Contracted Management System 1.2 Collective Ownership, the Rural House Site Use System, and Their Changes 1.3 The Arrangement of the Land Conversion System, and How It Has Changed 1.4 Municipal and Local Institutional Arrangements and Their Changes 2 The Land System’s Performance and Predicament 2.1 Land System Arrangements and the Historical Transformation of China’s Economy 2.2 Problems in the Current Land System 3 Trends of the Next-stage Economy and Reform of the Land System 3.1 Trends of the Next-stage Economy and Changes in Land Functions 3.2 The Next Stage of Land System Reform References

3 4 5 11 14 23 24 25 34 40 40 44 49 v

vi

2

CONTENTS

The Implementation of China’s Rural Revitalization Strategy and Land System Reform 1 Raising the Issue 2 The Status of Research at Home and Abroad, with Commentary 2.1 Why Has Agriculture Not Kept Pace with the Pace of Industrialization? 2.2 An Urban Bias Leads to the Urban–Rural Gap 2.3 Overall Planning of Urban and Rural Areas and the Adjustment of Urban–rural Relations 2.4 Interpretation of the Rural Revitalization Strategy Since the 19th National Congress 3 Institutional Arrangements and Institutional Mechanisms Affecting Rural Revitalization 3.1 The Catch-Up Strategy, Urban Bias, and the Subordinate Status of Villages 3.2 The Neglect of Farmers’ Rights to the City 3.3 The Dual Land System and the Villages’ Loss of Development Rights 3.4 The Historical Transformation of the Mode of Agricultural Development and the Inadequacy of the Agricultural Land System 3.5 Rural Differentiation and the Lagging House Site System 4 The Pathways and Institutional Provisions for Rural Revitalization 4.1 The General Idea 4.2 The Target Model 4.3 Optional Pathways 4.4 Increasing the Institutional Supply of Land for Rural Revitalization and “Enlivening Industry, People, and Villages” References

53 53 56 56 57 58 59 62 62 64 66

67 70 72 72 74 77

79 83

Part II Research Methods in Property Rights and the Land System 3

Property Rights, Behavior, and Economic Performance 1 The Effects of Property Rights

89 90

CONTENTS

2 3 4

The Definition and Enforcement of Property Rights Why Different Property Rights Arrangements Exist The Relationship Between Property Rights Arrangements and Economic Performance 5 A Simple Conclusion Reference 4

5

6

Perspectives for Understanding Property Rights in Land 1 Property Rights in Land: The Most Basic Institutional Arrangement in a Society 2 Land Property Rights as the Relationship between Rights and Interests Attached to the Land, Not Land as a “Thing” Itself 3 Land Ownership under Different Systems 4 The Contractual Arrangement of Control Rights and Rights Bundles: The Core of Evaluating the Effectiveness of Land Property Rights 5 The Robustness of Land Property Rights: Premised on the Fulfillment of Responsibilities and Obligations References The Contract Structure and Incomplete Property Rights of the Farmland System 1 Methods of Institutional Economic Analysis 2 The Contract Structure and the Incomplete Property Rights of China’s Current Farmland System 3 A Brief Conclusion References The Basic Logic of China’s Land Reforms 1 Two Major Constraints on Choice and Change 2 Choice and Change in the Land System 2.1 How Efforts to Reform the Land System Have Never Stopped 2.2 Outcomes of the Logic of “Separating the Two Rights” 3 Choice and Change in the House Site System 4 Choice and Change in the Rural Land Conversion System 5 Land Reform Must Be Done from the Roots

vii

94 97 101 103 104 105 105

108 109

111 114 116 117 118 123 129 131 133 134 137 137 140 143 146 148

viii

CONTENTS

Part III Empirical Studies on the Rural Land System 7

8

9

Structures and Changes in the Collective Ownership of Rural Land in China 1 Basic Characteristics of the Studied Areas 2 The Nature of the Household Contracting System in Land Collective Ownership 3 Evolution of Farmland Property Rights After the Contracting of Production to Households 3.1 Factors Determining the Institutional Changes 3.2 Changes in Thinking on Membership and Adjustments of Land System Arrangements 3.3 Changes in Contract Structure and Property Rights Arrangements 4 Conclusion and Policy Implications China’s Rural Land System: Features and Problems 1 Establishment of the Household Contracting System 1.1 Formation of the Household Contract Responsibility System 1.2 Features and Problems of the Current System for Land Contractual Management Rights 2 The House Site System: Features and Problems 2.1 Formation of the House Site System 2.2 The Main Features of the Rural House Site System 2.3 Problems in the Operation of the House Site System 3 The Rural Collective Construction Land System: Features and Problems 3.1 Formation of the Rural Collective Construction Land System 3.2 The Growth Effects of Collective Construction Land 3.3 Institutional Dilemmas in the Use of the Collective Construction Land System References The Circulation and Market Development of Rural Land Contractual Management Rights 1 Evolution of the Policy on Circulating Rural Land Contractual Management Rights 1.1 A Chronology of the Policy

153 153 157 164 164 166 168 173 175 175 177 184 190 190 199 200 202 202 205 209 213 215 215 215

CONTENTS

1.2

2

3 4 10

11

The Incremental and Regional Characteristics of the Circulation of Rural Land Contract Management Rights Land Circulation Since Implementation of the Law on Land Contracts in Rural Areas 2.1 Regional Characteristics of Land Circulation 2.2 Several Forms and Institutional Characteristics of Land Circulation Land Circulation Status and Issues in 2007 Several Policy Issues in Land Circulation and Scale Management

ix

Changes in China’s Rural Land Ownership and Management Methods 1 Status and Changes of Rural Land Ownership 1.1 Change and Elevation in the Ownership of Collective Land 1.2 The Continuous Self-reinforcement of Members’ Rights in Collective Ownership 1.3 Guarantee and Loss of Contractual Management Rights to Land 1.4 The Confirmation and Implementation of Land Rights 2 The Progress of Land Transfer and Scale Management 2.1 Features of Land Transfer 2.2 Changes in the Scale of Farmers’ Operations 2.3 Changes in the Main Entities of Rural Land Management 2.4 Problems Existing in Land Circulation and Scale Management References The Historic Origins of China’s Land Administration System 1 Historical Evolution of China’s Land Administration System 1.1 Basic Context of the Historical Evolution 1.2 Changes in the Land Administration System Since the Founding of the New China

220 224 224 225 245 251 255 255 256 259 260 263 265 265 269 270 275 278 279 280 280 282

x

CONTENTS

2

The Main Features of China’s Modern Land Administration System 2.1 A Land Rights System Based on the Socialist Public Ownership of Land, the Coexistence of Two Ownership Systems, and the Separation of Ownership and Use Rights 2.2 Protecting Cultivated Land: The Primary Goal of China’s Land Administration System 2.3 Establishing a Land Administration System with Land Use Regulations as the Core 2.4 Implementing a Mainly Centralized and Uniform Land Administration System 3 Important Lessons from History 3.1 Land Issues Are Related to National Politics and Social Stability 3.2 Dealing with the Distribution of Land Interests Is a Major Concern for Social Stability and Development 3.3 The Land Administration System Plays an Important Supporting Role in Economic Development 3.4 Too Many People, Too Little Land: The Perennial Constraint on China’s Land Administration System and Economic Development References

287

287 289 290 290 291 292

293

295

296 298

Part IV Analysis of the Rural Land Conversion System 12

China’s Dual Land Rights System and Incomplete Land Market 1 The Contribution of Land System Reform to China’s Economic Growth 2 The Formation and Strengthening of China’s Dual Land System Since Reform 2.1 China’s Rural Land Property Rights and Market Development: Toward Real Rights 2.2 The Development of the Market for China’s Rural Land Non-agriculturalization: Toward the Maximization of Local Government Interests

303 303 305 305

310

CONTENTS

3 13

Brief Comments and Conclusions

China’s Land Expropriation System: Features and Problems 1 The Formation and Main Features of China’s Land Expropriation System 1.1 The Formation and Evolution of China’s Land Expropriation System 1.2 Characteristics of the Current Land Expropriation System, with Evaluations 2 The Land Expropriation System and Economic Development 2.1 Using Compulsory, Low-cost Land Expropriation to Drive Economic Growth 2.2 Using Low-cost Land to Promote High-speed Industrialization 2.3 Rapid Urbanization Driven by Land Expropriation 3 The Economic and Social Consequences of Land Expropriation 3.1 Endangerment of National Food Security Due to Large-Scale Occupation and Use of High-quality Cultivated Land 3.2 Reduced Governmental Credibility Due to Overstepping Its Role 3.3 Debt Risk for Local Governments and Financial Risk for the Central Bank 3.4 Unfair Distribution of Land Value-Added Income 4 Land Expropriation System Reform: Exploration and Progress 4.1 Many Compensation and Resettlement Models Began in Economically Developed Areas 4.2 Explorations on Improved Compensation Standards 4.3 Formation of a Reform Plan Aimed at Reducing the Scope of Land Expropriation 4.4 A Brief Comment on the Exploration of Land Expropriation System Reform 5 The Basic Thinking on Reforming the Land Expropriation System

xi

319 323 324 325 331 338 338 340 344 349

349 351 352 356 358 359 359 362 364 368

xii

CONTENTS

5.1

Implementing the Constitution’s Principle of Expropriating Land for the Public Interest 5.2 Changing the Divide in Urban–Rural Governance and Realizing Equal Rights in the Dual Land Ownership Systems 5.3 Basing Property Compensation for Land-Expropriated Farmers on Marketized Price 5.4 Reforming the Land Finance and Government Land Management Structures 5.5 Realizing the Fair and Equitable Distribution of Land Value-Added Income 6 Realistic Choices of Land Expropriation System Reform 6.1 A Scientific Definition of Land Expropriation Power 6.2 Basic Goals of Land Expropriation System Reform at the Present Stage 6.3 Effectively Preventing Abuse of the Land Expropriation Power 6.4 Improving the Compensation and Resettlement System as a Focus of Land Expropriation System Reform 6.5 Exploring the Establishment of a Land Expropriation Dispute Adjudication Mechanism 6.6 Strictly Investigate Responsibility for Illegal Land Expropriation References

368

370

372 375 376 378 379 379 381

382 385 387 388

Part V Bidding Farewell to the Land-Driven Development Model 14

Land System Reform and Economic Restructuring 1 The Role of the Land System and Its Changes in Economic Development 1.1 China’s Unique Land System Arrangement and the Government’s Use of Land to Drive Development 1.2 Land Capitalization and Structural Transformation

391 392

395 396

CONTENTS

The Stages of Land System Change and Structural Transformation 2.1 1981–1994: Industrialization Launched by the Opening of Land Rights 2.2 1995–2002: Land-Driven Industrialization and Urbanization 2.3 2003–2008: Urbanization Financed by Land 2.4 2008–2016: Using Land as Collateral to Finance Urbanization 3 The Need for Deepening the Reform of the Land System References

xiii

2

15

16

396 397 400 402 405 411 414

Land System Reform and National Economic Growth 1 Land Plays an Important Role in Current Economic Growth 1.1 Land Became a Booster for High-speed Industrialization and Urbanization 1.2 Land-related Income Became an Important Source of Local Government Fiscal Revenue 1.3 Land Became an Important Tool for Leveraging Bank Funds, Urban Infrastructure, Real Estate Investment, and Financing 2 The Severe Challenges Faced by the Current Land System 2.1 The Administrative Allocation and Indicator Management Approach Is Still Used for Construction Land 2.2 Some Local Governments Rely on Land Management and Financing 2.3 Some Local Governments Ignored Farmers’ Land Property Rights 2.4 The Central and Local Governments’ Goals on Land’s Function Are Quite at Odds 3 Suggestions on Deepening the Reform of the Land System

417

Land Capitalization and Land Finance 1 Characteristics and Causes of Land Assignment Revenue Growth 1.1 Characteristics of Land Assignment Revenue Growth

445

418 418 420

421 423

424 427 430 432 434

446 446

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CONTENTS

1.2 2

3

4

5

Reasons for the Increase in Land Assignment Revenue Costs, Benefits, and Expenditures of Land Assignments 2.1 Costs of Land Assignments 2.2 Land Assignment Income 2.3 Structure of Outlays from Land Assignment Income Land Assignment Revenue and Expenditure Management Policy 3.1 Policy on Obtaining Land Assignment Revenue 3.2 Policies on Managing Land Assignment Revenue and Expenditure 3.3 Policies on the Distribution of Land Assignment Revenue The Main Problems in the Land Assignment System and the Management of Its Revenue and Expenditure 4.1 Local Development Is Overly Dependent on Land Assignments 4.2 Uneven Distribution of Land Assignment Revenue Between Urban and Rural Areas 4.3 Problems in Land Assignment Revenue and Expenditure Policy Recommendations on Improving the Land Assignment Revenue System 5.1 Continuously Increase the Proportion of Land Assignment Revenue Used for Funding Compensation for Land-expropriated Farmers and Maintaining Their Long-term Standard of Living 5.2 Optimize the Expenditure Structure and Guarantee a Proportion of Land Assignment Revenue for People’s Livelihoods and Rural Areas 5.3 Raise the Standards of Paid Use Fees for Newly-added Construction Land, and Apply These Funds to Establish a National Cultivated Land Protection Fund 5.4 Strengthen the Management of Land Assignment Revenue Collection to Ensure That All Receivables Are Collected

450 452 452 454 454 455 456 456 458 459 459 460 461 464

464

465

467

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CONTENTS

5.5 5.6 17

18

Formulate and Improve the Management Measures for the Use of Relevant Special Funds Strengthen Supervision and Inspection, Implement Policy Strictly

Bidding Farewell to “Land-driven Development” 1 The Land Sales Model: Frustrated in the East, Spreading in the West and Center 1.1 The Predicament of the Land Sales Model in the Eastern Coastal Region 1.2 The Land Sales Model is Replicating and Spreading in the Central and Western Regions 2 Why the Land Sales Model is Unsustainable 2.1 As the Volatility of Land Assignment Revenue Increases, So Does Instability 2.2 As Compensatory Expenditures Rise, So Does the Cost of Urbanization 2.3 As Local Governments’ Land Revenue Decreases, Their Social Spending Faces a Challenge 2.4 Shrinking Land Assignment Revenue Means Less Funding for Urban Construction 2.5 As Land Mortgage Loans and Illegal Mortgage Financing Increase, So Does Risk to Local Governments 3 Reform Strategies 3.1 Optimizing Land Structure, with Reform of the Land System as the Core 3.2 Promoting State-owned Land Asset Management and Financial System Reform, to Provide Sustainable Funding for Urbanization Thoughts on China’s Land System Reform and How to Promote It 1 The Characteristics and Problems of China’s Land System 1.1 A Land Rights System in which Ownership and Use Rights are Separated on the Basis of Socialist Public Ownership 1.2 A Land Administration that Aims to Protect Arable Land and is Centered on Use Regulation

xv

468 469 471 472 472 474 475 475 476 477 478

481 484 484

485 487 487

487 488

xvi

CONTENTS

1.3

2 3 4

Index

A Government-Guided Land Resource Allocation Method that Mainly Follows Market Mechanisms 1.4 A Land Administration System Based on Centralized and Unified Management China’s Current Land System and the Transformation of Development Methods The General Idea and Main Content of Reform Breakthroughs and Priorities in Land System Reform 4.1 Reform Breakthroughs 4.2 Reform Priorities

488 489 492 495 507 507 511 513

List of Figures

Chapter 1 Fig. 1 Fig. 2

Total supply of state-owned construction land nationwide and GDP growth Supply structure of state-owned construction land

27 36

Chapter 13 Fig. 1 Fig. 2 Fig. 3 Fig. 4 Fig. 5 Fig. 6

Changes in national land price levels, 2000–2011 Comparison of the built-up areas of major cities in China, 1999 and 2008 Per capita cultivated land in each province and municipality Growth rate of local government debt balance Balance of loans from various financial institutions to financing platforms as a percentage of total loans Bank risks on loans to local financing platforms at the end of 2010

345 347 350 353 355 356

Chapter 17 Fig. 1

Fig. 2

Relationship between increase in land assignment revenue and increase in the completed volume of investment in urban service facilities construction, 2000–2012 Area of land used as collateral and loan volume in 84 key cities, 2007–2012

480 482

xvii

xviii Fig. 3

LIST OF FIGURES

Regional analysis of land mortgage loans in 84 key cities in 2012

483

List of Tables

Chapter 1 Table 1 Table 2 Table 3 Table 4 Table 5

Land-use assignment through bid tendering, auction, and quotation through the years Land system and agricultural transformation Statistics on actual land use of non-agricultural construction land Industrial land and industrial added-value Land capitalization and urban expansion

25 29 30 32 33

Chapter 7 Table 1 Table 2 Table 3 Table 4 Table 5 Table 6

Main socioeconomic characteristics of the eight sample study areas in 1981 Main socioeconomic characteristics of the eight sample study areas in 1993 Allocation of national and collective interests in household contracting in the sample regions Membership rights and methods by which farmers realized land rights Changes in farmers’ social status and their influence on farmers’ land membership rights Impacts of the protection of state and collective interests on land property rights

154 155 160 162 169 171

xix

xx

LIST OF TABLES

Chapter 10 Table 1 Table 2 Table 3 Table Table Table Table

4 5 6 7

Table 8 Table 9 Table 10 Table 11 Table 12 Table 13 Table 14 Table 15 Table 16 Table 17

Status and change of farmland ownership, 2010–2013 Status and changes of farmland ownership in the three major regions in 2011 and 2013 Agricultural land area and area under household contracting, 2010–2013 Changes of land transfer rate, 2010–2014 Changes of regional land transfer rate in 2011 and 2013 Changes in the forms of land circulation, 2010–2014 Changes in forms of land circulation by region, 2011 and 2013 Area and proportion of land transferred for cultivation of grain, 2010–2014 Proportion of cultivated land by region used for grain cultivation, 2011 and 2013 Scale of farmland managed by farmers, 2010–2014 Changes in the operating scale of farm households in the East, Center, and West, 2011 and 2013 Entities receiving transfers of farmland, 2010–2014 Entities receiving transfers of farmland by regions, 2011 and 2013 Area and proportion of farmland managed by different entities, 2010–2014 Scale and proportion of management entities by regions, 2011 and 2013 Land transfer disputes, 2010–2014 Land productivity of farm households of different scale

258 259 261 266 266 267 268 268 269 270 271 272 272 273 274 275 277

Chapter 13 Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7

Growth of various types of land use, 2003–2010 Total land supply and GDP growth rate, 2003–2010 Expropriated land area as a proportion of new urban construction land area nationwide, 1999–2008 Industrial, mining, and warehousing land as a share of total land supply, 2003–2010 Changes in industrial land prices in different regions, 2000–2011 China’s urban areas and urban built-up areas, 1995–2010 Ratio of transaction value of revenue from assignment of state-owned land to local fiscal revenue and extra-budgetary revenue, 1999–2009

341 342 342 344 345 347

357

LIST OF TABLES

xxi

Chapter 14 Table 1 Table 2 Table 3

Development of township and village enterprises from 1981 to 1994 Statistics on China’s land assignment revenue and government fiscal revenue, 1993–2008 Land capitalization and urban expansion

398 404 408

Chapter 16 Table 1 Table 2 Table 3 Table 4

Table 5

Revenue from assignment of state-owned land nationwide, 2001–2010 Top twenty cities in terms of land assignment revenue in 2009 Supply of state-owned construction land by payment, 2001–2010 Area of land assigned use via bid tendering, auction, and quotation as a share of total assigned land area, 2001–2010 Composition of land assignment costs

448 449 450

451 453

Chapter 17 Table 1 Table Table Table Table

2 3 4 5

Land assignment revenue and growth in the East, Center, and West Top 10 cities in 2012 for land assignment revenue Area of land assigned and prices in the three regions Land assignment costs as a share of revenue Amount and proportion of land assignment income used for various expenditures

472 473 473 476 479

PART I

General Introduction

CHAPTER 1

The First Half of China’s Land Reform, and the Next Stage

The land system is the basic arrangement of China’s political and economic system. Reforming the land system is a key, yet sensitive, area of China’s overall reform. The land system’s unique arrangement and its reform are the engines of China’s rapid economic growth and structural change. The reform of the rural land system in the early 1980s opened the curtain on China’s reform and opening up, and it promoted China’s rural transformation and transition in China’s institutions. The reform of the urban land system in the late 1990s promoted China’s historical transformation from a originally rural country to an urban–rural one. However, while China used its land to create the “Chinese miracle,” it also formed a unique land-driven development model, which has created an excessive dependence on land for the operation of the national economy and for wealth growth and wealth distribution, and this has hindered economic transformation and structural reform. As China’s economy has shifted from high-speed growth to medium–high-speed growth (Liu Shijin et al. 2015), the development momentum has changed, the function of land as a growth engine has declined, and the drawbacks of the land-driven development model have become conspicuous. Deepening the reform of the land system is of great significance to the overall situation. As China’s reform has gone through an extraordinary 40-year course, the reform of the land system has also experienced its ups and downs in terms of criticism. The first section of this chapter will thus consist © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_1

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of a retrospective evaluation of the process and main content of China’s land system reform in the past 40 years. The second section evaluates the historical role of the land system in the 40-year period of rapid growth in our national economy and analyzes the main problems of this land system. The third section looks forward to the main characteristics of China’s economy after it enters a new stage, and it proposes the urgent need to deepen the land system reform in order to adapt to the phased transition to the new economy.

1 The Land System Reform Process: A Retrospective Evaluation It is very difficult to produce a unified, general evaluation of the changes in China’s land system over the past 40 years, because, on the one hand, the goals and the paths of change of land system arrangements differ greatly between urban and rural areas as well as for land designated for different uses, and on the other hand, there has been little consensus on the evaluation of the results of the various land system changes, due to different perspectives and positions. In some areas, the reforms have been more consistent, earning more praise, while in other areas, the changes have had a huge impact but are very controversial, and it is regrettable that some of the deep system reforms have been delayed due to the fetters of interest, ideas, and limited knowledge. As for the impacts of the land system on China’s economic and social transformation, several of the most influential and vital institutional arrangements have involved rural contracted land, farmers’ house sites1 (zhaijidi 宅基地), land conversion, and urban land use. We shall discuss them separately.

1 Translator’s note: For Western, especially American, readers, the usual term used to

translate zhaijidi, “homestead,” unfortunately gives the impression that it consists of the house, farm, and the land, but this is quite incorrect. In China, zhaijidi usually means little more than the “footprint” of the farmer’s house and attached buildings. Another translation that is sometimes used, “rural residential land,” gives the erroneous impression of zoning control.

1

1.1

THE FIRST HALF OF CHINA’S LAND REFORM …

5

Collective Ownership and the Household Contracted Management System

Contracted agricultural land is the largest type of land in China by area and involves the greatest number of people. As of the end of 2015, there were 645,456,800 hectares of agricultural land in the country, of which 134,998,700 hectares (2.025 billion mu) is arable land,2 and of this, 134,236,800 hectares is arable land contracted by households. That is, 99.44% of the total arable land is under contracted management by households. The management of these lands were contracted out to 23,057,000 households (Zhonghua renmin gongheguo nongyebu 2015). The contracted land system for farmland is an arrangement considered to have a fundamental impact on agricultural performance, farmers’ rights, and social stability. The transformation of the land system in the countryside since the Communist Party of China (CPC) came to power, compared to what it had been historically, was almost as thorough as “changing the heavens and the earth.” In traditional rural China, farmland was privately owned by households; this household farming was done mainly by farmers who cultivated their own land and by tenant farmers, and it was primarily small-scale. Land ownership and management rights were equally subject to legal protection and contractual constraints, and to a large extent one who held farming rights over land had de facto ownership rights (Fei 2007). After the CPC gained power, its implementation of the socialist system of public ownership promoted China’s transformation from an agricultural country to an industrial country in a comprehensive manner.3 To this end, the new regime carried out a series of state-led institutional rebuilding programs (Du 2005) to form a unique collective land ownership system for rural land. The first project was to implement collective ownership of rural land as a form of public ownership in the countryside, wherein the state exercised comprehensive political and economic control over rural areas through the three levels of people’s communes (renmin gongshe 人民公社), production brigades (shengchan dadui 生产

2 These statistics are taken from Zhonghua renmin gongheguo tudi ziyuan bu 2017. 3 See Mao Zedong, “Zai Zhongguo gongchandang di qi jie zhongyang weiyuanhui di

er ci quanti huiyi shang de baogao” 在中国共产党第七届中央委员会第二次全体会议上的 报告 [Report to the Second Plenary Meeting of the 7th Central Committee of the CPC] (1949).

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大队), and production teams (shengchan xiaodui 生产小队 or shengchan dui 生产队). The second was the actual exercise of collective land property rights by the state. The production teams’ use of land was controlled by higher-ups, and they did not have the right to choose which crops they planted. Because of the state’s unified purchase and sale of agricultural products, they also lost the right to profit. The production teams’ accumulation of public goods and their allotment of these goods to commune members were premised on their completion of national tasks. The third was the implementation of unified management under the agricultural management system with the production team as the main unit. Agricultural economic activities and the labor of members were uniformly arranged by the production team, and production outcomes were uniformly distributed according to work points (Zhou 1995). In the late 1970s and early 1980s, due to changes in the political climate and the inefficiency of the state-controlled collective ownership and unified management system, China successfully implemented another rural land system reform involving interactivity between higher and grassroots levels. Through grassroots initiative, top-level support, and policy promotion (Guowuyuan nongyan zhongxin fazhan yajiusuo 1984), a collective ownership and household contract management system for farmland that was accepted by all parties was formed: (1) First, that the reform, under the socialist system of public ownership, would be based on the premise of upholding the collective ownership of land. The state has continuously declared through its documents that the collective ownership system remains unchanged, emphasizing the difference between the contracting of production to households (bao chan dao hu 包产到户, i.e., assigning production responsibility to farmers’ households) and private ownership.4 The collective ownership structure, summed up by the slogan, “Three-level Ownership, with the [Production] Team as Basis” (sani suoyou, dui wei jichu 三级所有、队为基础), was retained. The relationship between farmers and the land was defined as a contracting and subcontracting relationship (i.e., a contractual relationship). Collective organizations would exercise 4 See “Quanguo nongcun gongzuo huiyi jiyao” 全国农村工作会议纪要 [Minutes of the National Meeting for Exchanging Experience on Rural Economic Work], Zhongyang 1982, no. 1, i.e., it was endorsed by the CPC Central Committee in 1982.

1

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collective ownership to varying degrees, and rural land would not be permitted to be bought and sold. (2) Second, that contracts would be formed between the state, collectives, and farmers. The original arrangement for land contracts had been tacitly recognized by grassroots-level farmers, but later this was institutionalized through a three-way contract that they did not sign but had to abide by, summed up by the phrase, “pay enough to the state, leave enough for the collective, and keep the remainder for yourself” ( jiaogou guojia de, liuzu jiti de, shengxia dou shi ziji de 交够国家的、留足集体的、剩下都是自己的). Provided that the farmers committed to and fulfilled their obligations to the state and the collective, they would obtain the right to claim the surplus from the collective’s land. (3) Third, that collective ownership would be clearly defined as collective ownership by members. Unlike the arrangement for members during the collectivization period (when they contributed to the state only through their own labor and received a certain income at the same time), now the members after entering into production contracts would not only be allotted equal shares of collective land and assets, but also, the land allotted to them would be adjusted following changes in the number of collective members. Moreover, they would enjoy the rights and interests of all assets grown on the collective land. Following the reform, collective ownership rights actually became a collection of the rights of collective members, and at the same time, the reform strengthened the status quality of collective ownership. (4) Fourth, that contracted farmers’ property rights vis-à-vis the farmland would be clarified. Through the separation of collective ownership rights and use rights, the right of subcontracting was made into a real right, and by enhancing the farmers’ agential status, their right to use, derive income from, and transfer contracted land was constantly improved. (5) Fifth, that a household farming management system would be implemented. By abolishing the old management system in which the production team uniformly organized production and distributed income, and by replacing the production teams with families (households) as the unit of agricultural production, decision-making, and income earning, farming households became

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the main agents of agricultural operations. These changes have been institutionalized through relevant laws. There were some twists, turns, and doubts as the collective ownership of farmland and the household contract management system was being implemented, but it has endured since then, and farmland rights have been evolving toward the strengthened protection of farmers’ land property rights. First of all, the legal meaning of collective ownership has been clarified. Its legal meaning is expressed through the Law on Land Contracts in Rural Areas (农村土地承包法) and Property Rights Law (物权法), to wit, farmers’ collective ownership of rural land is the foundation of the basic rural management system, and collective owners enjoy the rights to possess, use, derive income from, and dispose of collective land in accordance with law. As the main landowning entities, there are three levels of farmers’ collectives, namely, village farmers’ collectives (cun nongmin jiti 村农民集体), inner village farmers’ collectives (cunnei nongmin jiti 村内农民集体), and township (town) farmers’ collectives (xiang [zhen] nongmin jiti 乡[镇]农民集体) (Wang and Zhou 2012). Second, property rights, specifically the land contracting right of the farm household, have been improved and strengthened in the current Law on Land Contracts in Rural Areas. As the land contracting right is a special usufructuary right, it is clear that the contracted land is the property of the farmers. The law clearly stipulates that the contracted farmer has the rights to use and derive income from the land and to transfer the land contractual management right in accordance with the law, as well as the rights to independently organize the production, operation (processing), and disposal of products. If the contracted land is legally requisitioned or occupied, the contracted farmer has the right to obtain commensurate compensation in accordance with the law. During the contract period, the party issuing the contract may not take back or make adjustments to the contracted land. The law limits public power infringements on farmers’ land property rights and clearly stipulates that during the legal contract period, no organization or individual shall interfere with the farmers’ autonomy in production and operation, nor shall it illegally adjust and recover the contracted land, nor shall it force the

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transfer of the contracted land against the wishes of the farmer, nor shall it illegally occupy the farmer’s contracted land.5 Third, the land contract period has been steadily lengthened in order to stabilize farmers’ expectations regarding their land rights. The 15year land contract period of 19846 was extended to 30 years during the second round of contract extension.7 In 1998, the Third Plenary Session of the 15th Central Committee of the CPC granted farmers long-term and guaranteed land use rights.8 During the Third Plenary Session of the 17th Central Committee of the CPC, a proposal was raised to extend the contract period “over a long term without change,”9 and the 19th National Congress of the CPC further iterated this provision.10 Fourth, members’ ownership rights were amended. In the late 1980s, the Central Rural Policy Research Office conducted a pilot project in Meitan (湄潭), Guizhou on the proposal that “an increase in the number of people [in a household] will not entail an expansion of the land, and a decrease in the number of people will not entail a shrinking of the land” (zeng ren bu zeng di, jian ren bu jian di 增人不增地、减人不减地). In 5 See “Guowuyuan bangongting guanyu tuoshan jiejue dangqian nongcun tudi chengbao jiufen de jinji tongzhi” 国务院办公厅关于妥善解决当前农村土地承包纠纷的紧 急通知 [Urgent Notice of the General Office of the State Council on Properly Resolving Current Rural Land Contract Disputes], Guoban famingdian 2004, no. 21. 6 See “Zhonggong zhongyang guanyu yijiubasi nian nongcun gongzuo de tongzhi” 中共中央关于一九八四年农村工作的通知 [Notice of the Central Committee of the CPC on Rural Work in 1984], Zhongfa 1984, no. 1. 7 See “Zhonggong zhongyang, guowuyuan guanyu dangqian nongye he nongcun jingji fazhan de ruogan zhengce cuoshi” 中共中央、国务院关于当前农业和农村经济发展的若 干政策措施 [Several Policies and Measures of the Central Committee of the CPC and the State Council on Current Agricultural and Rural Economic Development], Zhongfa 1993, no. 11. 8 See “Zhonggong zhongyang guanyu nongye he nongcun gongzuo ruogan zhongda wenti de jueding” 中共中央关于农业和农村工作若干重大问题的决定 [Decision of the Central Committee of the CPC on Several Big Issues in Promoting the Reform and Development of Rural Areas]. 9 See “Zhonggong zhongyang guanyu quanmian shenhua gaige ruogan zhongda wenti de jueding” 中共中央关于全面深化改革若干重大问题的决定 [Decision of the Central Committee of the CPC on Some Major Issues Concerning Comprehensively Deepening the Reform]. 10 See “Juesheng quanmian jiancheng xiaokang shehui, duoqu xinshidai Zhongguo tese shehui zhuyi weida shengli” 决胜全面建成小康社会 夺取新时代中国特色社会主义伟大胜 利 [Secure a Decisive Victory in Building a Moderately Prosperous Society in All Respects and Strive for the Great Success of Socialism with Chinese Characteristics for a New Era].

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2002, the proposal was written into the Law on Land Contracts in Rural Areas. Articles 4 and 27 of this law now clearly stipulate, “The State protects, in accordance with law, the long-term stability of the relationship of land contract in rural areas,” and, “During the term of contract, the party giving out the contract may not readjust the contracted land.” Fifth, conditions placed on land contracts were changed. On the one hand, there were changes in the state’s obligations attached to the land. The first was to reduce the grain production obligation, so that after they fulfilled that obligation, farmers had the right to freely choose which crops they wanted to cultivate. The second change was to allow farmers to use currency in exchange for grain; this reduced the linkage between farmers’ land and their grain production obligation. Later on, the grain purchase and sale system were reformed, so that the state purchased grain in a market-oriented manner, and farmers were relieved of the grain production obligation on their land. Still later, the state implemented a grain-growing subsidy. On the other hand, there were changes in the collectives’ obligations. During the 1990s, various burdens were placed on contracted land, such as the submission of collective provident funds and public welfare funds, and farmers were overwhelmed. Later on, an ad hoc collective meeting system (yi shi yi yi 一事一议) was adopted; collective obligations were no longer linked to the contracted land, and both the state’s and the collectives’ obligations were changed, so that the residual rights of farmers’ contracted land rights were expanded (Zhou and Liu 1997). Sixth, the household contract management system became the basic system nationwide. In 1991, there was the proposal of: a two-tier management system that combines the responsibility system based primarily on household contract production and a system of unified management combined with independent management, to serve as the basic system of rural collective economic organizations in China, to be stabilized over the long-term stability and continuously improved.11

11 “Zhonggong zhongyang guanyu jinyibu jiaqiang nongye he nongcun gongzuo de jueding” 中共中央关于进一步加强农业和农村工作的决定 [Decisions of the CPC Central Committee on Further Strengthening Agricultural and Rural Work].

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The 1999 Amendment to the Constitution of the People’s Republic of China (中华人民共和国宪法修正案) clearly states, “The rural collective economic organization implements a two-tiered management system based on family contract management and a combined unified and independent management.” The Law on Land Contracts in Rural Areas of 2002 clearly states that “the state implements the rural land contract management system.” The Third Plenary Session of the 17th Central Committee in 2008 emphasized: The two-tier management system based on household contract management and a system of unified management combined with independent management is the basic rural management system, one that adapts to the socialist market economy system and conforms to the characteristics of agricultural production. It is the cornerstone of the party’s rural policy and must be unswervingly upheld.12

1.2

Collective Ownership, the Rural House Site Use System, and Their Changes

Among the various land rights, the right to a house site is an important right relating to farmers’ residential and property rights, and the house site system is also regarded as an institutional arrangement having a vital influence on politics and society. In China, as of 2015, a total of 1.4413 million hectares of land nationwide was village-use land, of which 1.333 million hectares were house sites (Zhonghua renmin gongheguo Guozhufang he chengxiang jianshe bu 2016). Historically, the house sites, like land, were always privately owned by farmers, and they were inseparable from the rights appertaining to the houses built on them (Chen Xiaojun and Jiang Shengsan 2010). During the period of land system reform and during the period of collectivization, the house sites and the houses on them were still privately owned by the farmers. During the People’s Commune (renmin gongshe 人民公 社) period, a separation between the rights appertaining to the house sites 12 “Zhonggong zhongyang guanyu tuijin nongcun gaige fazhan ruogan zhongda wenti de jueding” 中共中央关于推进农村改革发展若干重大问题的决定 [Decision of the CPC Central Committee on Several Big Issues on Promoting the Reform and Development of Rural Areas].

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and the houses began to be implemented. That is, the house site was not permitted in any case to be rented out, bought, or sold; it belonged to each household for long-term use. The house was to be owned in perpetuity by a commune member and could be bought, sold, or leased (Zhao Shufeng 2015). In the beginning of the rural reforms of the early 1980s, the institutional framework in which house sites were collectively owned and used over the long term by the farmers began to take shape. First, the right of ownership of the house sites was returned to the production team’s collective ownership, and commune members were prohibited from renting them out, buying, or selling them. Second, rights appertaining to the house site and to the house on it were separated, so that farmers had the right to the long-term use of the house site, while they had exclusive ownership of the house, which they could buy, sell, lease, collateralize, or pawn; the right of use of the house site would be transferred with the sale and lease of the house. Third, the house site was to be obtained free of charge by the farmer based on his application to members of the collective (Liu Shouying 2014). After the reforms, as China’s rural land system continued to evolve toward property rights, the house site system developed in the direction of “use right” and “regulation” in parallel. First, regarding the ownership of house sites, collective ownership rights were further strengthened—which is somewhat unlike what happened with the ownership rights of cultivated land, which went to the members’ collective ownership. In the ownership of the house sites, the collective organizations now do not only have legal significance, but also possess actual rights to control, use, and derive income from the house sites (Liu Shouying 2015). Collective organizations have the right to allocate house sites in a village, and they can take back house sites in excess of legally specified area, in accordance with law. They also have the right of control of vacant collective land not yet allocated to farm households, public land, and collective business land (ibid.). In some villages where village reconstruction and land consolidation has been carried out, the collectives control the right to derive income from house site balance indicators. Second, regarding farmers’ house site use right and house ownership, the law stipulates that the holder of the house site use right has the right to possess and use the collectively owned land, as well as the right to use that land to build a house and auxiliary facilities in accordance with the law. A household can own only one house site; if a rural villager applies

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for a house site after selling or renting out his house, the application will not be approved; if a house site is lost due to a natural disaster and other such reason, the right to use that house site will be eliminated. A villager who loses his house site must be reallocated another (ibid.). A villagers’ right to use a house site may not be transferred, collateralized, or used to derive income. However, a rural house is the farmer’s private property and is owned by the farmer, so the farmer has the right to buy and sell it, the right to rent it out, the right to use it as collateral, the right to pawn it, the right to transfer it, and so on. Third, regarding the house site user’s membership status in the collective and restriction of access to non-members, only members of collective economic organizations are eligible to apply for and obtain house sites; non-members are ineligible (ibid.). The restrictions on non-members obtaining house sites gradually became stricter. In 1982, honorably discharged soldiers, retirees, and overseas Chinese who returned to settle in their home villages were permitted to apply and obtain one.13 The Law on Land Administration (中华人民共和国土地管理法) of 1987 permitted urban and rural persons with non-agricultural registered permanent residence to build houses after obtaining approval by the county people’s government, and the Implementation Regulations for the Law on Land Administration (中华人民共和国土地管理法实施条例) of 1991 still allowed such persons to use collective land to build houses. However, in 1999, a big change occurred. The State Council issued a notice stipulating, “Rural people’s residences shall not be sold to urban residents, and urban residents shall not be permitted to occupy and use rural collective land to build houses.”14 In 2004, State Council document no. 28 clearly directed: “Urban residents are prohibited from purchasing house sites in rural areas.”15

13 See the Regulations on the Administration of Land Used for Housing Construction in Villages (村镇建房用地管理条例), promulgated by the State Council. 14 “Guowuyuan bangongting guanyu jiaqiang tudi zhuanrang guanli yanyin chaomai tudi de tongzhi” 国务院办公厅关于加强土地转让管理严禁炒卖土地的通知 [Notice of the General Office of the State Council on Strengthening Land Transfer Management and Prohibiting Speculative Land Dealing]; Guobanfa 1999, no. 39. 15 “Guowuyuan guanyu shenhua gaige yange tudi guanli de jueding” 国务院关于深化改 革严格土地管理的决定. [State Council Decision on Deepening Reform of and Tightening up Land Management]; Guofa 2004, no. 28.

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Fourth, regarding the strengthening of regulations on the use of house sites, the occupation of agricultural land by house sites is now included in annual planning. It is stipulated that the provinces (autonomous regions, municipalities) must issue to counties (cities) in the annual plan indicators on the occupation of agricultural land by urban and rural construction land the added plan indicator on the occupation of agricultural land by house sites. The plan indicator on occupation of agricultural land by house sites must be linked to the newly increased area for cultivated land in the integration of rural construction land. After the county (city) land and resources management department inspects and approves the areas for newly-added cultivated land, they must give priority to allocating the corresponding amount of agricultural land conversion indicators for the establishment of farmers’ house sites (Liu Shouying 2015), but in practice this is difficult to implement. The approval of house sites is adopted by counties (cities) based on the plan indicators on the occupation of agricultural land by house sites that are issued to them by the provinces (autonomous regions, municipalities), as well as the actual needs of rural villagers for the construction of housing. At the beginning of each year, the counties (cities) apply to the provinces (autonomous regions, municipalities) for approval to convert the agricultural land, and after obtaining the approval, they in turn approve the supply of house sites on a household-by-household basis, in accordance with the law. For the construction of rural villagers’ housing on vacant land, old house sites, and unused land within the village, the application is reviewed at the village and then the township (town) level; after the applications are reported in batches to the county (city), reviewed, and approved, then the construction and assignment of house sites to households is implemented on a case-by-case basis by the township (town) (Gao Shengping 2007). 1.3

The Arrangement of the Land Conversion System, and How It Has Changed

In the past 40 years, China’s rapid economic growth has been accompanied by rapid transformations in the areas of industrialization and urbanization, and both the scale and the method of the non-agriculturalization of rural land have had a great impact. From 2003 to 2015, the area of land in China converted from rural to non-agricultural use reached

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11.568 million hectares.16 In terms of space, the conversion of rural land to construction-use land includes conversion to both urban and rural construction-use land, and in terms of ownership, two routes exist—conversion by the collective and expropriation by the state. From the beginning of reform to the revision of the Law on Land Administration in 1998, the channel for converting rural land to collective construction land was always open. In the early 1980s, as rural land reform released a large amount of surplus labor, the government encouraged farmers to use collective land to establish township enterprises, and as a result, the quantity of rural construction land increased rapidly. In 1978, the land used by township and village enterprises nationwide was estimated to be 2.355 million mu,17 but by 1985, it was estimated to be 8.455 million mu—it had grown by a factor of 3.6. From 1981 to 1985, an average of more than 600 million square meters of newly-built farmers’ houses was added every year. When the 1987 Law on Land Administration was implemented, it still retained three channels for rural land to go into non-agricultural construction. The first one, for “rural residence construction, township (town) and village enterprise construction, township (town) and village public works and public welfare construction and so on” (Article 37), required only that the application conformed to the village enterprise construction plans of the township (town) and be okayed by the county-level government. The second one occurred when a state-owned enterprise or an urban collectively owned enterprise set up a joint venture together with an agricultural collective economic organization. Article 36 of the Law specified: The land approved for such use may be requisitioned in accordance with the provisions for land requisitions for state construction, or the right to the use of such land may be offered by a collective agricultural economic organization as a condition of agreement on joint operation.

16 See the Ministry of Land and Resources reports, “2004 nian Zhongguo guotu ziyuan gongbao” 2004 年中国国土资源公报 [Public Report on Land and Resources of China 2004] and “2016 nian Zhongguo guotu ziyuan gongbao” 2016 年中国国土资源公报 [Public Report on Land and Resources of China 2016]. 17 Translator’s note: One mu (亩) is equal to approximately 666.67 square meters, 1/15 of a hectare (or 0.165 acre in English measure).

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In the third, urban residents with non-agricultural household registrations (hukou 户口) could use collectively-owned land to build houses after obtaining approval by the county-level people’s government (Liu Shouying 2008a). During this period, collective construction land still grew continuously—from 690,000 mu in 1988 to 935,000 mu in 1992. Starting in 1992, the state’s policy on collective construction land underwent several changes: before collective land could be converted to construction land, it first had to be expropriated and made state-owned land, and where collective land was valued as shares for establishing a joint-venture enterprise, the land shares could not be transferred.18 The 1998 revision of the Law on Land Administration narrowed the pathways for rural land to be converted to non-agricultural collective construction use, and where farmers used collective land for non-agricultural construction, it became state-owned construction land, but there was an exception. As Article 43 expressed it: … except land owned by peasant collectives used by collective economic organizations for building township enterprises or building houses for villagers or land owned by peasant collectives approved according to law for use in building public facilities or public welfare facilities of townships (towns).

The law also clearly stipulated that the right to use farmers’ collectively owned land could not be assigned, transferred, or leased for non-agricultural construction, but rural collective economic organizations could still use their land use rights as shares with other units or individuals in order to run joint ventures.19 In 1999, the “Notice of the General Office of the State Council on Strengthening Land Transfer Management to Strictly Prohibit Land Speculation” (国务院办公厅关于加强土地转让 管理严禁炒卖土地的通知; Guobanfa 1999, no. 39) required that “the land used by township and village enterprises shall be strictly restricted within the scope of construction-use land of cities, villages, and market towns as specified in the land use master plan.” Since that time, with additional restructuring of township enterprises and strengthening of the 18 See “Guowuyuan guanyu fazhan fangdi chanye ruogan wenti de tongzhi” 国务院关 于发展房地产业若干问题的通知 [Notice of the State Council on Several Issues Relating to the Development of the Real Estate Industry], Guofa 1992, no. 61. 19 See the 1998 Law on Land Administration, Article 60, 63.

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annual quota control of construction land, the channels for rural collective construction land to enter the market legally in most areas have basically been closed. It was not until 2004 that some changes occurred in the regulations on the use of rural collective construction land. The 28th document from the State Council that year stated: [We shall] encourage the consolidation of rural construction land, and the increase of urban construction land should be linked to the reduction of rural construction land. . . The right to use farmers’ collectively owned construction land in rural villages, market towns, and organic towns may be transferred, provided that it is in compliance with plan.20

In 2006, the 31st document from the State Council also permitted “the transfer of the right to use farmers’ collectively owned construction land, in compliance with the plan and strictly limited to the scope of construction land obtained in accordance with the law.”21 When converting rural land to non-agricultural use, land expropriation is the main tool. It was particularly after the channels for the conversion of collective construction-use land were closed that conversion through land expropriation became the only legal land conversion method. Article 10 of the 1982 Constitution of the People’s Republic of China restored the principle from the 1954 Constitution that “The State may, in the public interest and in accordance with law, expropriate or requisition land for its use,” but it also proposed for the first time that urban land is owned by the state and rural land by the collectives, thus forming a land ownership structure divided into two coexisting ownership systems. The 1987 Law on Land Administration adhered to the principle of public interest in land expropriation, but its definition of “public interest” was extremely broad. Thus, land could be expropriated, with compensation, whenever “the state proceeds with economic, cultural, and national defense construction and establishes social public utilities” (Article 21). The compensation for expropriated land followed the “original use” principle, i.e., the sum of 20 “Guowuyuan guanyu shenhua gaige yange tudi guanli de jueding” 国务院关于深化改 革严格土地管理的决定 [State Council Decision on Deepening Reform of and Tightening up Land Management], Guofa 2004, no. 28. 21 “Guowuyuan guanyu jiaqiang tudi tiaokong youguan wenti de tongzhi” 国务院关 于加强土地调控有关问题的通知 [Circular of the State Council on Issues Relating to the Strengthening of Land Control,” Guofa 2006, no. 31.

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the land compensation fees (tudi buchang fei 土地补偿费) and the resettlement allowance (anzhi buchang fei 安置补助费) could not exceed 20 times the land’s average annual output value in the three years prior to that land’s expropriation. Moreover, arrangements had to be made for the reemployment and change of household registration status of persons whose land had been expropriated (Articles 29, 31). The 1998 revised version of the same law retained the “public interest” principle for land expropriation, the urban–rural division of governance, and the compensation based on original use, but the sum of the land compensation fees and resettlement allowance was increased to no more than 30 times the land’s average annual output value in the three years prior to expropriation. This revised version of the law also introduced two new stipulations, which had a tremendous impact on the conversion of land use. The first established a regulatory mechanism for land use: the state would compile a master plan for land use to specify land use and control the total amount of construction land, and it would evaluate and approve issuance of construction land indicators (Articles 4, 21). The second stipulated that any unit or individual that needed to use land for construction had to apply for the use of state-owned land, in accordance with law (Article 43). The problems arising from land expropriation and conversion, however, became more and more serious as industrialization and urbanization accelerated. The Ministry of Land and Resources started a pilot reform of the land expropriation system in 2001.22 On the basis of the pilot project, the Ministry of Land and Resources in 2005 tried to implement unified annual output value standards and comprehensive land pricing for parcels of expropriated land. How were the unified annual output value standards calculated? The relevant authorities would comprehensively take into consideration for each parcel of expropriated land a wide variety of factors: the grades of land type and quality, the degree of farmers’ input into the land, the prices fetched by their products, and so on, but the main consideration was still the land’s average 22 Starting in 2000, Heilongjiang Province implemented a unified annual output value standard to be used for land expropriation of major land types in all cities and counties. Since 2000, Hangzhou City in Zhejiang Province, Nanjing City in Jiangsu Province, and Suzhou City in Jiangsu Province have also no longer used output value multiples to calculate compensation fees. They now comprehensively take into consideration factors such as land use, land location conditions, local economic development level, and land supply and demand, and combine these with the social security level of local urban residents, in order to determine the standard of compensation for land expropriation.

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annual output value in the three years prior to that land’s expropriation, calculated mainly from the quantity and price of the main crop from that area.23 Then, to calculate which multiple would be used in determining the corresponding land compensation and resettlement allowance, various factors such as the location, the current living standards of the local farmers, level of socio-economic development, and the original land expropriation compensation standard, and so on would be taken into account. In other words, the calculation method of the comprehensive land price for expropriated land within the scope of the construction land determined by the master land use plan of the urban administrative district, would be based on the land type, output value, land location, grade of agricultural land, per capita amount of arable land, land supply and demand, local level of socio-economic development, urban residents’ minimum living security level, and other factors. After dividing the area, the comprehensive compensation standard for land acquisition was calculated (in principle, attachments on the ground and young crops were not included in the compensation).24 Even though the comprehensive land pricing of expropriated areas took into account the land development rights of the affected farmers, this unified standard applied only to those areas inside cities and market towns. The large number of expropriations that were being carried out in other areas still used the average annual output value (or original use) standard (Wu et al. 2008). After 2003, the central-level authorities clearly demanded the advancement of reform of the land expropriation system. The Third Plenary Session of the 16th Central Committee of the CPC (2003) proposed that the content and direction of land expropriation reform be: … in accordance with the principles of protecting the rights and interests of farmers, controlling the scale of land expropriation, reforming the land expropriation system, and perfecting its procedures. The use

23 See the Ministry of Land and Resources, “Zhengdi tongyi nianchanzhi biaozhun cesuan zhidaoxing yijian (zhanxing),” 征地统一年产值标准测算指导性意见(暂 行) [Guiding Opinions on the Calculation of Unified Annual Output Value Standards for Land Acquisition (Provisional)], Guotuzifa 2005, no 144, suppl. 1. 24 See the Ministry of Land and Resources’ “Guanyu kaizhan zhiding zhengdi tongyi nianchanzhi biaozhun he zhengdi qupian zonghe dijia gongzuo de tongzhi” 关于开展 制订征地统一年产值标准和征地区片综合地价工作的通知 [Circular on the Development of Work on Setting Unified Annual Output Value Standards for Land Expropriation and Comprehensive Land Pricing for Expropriated Land], Guotuzifa 2005, no. 144.

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of land in construction for non-profit and business purposes should be defined strictly; land expropriation shall conform to the overall planning and purpose control of land use, with timely and reasonable compensation afforded to farmers.25

The Fifth Plenary Session of the 16th Central Committee of the CPC (2005) called for “improving a reasonable compensation mechanism for land-expropriated farmers.”26 The Sixth Plenary Session of the 16th Central Committee of the CPC (2006) demanded: Strictly control the scale of land expropriation, speed up the reform of the land expropriation system, raise the compensation standards, explore effective methods to protect farmers’ real interests and long-term stable income, and resolve [the issues of] the employment and social security of land-expropriated farmers.27

In 2006, the central government clearly proposed to “accelerate the reform of the land expropriation system, follow the reduction of scope of land expropriation, perfect the methods of compensation, expand resettlement channels, and standardize land expropriation” (Tang Jian 2011). In its first document of 2008, the central government called for the following: Continue to advance the pilot reform of the land expropriation system, standardize land expropriation procedures, raise compensation standards,

25 “Zhonggong zhongyan guanyu wanshan shehui zhuyi shichang jingji tizhi ruogan wenti de jueding” 中共中央关于完善社会主义市场经济体制若干问题的决定 [Decision of the Central Committee of the CPC on Some Issues concerning the Improvement of the Socialist Market Economy]. 26 “Zhonggong zhongyang guanyu zhiding guomin jingji he shehui fazhan di shiyi ge wunian guihua de jianyi” 中共中央关于制定国民经济和社会发展第十一个五年规划的建议 [Proposal of the Central Committee of the CPC on Formulating the Eleventh Five-Year Plan for National Economic and Social Development], Zhongfa 2008, no. 1. 27 “Zhonggong zhongyang guanyu goujian shehui zhuyi hexie shehui ruogan zhongda wenti de jueding” 中共中央关于构建社会主义和谐社会若干重大问题的决定 [Decision of the Central Committee of the CPC on Several Major Issues Related to Building a Harmonious Socialist Society].

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improve the social security system for land-expropriated farmers, and establish a land requisition dispute mediation and adjudication mechanism.28

The Third Plenary Session of the 17th Central Committee of the CPC (2008) proposed: Outside the scope of urban construction land as determined in the land use plan, after approval is granted for the occupation and use of rural collective land for construction projects not for non-profit public facilities, farmers should be allowed to participate in the [businesses’] development and management through various methods, in accordance with the law, and to protect their legitimate rights and interests.29

In 2010, the Ministry of Land and Resources identified the 11 cities that would comprise the National Comprehensive Reform Pilot Zone, where the pilot reform of the land expropriation system would be launched. The main contents of the pilot reform consisted of distinguishing land used for non-profit public and for profit-oriented purposes, reducing the scope of land expropriation, perfecting the compensation and resettlement mechanisms in land expropriation, and improving the review and approval methods used in converting and expropriating agricultural land. The guidelines for the pilot work stipulated that the land-use projects not for non-profit public facilities were to include mainly tourism and entertainment, commercial services, industrial storage, and other types approved by law. The area of the reduced scope of land expropriation was determined. Within the scope of urban construction land as determined in the master land use plan, apart from the use of farmers’ collective land as provided by law, where the land used in construction involved rural collective land, this in principle was to be expropriated. Outside the scope of urban construction land as determined in the master 28 “Zhonggong zhongyang, guowuyuan guanyu qieshi jiaqiang nongye jichu jianshe jinyibu cujin nongye fazhan nongmin zengshou de ruogan yijian” 中共中央、国务院 关于切实加强农业基础建设进一步促进农业发展农民增收的若干意见 [Several Opinions of the Central Committee of the CPC and the State Council on Effectively Strengthening Agricultural Infrastructure and Further Promoting Agricultural Development to Increase Farmers’ Income]. 29 “Zhonggong zhongyang guanyu tuijin nongcun gaige fazhan ruogan zhongda wenti de jueding” 中共中央关于推进农村改革发展若干重大问题的决定 [Decision of the Central Committee of the CPC on Several Major Issues in Promoting Rural Reform and Development].

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land use plan, land not used for non-profit public facilities was withdrawn from the scope of land expropriation, though rural collective land could be obtained by other means with approval. Regrettably, due to the short time and the small scope of the pilot program, no results were achieved (Tang Jian 2011). The Third Plenary Session of the 18th Central Committee of the CPC (2013) decided to make overall arrangements for the reform of the land system. The content included the following points: (1) The assignment, lease, and shareholding of rural collective land used for business-oriented construction was permitted, provided that it complied with planning and use controls, and it could enter the market on the same basis as state-owned land, with the same rights and same price. (2) Land expropriation would be narrowed in scope and its procedures standardized, and reasonable, standardized, and diversified mechanisms for land-expropriated farmers would be perfected. (3) The scope of paid use for state-owned land would be expanded, and the allocation for land not for nonprofit public utilities would be reduced. (4) The secondary market for land leasing, transfer, and mortgaging would be improved. (5) An effective mechanism for adjusting to reasonable price ratios between industrial and residential land would be established, and the price of industrial land would be increased,30 with relevant pilots carried out nationwide. On 27 February 2015, the 13th Meeting of the Standing Committee of the Twelfth National People’s Congress passed a decision31 to implement the General Office of the Central Committee of the CPC and General Office of the State Council’s “Opinions on Work on the Pilots

30 “Zhonggong zhongyan guanyu quanmian shenhua gaige ruogan zhongda wenti de jueding” 中共中央关于全面深化改革若干重大问题的决定 [Decision of the Central Committee of the CPC on Several Major Issues of Comprehensively Deepening Reform]. 31 “Quanguo renmin daibiao dahui Changwu weiyuanhui guanyu shouquan Guowuyuan zai Beijing Daxing qu deng sanshisan ge shidian xian (shi, qu) xingzheng quyu zhanshi tiaozheng shishi youguan falü de jueding” 全国人民代表大会常务委员会关 于授权国务院在北京市大兴区等三十三个试点县(市、区)行政区域暂时调整实施有关法律 规定的决定 [Decision of the Standing Committee of the National People’s Congress on Authorizing the State Council to Temporarily Adjust Implementation of Relevant Legal Provisions in 33 Piloting Administrative Areas, Including Daxing District of Beijing].

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on Rural Land Expropriation, the Market Entry of Collective Businessoriented Construction Land, and Reform of the House Site System.”32 This formally started the reform of the three systems of rural land. 1.4

Municipal and Local Institutional Arrangements and Their Changes

The arrangement of the urban land system, after the land had been converted to state ownership, not only promoted rapid industrialization and urbanization, but also became an important source of funding for urban construction. Before the reforms, China was implementing a system in which the land supply was free (i.e., “uncompensated” or wuchang 无偿) and unlimited in time-frame. The Law on Land Administration, which went into effect in 1987, stipulated two modes of land use: administrative allocation and paid (“compensated”) assignment (youchang churang 有偿出让). On 1 December 1987, Shenzhen City auctioned off the fifty-year right of use of an 8,588 square meter plot for the first time. It was the first time that the right to use land entered the market in China (Liu Shouying 2008b). A 1988 amendment to the PRC Constitution deleted the stipulation that land cannot be leased, and added the stipulation that ‘the right to use land can be transferred in accordance with the provisions of the law.” In May 1990, the State Council issued the Interim Regulations of the People’s Republic of China Concerning the Assignment and Transfer of the Right to the Use of the State-owned Land in the Urban Areas (中华人民共和国城镇国有土地使用权出让和转让暂 行条例), which clearly stipulated that land use rights can be assigned and transferred by means of agreement, bidding, and auction. The Law on Land Administration of 1998 clearly stipulated, “The right to use land can be transferred in accordance with the law,” and, “The state implements a system of paid use of state-owned land in accordance with the law.” As the landowner, the state is represented by the people’s governments at the city and county level, which assign the right to use

32 “Guanyu nongcun tudi zhengshou, jiti jingyingxing jianshe yongdi rushi, zhaijidi zhidu gaige shidian gongzuo de yijian” 关于农村土地征收、集体经营性建设用地入市、宅 基地制度改革试点工作的意见 [Opinions on the Pilot Work on Rural Land Expropriation, Collective Commercial Construction Land Entering the Market, and Reform of the House Site System].

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state-owned land within a certain number of years to land users by agreement, bidding, or auction; the land users, meanwhile, pay to the state the fee for the assignment of those land use rights, in accordance with the provisions of the assignment contract. As the system of paid use of land has been continuously expanded since 1999, the proportion of allocated land has decreased, while the proportion of paid use has increased. In May 2002, the Ministry of Land and Resources issued an order33 stipulating that the assignment of use for all kinds of business-oriented land for commerce, tourism, entertainment, and commercial housing must go through the process of bid tendering, auction, or quotation (Liu Shouying 2012). Nationwide, the area and price of land sold through bid tendering, auction, and quotation increased from 6,600 hectares and 49.2 billion yuan in 2001 to 66,500 hectares and 549.209 billion yuan in 2006. State Council Document no. 28 of 2004 stipulated that industrial land must be subject to bid tendering, auction, and quotation, and the proportion of state-owned construction-use land being assigned in this way increased each year. From 2001 to 2010, it increased from 7.3% to 88.27%. By 2010, the income from land-use assignment through bid tendering, auction, and quotation accounted for 95.94% of the total income from land-use assignment (see Table 1). Under the current land law system, local governments become the sole arbitrators for the conversion of rural land to urban land and have the exclusive right to convert the land they have obtained from rural villages to urban use. With the conversion of land use, local governments become the land owners and the managers of urban land. This forms the main institutional arrangement for the land-driven development model (Liu Shouying 2012).

2 The Land System’s Performance and Predicament There seems to be more consensus on the role of the land system in China’s economic growth and structural transformation over the past 40 years, than on the critique of the system itself. Nonetheless, a more 33 “Zhaobiao paimai guapai churang guoyou tudi yongquan guiding” 招标拍卖挂牌 出让国有土地使用权规定 [Provisions on the Assignment of the State-owned Land Use Rights by Means of Bid Tendering, Auction, and Quotation] (Order No. 11 of the Ministry of Land and Resources).

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Table 1 Land-use assignment through bid tendering, auction, and quotation through the years Assignment through Bid Tendering, Auction, and Quotation

Total State-owned Land Assigned

Year

Area (in thousands of hectares)

Proportion of Area (%)

Income (in billions of yuan)

Proportion of Income (%)

Area (in thousands of hectares)

Income (in billions of yuan)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

6.6 18.1 51.9 52.1 57.2 66.5 115.3 133.6 188.3 257.3 304.7 293.0 338.8 251.5 204.4

7.30 15.00 27.78 29.16 35.05 28.60 50.91 81.91 85.30 88.27 91.25 90.77 92.32 92.53 75.20

49.2 96.924 – 325.368 392.009 549.209 1007.486 952.874 1509.85 2600.0 3020.0 2550.0 4040.0 3180.0 2860.0

– – – 55.20 71.21 71.54 82.47 92.87 94.90 95.94 95.87 94.80 96.19 95.21 95.97

90.4 120.5 186.8 178.7 163.2 232.5 226.5 163.1 220.8 291.5 333.9 322.8 367.0 271.8 221.4

– – 293.776 589.414 550.515 767.689 1221.672 1025.98 1591.02 2710.0 3150.0 2690.0 4200.0 3340.0 2980.0

Source China Land and Resources Bulletin (annual)

focused explanation of how the land system has worked is needed. Moreover, as the changes in China’s land system are choices within constraints, and as the new institutional arrangements are created with corresponding interest structures, profit and loss relationships, and endogenous mechanisms, the operating costs of the system are bound to rise, and its negative impacts on the national economy continue to emerge. This section provides both an objective assessment of the performance of this institutional arrangement, and identifies its main problems. 2.1

Land System Arrangements and the Historical Transformation of China’s Economy

China’s high economic growth in the past 40 years has been described as an “economic miracle” (Lin Yifu and Cai Fang 1999). From 1978 to 2016, its GDP average annual growth rate reached 14.996%, the average

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annual growth rate of its industrial added value was 14.14%, and the average annual growth rate of urbanization was 3.11%. Several important land system arrangements and changes have had a great impact on all of this. The reform of the rural land system promoted agricultural growth and population migration, which provided a micro foundation for China’s economic transformation. Provided that arable land and food security were being strictly protected, the wide supply of a land in areas with development opportunities ensured rapid economic growth. Local governments attracted investment at distorted industrial land-use prices; they used land to provide industrial park infrastructure and promote high-speed industrialization, which made China the “world’s factory.” Through land capitalization and financing, we obtained the huge amount of capital needed for the development of Chinese cities, which promoted rapid urbanization. (1) Land is the engine that drives the economy. China’s traditional development model, under the government’s right to lead development, relies on high growth and high investment to maintain order of governance. Since the power over land is controlled by city and county governments, they have come to rely on it as their main tool for attracting high levels of growth and investment. In the past 40 years, land has in fact assumed a dual function: on the one hand, it ensures national food security through a strict farmland protection system, and on the other hand, its wide supply promotes growth. Its specific manifestations are, first, GDP growth ensured through the wide supply of land, under policy guidance. From 2003 to 2012, the total annual supply of state-owned construction-use land nationwide increased from 286,000 hectares to 711,300 hectares, an average annual increase of 10.27%. The second manifestation has been increases of land supply whenever economic growth slows down (see Fig. 1). The third has been growth ensured through regional land allocation. Before the global financial crisis of 2008, land supply indicators were concentrated mainly in the coastal region, where demand was high, and this ensured that this fast-growing region’s demand for land was being met. Since the beginning of the 2000s, expanded land supply has been used to promote the development of the western region and the rise of the central region. Fourth has been the tendency in most localities to use most of their increasingly scarce land indicators (under the control of the annual plan indicators) for meeting the development land

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demands of provincial capitals, major prefecture-level cities, and development zones. The effective supply of construction-use land has guaranteed rapid economic growth. (2) Rural land reform and agricultural transformation. The prerequisite for all of China’s ability in the past 40 years to use the land system and its changes to promote economic growth and structural change has been the basic, stabilizing role of the rural land system and its reforms. In a country like China, which has long been based on agriculture, the first function of the land system has been to stabilize the food supply and pacify the people. It is precisely the reforms of the rural land system that have guaranteed its function. The reforms not only pushed the rural land system toward clearer property rights, but also enabled the process for non-agricultural land use in rural areas to get started. First, as a result of the household contract management system’s effectiveness, it has been established as a fundamental system and has remained unchanged; it has become the micro-foundation for China’s agricultural product growth. The household contract management system began to (Tens of thousands of hectares) 80 14.2 70

(%) 16

75.08 71.13

14

12.7

60.99

59.33

60

10.6 9.7

50

53.36 9.5

9.4 43.26

40 30.68 30

10 7.9

7.8

36.16

34.2

12

7.3

6.9

8 6

23.42

20

4

10

2

0

0 2006

2007

2008

2009

2010

2011

2012

Total supply of state-owned construction land nationwide (left axis)

2013

2014

2015

GDP growth rate (right axis)

Fig. 1 Total supply of state-owned construction land nationwide and GDP growth (Source China Land and Resources Bulletin [annual] and statistics of the National Bureau of Statistics)

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become universal in 1984, and until 2016, despite the growth of various new types of agricultural management entities, household contracted land still accounted for 99.4% of the cultivated land area, and the output of food crops increased from 40.305 million tons in 1984 to 61.626 million tons in 2016. Other factors promoting growth include technological progress and increased modern investment, but the stability of the household contract management system is still the basic factor. Second, the land rights system of farming households has promoted the loosening of the relationship between man and the land. In traditional rural China, farmers were tied to the land; during the country’s industrialization, farmers were excluded from industrialization, and even tied to collective land; but after the implementation of the family contract management system, farmers were able to leave the land to participate in the industrialization of their local villages. After that, they were able to leave their villages to participate in industrialization elsewhere. They became one of the main forces that promoted China’s structural revolution. Third, due to structural changes and changes in the human-land relationship, both rooted in the household contract management system, major changes occurred in the agricultural development model, and the pace of rural land transfers accelerated. By 2016, the amount of rural land transferred had already reached 36%, and agricultural investment had shifted from mainly human labor to machinery. The growth momentum of agriculture has shifted from a focus on increasing land productivity to a focus on increasing agricultural labor productivity (see Table 2). (3) The industrial land allocation method and high-speed industrialization. After the reform and opening up, China embarked on a road that was completely different from that of national industrialization during the planned economy. This included the rural industrialization from the mid-1980s to mid-1990s, and industrial park industrialization after the 1990s. The new industrialization model has made China into the “world’s factory,” and the method used to supply industrial land under our unique land system plays a decisive role. Rural industrialization after the mid-1980s sprang from a large number of surplus laborers having to find work after the reform of the rural land system. Due to the constraints of the rigid urban system, with its barriers to entry of rural labor, the farmers could only run their enterprises on collective land. In essence, the farmers’ collectively owned land

1

Table 2

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Land system and agricultural transformation 2010

2011

2012

2013

2014

2015

Proportion of 94.09% 94.45% 96.89% 98.15% 98.37% 99.41% household contracting of rural land Land turnover 14.67% 17.85% 21.25% 25.70% 30.32% 33.29% rate Percentage of 58.38% 59.49% 59.87% 61.61% 63.16% 63.68% rural population going elsewhere to work Percentage of 29.07% 27.18% 26.61% 26.54% 25.70% 25.09% farmer’s income purely from agriculture Total power of 927.8048 977.3466 1025.5896 1039.0675 1080.5660 1117.2810 agricultural machinery (in GWh) Land productivity 4973.58 5156.89 5301.76 5376.60 5385.10 5482.82 (kg/ha) Agricultural labor 1960.10 2075.23 2167.99 2260.95 2316.94 2410.30 productivity (kg/ person) Source China Agriculture Statistical Report (annual)

directly entered the non-agricultural land market. Before the 1998 revision of the Law on Land Administration, the two main groups using construction land in China were in rural areas. The first group consisted of farmers who used their post-reform incomes to build houses, and the second group consisted of farmers who established and ran township and village enterprises on collective land. From 1993 to 1998, non-agricultural construction land increased from 224,824 hectares to 367,854 hectares, of which land for township and village enterprises decreased from 13,943 hectares to 8,180 hectares (see Table 3). The rural industrialization carried out by farmers on collective land had its own advantages. Since the land belonged to farmers’ own collectives, they did not incur land costs, thus avoiding the constraint of insufficient capital while setting up their enterprises. Township and village enterprises either solved the problem of land use through internal distribution or by

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obtaining collective land use rights at very low rents. This development pathway also benefited from the further relaxation of the national rural policy on farmers during that period, which aimed to solve the problem of surplus rural labor and encouraged farmers to use collective land to establish township and village enterprises. This rural industrialization of farmers on collective land fundamentally changed the pattern of China’s industrialization, so that by 1993, state-owned enterprises, township and village enterprises, and foreign-invested enterprises each accounted for one-third of China’s industrial output value (Pei Xiaolin 2003). During and after the mid-1990s, due to the rural industrialization of collective land, a large amount of arable land was occupied, the rural environment was polluted, and industries were not clustered. The 1998 version of the Law on Land Administration thus implemented a system to control land use, which gradually closed the channels for collective construction land to be used for non-agricultural construction. As industrialization in industrial parks gradually replaced rural industrialization, the parks became the main mode of industrialization, and the ones in the east especially achieved success. The success of park-based industrialization benefitted on the one hand from the special policy environment, and on the other hand from the unique method by which land was being allocated. First, the government used land incentives to attract investment. Since what the government could provide was mainly cheap land, offering incentives on land (land at low price, even zero and negative price) became the method used everywhere. Second, land was used for building infrastructure. The tool that enabled industrial parks to engage in infrastructure-building was their land. Some parks directly provided land to companies for overall development and leasing, or they used Table 3

Statistics on actual land use of non-agricultural construction land

Year

Non-agricultural construction land

Collective construction land in towns and villages

Land used by township and village enterprises

1993 1994 1995 1996 1998

224,824 186,630 190,376 171,467 367,854

30,183 22,023 19,909 14,897 16,558

13,943 9,826 11,621 6,235 8,180

Source China Land and Resources Bulletin (annual)

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land as collateral to obtain loans for construction, and then used the tax revenue created after enterprises began operating in the park to balance their accounts. Third, the parks provided the enterprises inside them with sufficiently long-term rights and complete land use rights. Enterprises in these parks could use the land for as long as 50 years, and they could in turn mortgage, sublease, or transfer it, which would not only stabilize their investment expectations, but also solve their financing needs for development. Due to China’s disadvantages in terms of land resource endowment, if China’s industrial land had been allocated entirely through the land market, its cost would have been much higher than in other economies with better land resource endowments, and China’s industrialization would have been hindered by rising land prices. Thus, since the end of the 1990s, China has relied on a high proportion of industrial land supply for its development. Every year, almost 40% of total construction land is used as industrial land. Its supply depends on the government, which has monopolized the primary land market and has depressed the price of industrial land. From 2007 to 2016, except for a few years, the growth rate of industrial land prices remained at 6% or less (see Table 4). From 2000 to 2016, the national comprehensive price level, commercial land price level, and residential land price level increased at average annual rates of 8.8%, 9.61%, and 12.35%, respectively. However, the industrial land price level increased at an average annual rate of only 3.5%, far lower than that of commercial and residential land. The low cost of industrial land guaranteed the rapid advancement of industrialization, making China the “world’s factory.” (4) Land capitalization and rapid urbanization. After 2000, China’s urbanization process accelerated. From 2000 to 2016, the permanent resident urbanization rate increased from 36.22% to 57.35%, with an average annual growth rate of 2.91%. Land capitalization supplied the huge capital needs for urban construction. The linkage between the maximization of land interests and the rising value of land and housing assets was an important driving force for urbanization. First was the implementation of the bid tendering, auction, and quotation system for commercial land, which greatly increased the capitalized value of the land. Since 2003, China has sold 3.953 million hectares of land via bid tendering, auction, and quotation, and realized a revenue of 31.587105 trillion yuan from land assignment. In 2016, its revenue from land assignment was 90 times that of 2003.

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Table 4

Industrial land and industrial added-value

Year

Industrial added-value growth rate (%)

Growth rate of industrial, mining, and warehousing land supply (%)

Growth rate of price of industrial land (%)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

21.09 17.94 4.83 19.57 18.18 7.05 6.43 5.18 1.13 4.80

−8.34 −34.44 52.31 7.00 26.35 8.31 3.04 15.83 −49.53 −4.54

15.67 4.81 1.53 5.36 28.30 −16.98 4.48 6.00 2.43 2.89

Sources China Land and Resources Bulletin (annual), China Economic Information Network, and China Land and Resources Almanac (annual)

Second was the housing commercialization reform, and the huge demand for housing brought about by the accelerated urbanization of the population during this period. This provided a means for local governments to maximize their profits from land. From 2003 to 2016, China added 25,787,769,000 square meters of new housing, loans from real estate developers and home mortgages increased by a factor of 7.85, and housing prices increased by a factor of 3.88. The steadily rising price of commercial housing has also brought a steady rise in the price of land transactions, and the rising premium on land has encouraged local governments to obtain still more land assignment revenue through the bid tendering, auction, and quotation of commercial land. In 2001, land assigned through bid tendering, auction, and quotation accounted for only 7.3% of the total area of land assigned, but in 2014, it already accounted for 92%. The increase in land assignment income provided a source of funds for local governments to engage in urban infrastructure building, while at the same time it encouraged them to engage in urban expansion, in order to obtain more land capital. From 2003 to 2015, China’s urban built-up area increased by a factor of 1.84 (see Table 5). Third was the provision of a larger source of funds for urban development through land mortgage financing. After 2008 especially, many local governments established various financing platforms, which significantly

40.53 41.76 42.99 43.9 44.94 45.68 46.59 47.5 51.27 52.57 53.7 54.77 56.1

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

28,308.02 30,406.19 32,520.72 33,659.8 35,469.65 36,295.3 38,107.26 40,058.01 43,603.23 45,565.76 47,855.28 49,772.63 52,102.31

Urban built-up area (sq. km.)

542.131 641.218 588.382 807.764 1221.672 1025.98 1591.02 3010.893 3150.0 2690.0 4200.0 4294.03 3365.773

Government revenue from land assignments (billions of yuan) 27.78 29.16 35.05 28.60 50.91 81.91 85.30 88.27 91.25 90.77 92.32 92.53 75.20

Area of land assigned via bid tendering, auction, and quotation as proportion of total land assigned (%) – – – – – 16.6 21.7 25.82 30.08 34.87 40.39 45.1 49.08

Area of land mortgaged (tens of thousands of hectares)

Sources China Economic Information Network, China Land and Resources Bulletin (annual), etc.

Urbani-zation rate (%)

Land capitalization and urban expansion

Year

Table 5

– – – – – 1.8107 2.5856 3.5300 4.8000 5.9500 7.7600 9.5100 11.3300

Total amount of land mortgages (trillions of yuan)

2359 2778 3167.66 3366.79 3863.9 3800 4681 5032 5357.1 5790.99 6237 6324 6793

Average sale price of commercial housing (yuan/ sq. m.) 1 THE FIRST HALF OF CHINA’S LAND REFORM …

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increased land mortgage financing. From 2008 to 2015, the area of mortgaged land and total amount of land mortgages increased respectively from 166,000 hectares and 181.070 billion yuan to 490,800 hectares and 11.330 trillion yuan. 2.2

Problems in the Current Land System

Now that the land system formed after the 1980s reforms has been operating for 40 years, the inherent defects of some institutional arrangement have started to become manifest. The operating costs of some of the institutional arrangements continue to rise, and the impact of the land system on economic development and transformation needs to be reexamined. There are two areas that need the most attention. The first is whether the land-driven development model that has supported China’s 40 years of rapid growth is sustainable, and the second concerns the adaptability of several rural land institutional arrangements that greatly impact rural development and transformation. 2.2.1

The Difficulty of Sustaining the Land-driven Development Model While China’s land-driven development model supports high-speed economic growth, it also produces a high degree of dependence on that high-speed growth. During the rapid economic growth period, the cycle of “using land to attract investment → increased tax revenue and population clustering → urban expansion → rising real estate prices → increased land assignment revenue → repaying old debts with new land mortgages and loans → economic growth” was still sustainable. However, after an economic downturn, there will be problems in some links of this cycle, and these will affect the operation of the national economy. The problems will be manifested in the following ways: (1) It will become difficult to continue increasing the land supply to drive GDP growth. To cope with the 2008 global financial crisis, the central government adopted the methods of easing currency and releasing land to deal with a possibly excessive economic downturn. Regrettably, the GDP growth rate has been declining since it reached its high point in 2009. Even though the broad supply of land continued until 2013, the economic growth rate steadily declined from 10.6% in 2009 to 7.8% in 2012. After 2013, as the economy continued to decline, the demand for land declined, and the supply of construction land also decreased. As

1

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China’s economy has shifted from the super-fast growth rates of more than 10% in the past to medium-to-high growth rates of 6% to 7%, this means that the model of continuing to rely on the broad supply of land to drive economic growth is gone, never to return. (2) The effectiveness of using land in investment promotion will diminish. Chinese industrial parks’ land-based investment promotion model already started to change after 2004, as manifested in the decline of the supply of industrial, mining, and warehousing land in the east. The main reason for this change is that the survival and development of enterprises in the east shifted to quality improvement and industrial upgrading, and their dependence on low-cost land and land mortgage financing to obtain loans decreased. Even though the central and western regions imitated the eastern region’s industrial park model, using land to attract investment and relying on land to provide superior infrastructure, the performance of the parks in these regions in terms of attracting investment was not good. In fact, some local governments that had used land to attract investment ran up high debts. (3) The intensified distortion of the land supply structure will run counter to structural reform. The imbalance in the land structure is China’s most serious structural problem. Because the proportion of industrial land is too high, infrastructure occupies too much land, and the proportion of real estate land is too small, land becomes a tool for the government to attract investment and a means for the government to maximize its land revenues. Beginning in 2011, the proportion of industrial land has declined, from 33% to 2011 to 23% in 2015, indicating that the mechanism by which local governments have controlled the supply of real estate land and ensuring land revenue has not changed. More serious, however, is that during this period, the proportion of “other land,” which is used mainly for infrastructure, has continued to increase, from 39 to 54%, which is consistent with the increases in infrastructure investment during the same period (see Fig. 2). When the real economy is in a downturn and real estate investment reaches a turning point, local governments will only be able to rely on an even greater amount of infrastructure land supply and expanded investment in infrastructure to stabilize growth. Such short-term measures to stimulate investment and stabilize growth will actually delay structural reform. (4) Rising land assignment costs, falling net income from land, and rising land mortgages. An important tool for enabling China’s rapid urbanization has been the low cost of land. The cost to the government

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Fig. 2 Supply structure of state-owned construction land (Source China Land and Resources Bulletin [annual])

of expropriating land is low, and more of the income from land is used for urban investment. However, as much of the land being used in the cities has shifted from original, newly-added land to urban stock land (cunliang yongdi 存量用地), and as farmers are developing heightened awareness of their rights, the costs of land expropriation, demolition, and resettlement have risen sharply. Since 2008, the costs of land for the government have risen sharply. In many places, the costs use up more than half of the land assignment revenue, and in some places they have reached 60%. As a result of rising costs, the government’s net income from land has fallen, so that by 2016, its net income from land assignment was only about 20%. With the decline in land assignment income, the government is still increasing investment in infrastructure building. In some areas, as the construction of new cities and new districts has expanded, the government has had to rely more on land mortgages to fund construction. In 2008, the area and amount of land mortgages were 166,000 hectares and 1.8107 trillion yuan respectively; by 2016, these figures had increased to 490,800 hectares and 11.330 trillion yuan. Behind the decrease in land assignment income and the increases in area and amount of land mortgages lies the financial risk of greater debt.

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(5) Increasing government debt risks and bank financial risks. First, the value of land mortgages in many cities is calculated when land is at a high price. Once the economy goes down and the demand for land drops, the gap between the actual value of the land and its estimated value will widen. Secondly, from 2010 to 2015, local governments promised to use as much as 40%, on average, of their land assignment revenue to repay debts. However, because of the overestimation of land value and local governments’ use of new repayment mechanisms to obtain loans, the local governments’ land-related debts have risen. Third, the leverage ratio is too high. The nominal leverage ratio of land is 0.5~0.6, while the actual leverage ratio is 1.5~2. The land leverage ratio in the central and western regions is even higher, and the actual leverage ratio in most central and western provinces is above 2. 2.2.2

How Land System Arrangements for Rural Land Lag Behind Agricultural and Rural Transformation (1) The institutional arrangement of collective land rights hinders the transformation of agricultural operations. The current collective land ownership system for rural land is the result of various constraints and interest games. There was no problem with this system when China’s agricultural operations were done mainly by farmers who did the farming themselves. However, as farmers leave the village and their non-agricultural economic activities increase, a major change has occurred in their thinking about themselves and the land, especially among the “second generation of farmers,” so that there is now a mismatch between the land system arrangement and the agricultural management system. First, when all the members of a collective are self-cultivating farmers, the collective ownership of membership rights, as a form of collective ownership, will not be challenged by law or reality. However, after the members who have obtained the contracted management rights over their land are no longer working or managing the land, then do the collective owners need to assert their collective ownership of the land? Now, after a large number of the contracted farming households depend mainly on non-agricultural business activities for their livelihoods, are the recombination of members’ farmland and the contractual rearrangement of their land by the collective owners legal? How should the collective owners protect their interests? Second, concerning the status and rights protection of rural households’ contracting rights, even though the law makes it clear that the

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right to enter into a contract is a property right of farmers, it is also a usufructuary right at the same time. The relationship between farmers who contract the land and the collectives is that of subcontractor and contractor. As farmers become more distant from the land, the tendency to separate the right to contract that land and the right to manage it becomes irreversible. In that case, what changes will occur to the substantial meaning of the right to contract the land? Will the direction chosen by the system be towards stronger and more complete guarantees of contracting rights, or will it be towards strengthening the right to operate under the bottom line? Third is the status of the management right as a right, and the evolution of the management system. Judging from trends in development, China’s agricultural management system will inevitably evolve in the direction of moderate scale and diversified management entities, but how will such a goal be achieved? How will the management right be separated from the contracting right for tens of millions of smallholders? How can the management right become a guaranteed right? How empowering will the right of management be? How will the strength of that empowerment be grasped? These problems have already been encountered, but in the future they will become more obvious and will need to be solved. (2) The arrangements of the house site system have lost effectiveness. Among the various land arrangements in China’s rural areas, the house site system is the most backward. First, a large number of house sites are entering the market. Even though the law does not empower farmers to lease out, transfer, and trade their house sites, in fact, the entry of farmers’ house sites into the market has become a generalized trend. In the vast areas along the coast and in mixed urban–rural areas, farmers have used their house sites to build multi-story buildings, and they rent out the units. This helps to meet the housing demands of the large number of migrant workers who, due to rapid industrialization, have left their farms to work in the city. Second, the difficulties and drawbacks of the system through which collective members obtain house sites for free have become conspicuous. In the vast areas along the coast and in mixed urban–rural areas, as the supply of urban construction land is becoming tighter, the system of freely-distributed house sites has already existed in name only for a long time. Since it has become impossible for farmers to be allocated homesteads, they illegally use village land to build houses—either to live in themselves or to earn more rental income. In the more traditional farming

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areas, meanwhile, the freely allocated house sites take up farmland and village public land, to the point that they endanger farmland and create unfairness among the farmers in the village. Third, the management of house sites has become ineffective. Although the law imposes very strict regulations on house site management, in fact it is difficult to implement land management from above the town level: the implementation mechanism is lacking, and the management costs are high. Fourth, the disorderly expansion of house sites is not conducive to the healthy development of cities. In the absence of governmental control, farmers expand their house sites and build residential buildings on them in disorderly ways. They even spread to the urban villages (chengzhong cun 城中村), which increases the costs of urban management as well as the difficulty of urban renewal. Fifth, the closed nature of the house site system within village society is not conducive to any transformation of the village. Since the house site system is based on one’s membership status, people who meet the status requirements get the house site free of charge, but they cannot refuse it if they do not want it, while people from outside the village cannot enter. Meanwhile, the “second-generation farmers” tend increasingly to leave the village and not return, which intensifies the village’s decline. The house site system thus preserves farmers’ status as members while keeping the community closed, which means that the members still in the village do not give up their house sites, while people from outside the village cannot move in. This situation exacerbates the village’s decline. (3) The closure of the collective construction land channels hinders rural development. Because farmers have lost the right to use collective land for non-agricultural construction, non-agricultural economic activities in most rural areas have shrunk. The unitary nature of rural industry has hindered farmers’ development opportunities in many areas and has intensified the exodus of farmers from their villages, which is causing rural decay and widening the urban–rural gap. In areas where there is collective construction land, the incompleteness of the rights appertaining to that land means that its capitalization is restricted, and industry’s entry threshold on collective land is raised very high. Due to planning constraints, rural collective construction land is now being put to uses that are largely illegal. Furthermore, business enterprises that use collective land cannot collateralize it, which affects their development and also

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leads to a gradual shrinkage of non-agricultural economic activity on that land.

3

Trends of the Next-stage Economy and Reform of the Land System

After 40 years of reform and opening up, China’s economic growth and structural transformation have reached new historical highs. China now ranks second in the world in terms of overall national strength, it has become the world’s largest manufacturer, and more than half of its population now works and lives in cities. The land system’s arrangements and their changes have both conformed to and driven this progress. However, China’s economy has been and still is experiencing some important trend changes: the economic growth rate is declining and has entered a new growth plateau; momentum for the development of the new economy is accumulating, and industrialization has entered a period of transformation and upgrading; urbanization has entered a period of quality improvement; urban–rural relations have shifted from one-way urbanization to urban– rural interaction; and rural economic activities have become increasingly dynamic and diversified. These changes will determine the future trends of China’s economy and will inevitably bring about major changes in the relationship between land and the national economy. On this basis, there must be a repositioning of land’s functions, and China’s next stage of reform of the land system must be carefully planned. 3.1

Trends of the Next-stage Economy and Changes in Land Functions

First, the next transition of economic development will cause reduced dependence on land. Whether the decline in China’s economic growth rate comes from international conditions or from the current stage of economic development, it is an inevitable trend, that is, from the highspeed growth of more than 10% per year in the past 30 years to a moderately high-speed growth. A series of profound changes is also taking place in the economic structure: the service sector is surpassing secondary industry, domestic demand is playing a greater role, growth is relying more on productivity improvements and innovation, and the quality and benefits of growth will be greatly improved (Perkins 2015; Liu Shijin 2015). In line with this transition, the “land engine” will no longer pull

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the economy forward as soon as it is started, and its negative effects, especially the distortions it causes, will increase. Not only is it unnecessary to ensure growth through a wide supply of land, but it also causes the waste of scarce resources. Improving the quality of economic growth by improving the efficiency of land allocation would be far more significant than merely pulling economic growth forward by increasing the quantity of land supply. How will the methods of supplying or allocating land respond to the changing needs of the present transitional stage of economic growth? The relationship between land and the next stage of the national economy will be a major issue. Second, industrial transformation and upgrading means that industrial development will no longer depend mainly on support from a system that reduces land costs. China has relied on the low land costs brought about by its unique land system to make itself into the “world’s factory.” However, following changes in the relative prices of other factors and rising system costs, China cannot continue to rely on low land costs from systemic distortions to keep its “world’s factory” status. Field research has shown that some regions, cities, industries, and companies in China are coming to the fore from the transformation and upgrading process. After a new round of industrial competition and upgrading, a group of competitive manufacturing cities, industries, enterprises, and products will emerge, and these will not be like the manufacturers of today, which depend on industrial parks and low-cost land support. The manufacturing regions and micro entities that win out in future competition will no longer need to rely on low-cost land and the collateralization of land to meet their capital needs, while those that continue to rely on low-cost land will find it difficult to avoid the fate of being eliminated. Therefore, the issue in China’s next round of manufacturing development is no longer how to guarantee the land supply, but how to revitalize the existing land stock and optimize its use in a competitive environment. Another characteristic of next-phase industrial evolution will be deeper integration of manufacturing and services, while the service sector accounts for a greater share of all industry. In 2013, China’s service sector surpassed the manufacturing sector when primary and secondary industries that year respectively accounted for 46.7% and 44% of GDP. Since services do not require as much land as manufacturing, this change in industrial structure also reduces the role of land in future industrial development. The optimization of construction land structure, the reconfiguration of industrial land,

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the transformation of industrial parks, and changes in land supply and structure will be the major land policy issues to be faced in the next stage. Third, the change from one-way urbanization to urban–rural interaction will bring changes in the methods of land allocation. Within the context of a huge urban–rural gap, the dual land system, and rapid urbanization, urbanization in the first half of China’s reform was basically a one-way redistribution of population, land, and capital from rural to urban areas. The next phase in urban–rural relations is shifting toward interaction. First, interaction between urban and rural populations has become a trend. On the one hand, the public policy of having the population settle in cities is hard to realize all in one step, and it is difficult for farmers to cut themselves off from and abandon their home villages. They want to work in cities and regions with more economic opportunity, then return and settle in their original home villages. This is the main choice among China’s urbanizing population. On the other hand, because of the coexistence of rural and urban culture and the differences between them, it will become a trend for urbanites to go to the countryside to experience rural culture, and in this way the interaction and exchange between rural and urban populations will increase. Second, urban and rural morphology has changed dramatically, and villages are highly differentiated. While most villages are declining, some are revitalizing. Some small towns have become like post stations connecting cities and rural areas, while some cities have triumphed through their clustering of vital elements, diffusion of knowledge, and innovative vitality. While vitality and decline coexist in cities, the connectivity among vigorous cities, towns, and villages is increasing. Third, although capital will continue to look to the cities for investment opportunities, some capital will look to agricultural and rural areas, due to increasing rural development opportunities. Fourth, changes in thinking about consumption and in population flow have brought increased opportunities for rural development, and with it the increased demand for rural land. As urban–rural interaction replaces one-way urbanization and the urban–rural cross-flow of population increases, capital will seek opportunity in the countryside as well as in urban areas. The reconfiguration and capitalization of land between urban and rural areas will accelerate. Fourth, an agricultural revolution and rural transformation will require the re-examination of the value of rural space. The biggest change

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in the next stage of China’s journey will stem from the revolution being gestated in the countryside. First, as China has become a moderately prosperous society, people’s demand for food has shifted from quantity to quality, and as the emphasis shifts, the function and form of agriculture will undergo tremendous changes. Besides providing basic food needs, agriculture will seek to develop in the direction of high-quality, safe, recreational, healthy, and distinctive forms, and agriculture’s profit opportunities will be greatly enhanced. We thus need to redefine agriculture and arrive at a new understanding of its role. Second, there will be a structural revolution brought about by further differentiation among farmers and the “second generation of farmers.” In China, farmers are already differentiated and will become more so in the future; another feature of the change among farmers will be the intergenerational difference. The basic career trajectory of the first generation of migrant workers was “leave the soil → leave the village → return to the village,” but for the second generation, it is basically “leave the soil → leave the village → do not return.” Their relationship with the land, their views on agriculture, and their characteristic behavior have all undergone fundamental changes. Third, there are changes in rural industries and their business conditions. On the one hand, due to changing urban demand, many rural industries have revived and grown, and on the other hand, new technologies and business model changes have expanded the market scope and non-interpersonal transactions of many rural handicrafts and local products. Fourth is the differentiation of villages. The Chinese village system was born out of the traditional farming culture, but as the relationship between people and the land changes, and as the modes of agricultural development change, the method of using the farming radius to define the settled area of a village is changing. China’s villages are in the process of becoming highly differentiated. Some villages have begun to revive and are full of vitality, taking on the new function of links between urban and rural areas, while other villages are declining and becoming more and more dilapidated.

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3.2

The Next Stage of Land System Reform

First, change land’s function as the engine for growth and bid farewell to the land-driven development model. The most difficult parts of China’s economic transformation will be, on the one hand, determining how to turn away from the established land-driven development model, and on the other hand, figuring out how to increase productivity and establish a new, innovation-driven growth model. What makes this reform even more difficult, however, is that these two things influence each other. If the former is done well and the mechanism is still usable, it will be impossible to turn to the innovation-driven growth model, and if the new model cannot be built, we will have to rely on the old model. This is also why the shortcomings of the old model, even after they have been completely exposed, have not been corrected, and now steadily intensify. In my opinion, economic downturn and gear-shifting are opportunities for changing the long-term but hard-to-transform model of land-driven development. The reasons have been discussed in detail above. The basic conclusion is that from the perspective of cost–benefit structure, this model has become no longer suitable. To truly bid farewell to the land-driven development model, the following main points should be achieved: (1) Make it clear from the central level that land is no longer to be used to guarantee development; take advantage of the decline in land demand during economic downturn to eliminate the controls of the annual land indicators, and instead set up controls on the total scale of construction land as well as strict planning controls. (2) Change the use of land as an engine to avoid artificially increasing the economic growth rate; prevent local governments from attracting investment through low land prices, in order to reduce overcapacity and redundant construction; change the institutional arrangements and interest incentives encouraging local governments to make land assignments, in order to control the unhindered outward expansion of urban boundaries and urbanization of land. (3) Reform local governments’ monopoly over the land market, and allow land owners to enter the land market, under planning and use control.

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(4) Reform local governments’ land financing mechanism, and eliminate the kind of land financing that is purely land financing without any cash flow. (5) Thoroughly clean up the already formed land debts and deal with them all at once. (6) Form a state-owned land management company and ensure that the government obtains a certain amount of government revenue through operations. (7) Levy a differentiated real estate tax on land with different functions and on houses with different areas and numbers of rooms. Second, promote structural reform through the optimization of land use structure. After the function of the land engine changes, what can be done next is to optimize the land use structure in order to promote the reform of the national economic structure. (1) Reduce land supply for infrastructure and public land, and reduce inertia from always relying on investment to drive growth. After decades of large-scale investment in infrastructure, China has already passed the peak period for such investment. It is no longer appropriate to continue increasing investment in infrastructure in order to maintain other investment and economic growth, since doing so will exacerbate structural distortions. The land for large-scale infrastructure investments is acquired through land expropriation, which not only increases government fiscal expenditure, but also increases conflict between the government and landexpropriated farmers. In addition, the proportion of urban public land is too high, especially when this land is used to build highways, large plazas, large office buildings, and other image projects that not only consumes a lot of money and wastes land, but also leads to the crowding out of urban livable spaces and other development land. (2) Continue reducing the proportion of industrial land. In comparison with other countries, China’s proportion of industrial land is the highest, and even though it has fallen somewhat in recent years, the proportion is still too high. With the optimization of the economic structure and the transformation and upgrading of manufacturing, there is still plenty of room for reducing the supply and proportion of industrial land. This is a main aspect of the next step—promoting structural reform through the reconfiguration of industrial land. (3) Change the practice of supplying industrial park land at low prices in order to attract investment, and promote the transformation and

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upgrading of the industrial parks. The kind of industrialization achieved in China’s industrial parks has made a historic contribution to China’s becoming the “world’s factory,” but it has also led to distortions in the price of industrial land. Enterprises now occupy too much land due to low land costs, and now speculation on park land and other corrupt practices have emerged. They have been particularly conspicuous in the central and western regions in recent years. As for using park land as collateral, park authorities should evaluate the balance between building advanced park infrastructure and tax revenues, and they should compress or integrate poorly performing parks. (4) Increase the proportion of real estate land, change the methods of supplying residential land, and curb the real estate bubble. In general, it is necessary to increase the total amount of residential land supply as well as the proportion of residential land in construction land. Different methods should be adopted for supplying the land for investment housing and residential housing: with the former, the present method of bid tendering, auction, and quotation may continue to be used, so that the land price and house price are fully set by the market; residential housing, meanwhile, should be allocated by the government, whether it is housing with limited property rights (chanquan fang 产权房) or rental housing, since these can only be used to live in. In this way, the channel between residential land and investment residences is severed. In urban villages and villages on the edges of cities, collective construction land should be opened up to allow farmers to collectively use this land to build rental housing. This would give migrant workers and some low-income people places to live. (5) Establish a profit-sharing mechanism to optimize the structure of construction land. If the land of existing owners with limited rights is converted into land for residential, commercial services, and land with floor area ratios, the land differential income will rise significantly. Based on the principle of differential income generation, consideration should be given to public land sources, funding needs, and balancing funds for urban renewal and industrial upgrading, and the share ratio of the original owners with limited rights should be reasonably determined. Third, promote land system reform that befits the interaction between urban and rural areas. The urban–rural relationship today has become one-way urbanization, and the most important institutional arrangement supporting that is the rural-to-urban land conversion system. When rural land becomes urban construction land, collectively-owned land can only

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be transferred to the state by expropriation, and farmers and villages lose their land development rights. The loss of land development rights leads to the outflow of rural labor; the land gets allocated to cities, and the opportunity for capital to find profitable opportunities in the countryside is reduced. To ensure urban–rural cross-flow and interaction of production factors at the “urban–rural China stage,” it is necessary to reform the urban–rural land allocation system, allow farmers’ collective land to enter the construction land market under planning and land use controls, and ensure that the same rights appertain to the same land for the two types of ownership. This would be the most important reform determining China’s advance from the “urban–rural China stage” to the “urban China stage,” and it will play a decisive role in the sustainability of China’s development model and the realization of China’s modernization. Substantial institutional reforms would be as follows: (1) Reform the land expropriation system: amend the Law on Land Administration by improving its list of expropriations deemed to be “in the public interest”; change the principle (still in use) that the compensation for all expropriated rural land is based on its original agricultural use, and instead gradually implement compensation based on the land’s market price; when urban or rural housing is expropriated, the same pricing and the same rights appertain to the two types; the expropriation of reserved land (liuyong di 留用地) should also be institutionalized and legalized. (2) Implement the spirit of the Third Plenary Session of the 18th Central Committee of the CPC: establish a unified market in urban and rural construction land; open the entry of collective business construction land into the market, provided that it complies with the overall plan for land use; allow the owners of collective land to assign use through the methods of assignment, leasing, capital contributions, or purchase of shares; and allow the transfer, leasing out, or collateralization of the use rights of collective business construction land. On this basis, expand collective business construction land to collective construction land. Fourth, place the separation of the three rights at the core of the reform of the land system. Clarify the definitions and the content of collective ownership rights, contracting rights, and management rights, as well as the relationships among the three. This would be the key to innovation and to the implementation of a rural land system in which the three rights are separately established. It relates to the reconstruction of the

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land rights system during the transition period and to the pathway toward modernizing China’s agriculture. (1) Make it clear that collective ownership is ownership by farmers’ collectives, and insist that farmers’ collectives are the entities that hold the rights of collective ownership of land; village collective economic organizations or village committees, village groups, and township (town) rural collective economic organizations only represent the collectives in the exercise of land ownership. (2) Land contract rights are property rights conferred on collective members, and the land contractor has the right to occupy, use, and derive profit from the contracted land in accordance with the law. Contractors should be able to circulate land through transfer, swap, leasing out (subcontracting), shareholding, or other methods, use the land management right as collateral, and voluntarily withdraw from contracted land with compensation. (3) Land management rights are farming rights enjoyed by various agricultural business entities. The purpose of land management rights is to provide farmers with stable expectations on land use and investments. Under the premise that the relationship between contracting rights and management rights is clarified, the right of land management is to be separately established, granted, gradually increased, and protected. Fifth, implement house site reform that befits rural transformation. In the overall rural land system reform, the land management system will have the greatest impact on agriculture, while the house site system will have the greatest impact on the modernization of entire villages; their reform must be effectively promoted. (1) Clarify the usufructuary rights appertaining to house sites and improve the rights system relating to rural house sites. The granting of house site property rights to farmers would be a breakthrough in the reform of the house site system. To protect farmers’ usufructuary rights on their house sites, farmers must have fuller ownership, income, transfer, and inheritance rights on their house sites, so that these house sites can truly become the property of farmers. In line with the fourth point above, the content of collective ownership rights, farm household use rights on the house site, and the farmer’s ownership rights on the house must all be clarified, as well as the relationships among these three rights. (2) Realize the capitalization of house sites. Reform the system by which households are distributed at no cost to collective members, by setting up a time before which legal members of collectives may obtain

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house sites of equal quality one time for free; thereafter, newly established households may obtain house sites for a price. On this basis, a different approach is adopted for the opening up of house sites in different regions. (3) Reform village planning and use controls, and improve the house site management system. Use planning controls to clarify the villages’ and government’s management responsibilities on house sites. Make clear that the main supply for house sites comes from village stock land. Delegate the stock land management power down to the village level, and then, on this basis, have the government strictly implement use controls.

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产率提升潜力与经济增长前景 [Our Country’s Future Productivity Improvement Potential and Economic Growth Prospects]. Guanli shijie (2015.3): 1–5. Liu Shouying 刘守英. 2008a. “Jiti tudi zibenhua yu nongcun chengshihua— Beijing shi Zhenggezhuangcun diaocha” 集体土地资本化与农村城市化—— 北京市郑各庄村调查 [Collective Land Capitalization and Urbanization: A Survey on Zheng Ge Zhuang Village]. Beijing daxue xuebao (zhexue shehui kexue ban) (2008.6): 123–132. Liu Shouying. 2008b. “Zhongguo de eryuan tudi quanli zhidu yu tudi shichang canque—dui xianxing zhengce, falü yu defang chuangxin de huigu yu pinglun” 中国的二元土地权利制度与土地市场残缺——对现行政策、法律与 地方创新的回顾与评论.经济研究参考 [China’s Dual Land Rights System and the Incomplete Land Market: A Review and Comment on Current Policies, Laws, and Local Innovations]. Jingji yanjiu cankao (2008.31): 2–12. Liu Shouying. 2012. “Yi di mou fazhan moshi de fengxian yu gaige” 以地谋 发展模式的风险与改革 [Risks from and the Reform of the Model by Which Land Is Used to Plot Development]. Guoji jingji pinglun (2012.2): 92–109. Liu Shouying. 2014. Zhimian Zhongguo tudi wenti 直面中国土地问题 [Facing China’s Land Issues ]. Beijing: Zhongguo fazhan chubanshe. Liu Shouying. 2015. “Nongcun zhaijidi zhidu de teshuxing yu chulu” 农村宅基 地制度的特殊性与出路 [Particularities and Solutions to the Rural House Site System]. Guojia xingzheng xueyuan xuebao (2015.3): 18–24. Pei Xiaolin 裴小林. 2003. “Jiti tudi suoyou zhi dui Zhongguo jingji zhuangui he nongcun gongyehua de gongxian: yige ziyuan peizhi moxing de jieshuo” 集体土地所有制对中国经济转轨和农村工业化的贡献:一个资源配置 模型的解说 [The Contribution of Collective Land Ownership to China’s Economic Transition and Rural Industrialization: An Explanation of a Resource Allocation Model]. In Zhongguo xiangcun yanjiu (di yi ji) 中国 乡村研究(第一辑) [Chinese Rural Studies (First Series)]. Ed. Huang Zongzhi 黄宗智. Beijing: Shangwu yinshuguan. Perkins, Dwight H. 2015. Dongya fazhan: jichu he zhanlüe 东亚发展:基础和战略 [East Asian Development: Foundations and Strategies ]. Trans. Yan Chaofan 颜超凡. Beijing: Zhongxin chubanshe. Tang Jian 唐健. 2011. “Zhengdi zhidu gaige de huigu yu sikao” 征地制度改 革的回顾与思考 [Recollections and Thoughts on the Reform of the Land Expropriation System], Zhongguo tudi kexue (2011.11): 3–7. Wang Liming 王利明 and Zhou Youjun 周友军. 2012. “Lun woguo nongcun tudi quanli zhidu de wanshan” 论我国农村土地权利制度的完善 [On the Improvement of Our Country’s Rural Land Rights System]. Zhongguo faxue (2012.1): 45–54. Wu Yuzhe 吴宇哲, Peng Yi 彭毅, and Bao Haijun 鲍海君. 2008. “Jiyu tudi fazhanquan fenpei de zhengdi qupian zonghe dijia yanjiu” 基于土地发展权

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分配的征地区片综合地价研究 [Research on the Comprehensive Land Price of Expropriated Land Based on Allocation of Land Development Rights], Zhejiang daxue xuebao (renwen shehui kexue ban) (2008.6): 23–30. Zhao Shufeng 赵树枫. 2015. Nongcun zhaijidi zhidu yu chengxiang yitihua 农 村宅基地制度与城乡一体化 [The Rural House Site System and Urban-Rural Integration]. Beijing: Zhongguo jingji chubanshe. Zhonghua renmin gongheguo guozhufang he chengxiang jianshe bu 中华人民 共和国住房和城乡建设部 [Ministry of Housing and Urban Rural Development]. 2016. Zhongguo chengxiang jianshe tongji nianjian 中国城乡建设统 计年鉴 [China Urban and Rural Construction Statistical Yearbook]. Beijing: Zhongguo tongji chubanshe. Zhonghua renmin gongheguo nongye bu 中华人民共和国农业部 [PRC Ministry of Agriculture]. 2015. Zhongguo nongye tongji ziliao 中国农业统计资 料 [China Agriculture Statistical Report ]. Beijing: Zhongguo nongye chubanshe. Zhonghua renmin gongheguo tudi ziyuan bu 中国画人民共和国土地资源部 [PRC Ministry of Land and Resources]. 2017. 2016 nian Zhongguo guotu ziyuan gongbao 2016 年中国国土资源公报 [2016 China Land Resources Bulletin]. Beijing: Tudi ziyuan bu. Zhou Qiren 周其仁. 1995. “Zhongguo nongcun gaige: guojia he suoyouquan guanxi de bianhua (xia)—yige jingji zhidu bianqian shi de huigu” 中国农 村改革:国家和所有权关系的变化(下)—一个经济制度变迁史的回顾 [China’s Rural Reforms: Changes in the Relationship between the State and Ownership (Part 2): A Review of the History of Changes in the Economic System]. Guanli shijie (1995.4): 178–89, 219–20. Zhou Qiren 周其仁 and Liu Shouying 刘守英. 1997. “Meitan: Yige chuantong nongqu de tudi zhidu bianqian” 湄潭:一个传统农区的土地制度变迁 [Meitan: Land System Change in a Traditional Agricultural District], in Zhonggong Guizhou shengwei zhengce yanjiushi 中共贵州省委政策研究室 and Zhonggong Guizhou sheng Meitan xianwei 中共贵州省湄潭县委, Tudi zhidu jianshe shiyan jiance yu pinggu 土地制度建设试验监测与评估 [The Monitoring and Evaluation of a Test on Land System Construction]. Guiyang: n. pub. (internal document).

CHAPTER 2

The Implementation of China’s Rural Revitalization Strategy and Land System Reform

1

Raising the Issue

The CPC report to the 19th National Congress, delivered by Xi Jinping on 18 October 2017, proposed the implementation of a strategy of rural revitalization as an important measure to achieve the “two centenary” (liangge yibai nian 两个一百年) goals. Rural modernization is both an important battlefield upon which China aims to build itself into a modern, powerful country and a factor that will determine the quality of the “Chinese dream” to a large extent. The implementation of the Rural Revitalization Strategy (xiangcun zhenxing zhanlüe 乡村振兴战略) will be the basic orientation of theoretical innovation, decision-making, policy implementation, and government work in the area of “agriculture, rural areas, and rural people” (the sannong 三农 or nongye nongcun nongmin 农业农村农民) in the future. The CPC report to the 19th National Congress describes the future rural landscape of “thriving businesses, pleasant living environments, social etiquette and civility, effective governance, and prosperity.” The Central Committee’s no. 1 document in 2018 made a strategic plan for rural revitalization in three stages beginning in 2020, 2035, and 2050. The proposal and implementation of the Rural Revitalization Strategy means the return of the sannong trinity. The rural countryside is the space and the carrier for agriculture and farmers.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_2

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Taking rural revitalization as a starting point is done in the hope of truly solving China’s long-running “three rural issues” (sannong wenti 三农问 题). After the CPC report to the 19th National Congress put forward the Rural Revitalization Strategy, the reaction of academia, policy circles, and local governments highlighted the possible consequences of the lag in rural revitalization research on the implementation of the strategy. Thus far, the academic community’s enthusiasm for interpretation has not abated, but it is basically a self-explanation, based on traditional thinking, of this strategy. It either continues to apply the logic of one-way urbanization in understanding where the countryside is heading, or it views the countryside as isolated and thinks of agriculture as it was traditionally, in a rural romanticist mood detached from reality. Policy circles, meanwhile, lacking clarity on the basic content of what rural revitalization would be, follow the force of their habitual work in busily planning, engineering, and constructing various projects. Some local governments have held various report mobilization meetings and show a strong inclination to launch the rural revitalization movement. The biggest bottleneck to rural revitalization is a lack of theory. The CPC has always emphasized the basic status of “agriculture, rural areas, and rural people” (sannong ) in the whole Party’s work at all stages, but how is the theoretical basis of the sannong expressed? For a long time, research on the three rural issues has followed a sequence: agriculture ➜ rural people ➜ rural areas (villages). Agriculture has been put in first place because of the historical importance of food issues, and because of its significance in safeguarding the national industrialization strategy. The importance attached to rural people is due to the significance of small farmers in the national order. Thus the issues of rural areas or villages have actually wound up at the end of the three rural issues. There is a major flaw in the traditional sannong theory, which places agriculture first. In our view, since the Rural Revitalization Strategy is what bears the mission of rural modernization in the new era, we need to rethink the effects of the relationship between village and city, the relationships among the farmer, the land, and the village, and generational change on rural development, based on an analysis of developmental stages, urban-rural patterns, and trends in rural change. We need to redefine the meaning, function, and basic status of agriculture, the path of prioritized development of agriculture and rural modernization, and the function and evolution of the village as a kind of institutional establishment.

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Compared with the overreliance on civil engineering and construction projects (gongchenghua he xiangmuhua 工程化和项目化) in rural revitalization, there is a lag in institutional supply, and this has become the biggest constraint on the implementation of the Rural Revitalization Strategy. Contemporary rural problems and their exacerbation are themselves the results of the distorted urban–rural relationship and the inequality between urban and rural institutions. To achieve catch-up industrialization and promote rapid urbanization, China established and strengthened a set of discriminatory institutional frameworks for rural development. It ensured the formation of industrial capital with distorted prices of production factors and unfavorable terms of trade for rural areas. The inequality between the urban and rural land systems caused the loss of rural development rights, and the deprivation and neglect of rural people’s urban rights has resulted in the inequality between rural villages and cities in terms of their development rights. The unidirectional allocation of production factors from rural areas to the cities has led to rural decline. If rural revitalization is implemented under the existing institutional structure, the villages’ decline will only intensify. Under the Rural Revitalization Strategy, we must in actuality implement institutional reforms that will revitalize the villages. At the same time, we have also found that, following adjustments to urban–rural relations and changes in rural economic activities, the characteristics of farmers’ economic and social behaviors have changed, the differentiation among rural areas has intensified, economic opportunities in rural areas have increased, the relative prices of production factors have changed, and the benefits of institutional change have increased, thus adding to the incentive for institutional supply in rural revitalization. Due to the historic changes in urban–rural relations and the opportunity for rural change, an effective institutional supply will provide an important guarantee for rural revitalization. The aim of this chapter, then, is to analyze institutional constrains on rural revitalization and the causes of rural problems, and to put forward the overall idea, target mode, and implementation pathway that will support rural revitalization.

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2 2.1

The Status of Research at Home and Abroad, with Commentary Why Has Agriculture Not Kept Pace with the Pace of Industrialization?

Late-developing economies have always given supreme status to industrialization, since they generally believe that it is the driving force and wellspring of all modern social progress (Chang 1949). However, industrialization is generally understood as a shift of economic focus from primary products to manufacturing production (Chenery et al. 1986), characterized mainly by an increase in the share of manufacturing activities in national income and labor force (Bagchi 1992, vol. 2, p. 798). This one-sided understanding caused a setback in the agricultural development of many countries and a drag on national economies after World War II. Developing countries mistakenly believed that industry could bring about economic development, while agriculture represented backwardness, and as a result, they believed that agricultural surplus should be used to subsidize industry. Some countries achieved this goal by using a “price scissors” (Krueger 1997). Regarding industrialization as an increase in the proportion of manufacturing (especially heavy industry) in the national economy has resulted in the erroneous tendency to focus only on concentrating resources to invest in manufacturing while neglecting rural development and the transformation of traditional agriculture. Among developing countries after World War II, this has been one of the important causes of the difficulties and repeated failures of industrialization (Zhang Peigang 1992, p. 54). Industrialization should cover the entire national economy, and it should at least include the mechanization and modernization of both industry and agriculture. Industrialization is manifested as a continuous change in “a series of important production functions,” which in turn leads to changes in production processes, economic organizations, and social structures, as well as in people’s lifestyles and patterns of consumption, behavior, and thinking. With this understanding of “industrialization,” the erroneous tendency to sacrifice agriculture in order to develop industry (manufacturing) will not appear (Chang 1949, p. 66). Regrettably, industrialization driven by the wrong ideas took place in the countries of the economists who had put forward the right ideas. The complete industrial system that China established, through a strategy

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prioritizing the development of heavy industry, and China’s transformation from an agricultural country to an industrial one, came at an extremely high cost. This set of distorted policies led to a decline in the growth rate of agriculture, and also caused distortions in the market for agricultural products and agricultural production factors. Slow agricultural growth caused by the distortions in the factor market affects economic growth across the board. The resulting restrictions on the flow of rural labor to cities have led to rural poverty in China. 2.2

An Urban Bias Leads to the Urban–Rural Gap

Cities, the centers of economy, politics, and people’s spiritual lives, are considered the main driving force for progress (Lenin 1959, vol. 19, p. 264). Urbanization is the movement of population from the countryside to the city and to non-agricultural work; it is also the transformation of a rural lifestyle to an urban one. However, the urban-biased policies implemented by late-developing economies have often led to the neglect of agricultural and rural development. The method adopted by urbanbiased policies has usually been to put a “price scissors” on industrial and agricultural product prices, thereby distorting the prices of products and production factors in a way that is biased toward cities and not conducive to agriculture, rural areas, and rural people, and to use any agricultural surplus to subsidize industrialization (Schultz 1978, pp. 10– 11). Developing countries choose urban-oriented policies because, on the one hand, taxation on agriculture can provide the absolutely necessary financial support for industrialization. In China, the root of the urban– rural separation lies in the adoption of a development strategy, during the centrally planned economy period, that prioritized heavy industry; China needed to extract agricultural surplus in order to increase the accumulation of urban capital and to subsidize the cities (Yang 1999). On the other hand, the political structure in most developing countries has caused serious inequality between urban and rural residents in terms of political negotiating status and policy influence. Their rural sectors have most of the poor population and low-cost resources of various kinds, while their urban sectors have most of the channels of expression, organization, and power. The scattered nature of farmers’ homes and the limited proportion of individual output levels leads to extremely high collective communication costs and “free-rider” problems. These factors have put these countries’ rural sectors at a disadvantage. At the root of China’s

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urban-oriented policies lies the development strategies established in the early days after the founding of the People’s Republic of China, which prioritized the development of heavy industry. These urban-oriented policies still existed during the reform period because of the rigidity of urban interests, which were formed by the original strategy (Cai Fang and Yang Tao 2000). The main mechanisms by which China’s urban-oriented policies are implemented include controls on agricultural production, the handing-in of agricultural products, suppression of grain prices, and restrictions on the flow of labor from rural to urban areas through the household registration system. The differences in welfare treatment between urban and rural residents, the higher cost of living for rural residents under urbanpreferential policies, the urban–rural differences in education, medical, and public health facilities, and the favoring of urban areas in the transfer of funding for local projects from higher levels of government have all led to a huge urban–rural income gap. Urban-oriented policies have caused market distortions in agricultural projects and agricultural production factors, which have led to distortions in the economic system, and which have ultimately reduced the growth rate, not only for agriculture but also for the entire economic system. They are not conducive for China’s future economic growth. 2.3

Overall Planning of Urban and Rural Areas and the Adjustment of Urban–rural Relations

Until the mid-1990s, rural areas as a whole were still at the stage of providing funds for the urban and industrial sectors. The situation was only eased around 1998, when the state established the policy of “giving more, taking less, and loosening control” (duoyu, shaoqu, fanghuo 多 予、少取、放活). However, support for rural areas and agriculture was still very limited (Li Ming et al. 2014). Since 2003, the central government has made major adjustments to the urban–rural relationship. China’s urban–rural relationship has now entered a stage of urban–rural coordinated development, and a series of policies for strengthening, benefiting, and enriching rural areas have been introduced in swift succession. In general, overall planning of urban and rural development since the 16th National Congress of the CPC (2002) has contributed toward a more balanced distribution of public resources between urban and rural areas, so that the gap in public policy between urban and rural areas has

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been narrowing. However, in the overall planning of urban and rural areas, the government dominates while the power of the market remains insufficient, and in the end, this has led to the “overall planning” (tongchou 统筹) for the countryside being done by the cities. Hence that situation of high urban prosperity and rural decline has not changed at all (Liu Shouying 2017a). The dual system that keeps urban and rural areas separate and the development strategies that prioritize cities have induced the large-scale gathering of production factors such as labor, land, and capital in the cities, thus restricting the sustainable development of rural areas and triggering increasingly severe “rural diseases”: land, population, and other production factors are de-agriculturalizing at high speed; the main part of rural society is aging too quickly; the villages’ lack of vitality and manpower restricts their transformation and the development of modern agriculture (Liu Yansui 2018). The villages’ main force of young and middle-aged people chooses to leave their hometowns for the big cities; they leave the soil, exit the villages, and do not want to return, and this exacerbates the decline of rural areas. Village land is becoming seriously emptied and desolate. According to estimates, in hollowed-out villages nationwide there is as much as 114 million mu of land with the potential of readjustment. If the hollowed-out villages are not readjusted, revival of new villages will be difficult (ibid.). Rural areas are deeply impoverished, and the income gap between urban and rural residents will be difficult to narrow (Han Jun 2009); there exist hidden dangers in rural social governance. 2.4

Interpretation of the Rural Revitalization Strategy Since the 19th National Congress

At this stage, the main dilemma in our society has been transformed into the one between the people’s growing demand for a better life on the one hand and unbalanced, inadequate development on the other, which is conspicuously reflected in lagging agricultural and rural development. As agricultural mechanization becomes widespread and agricultural socialized service systems improve, the labor intensity and labor time of farmers in the production of bulk crops has gradually decreased, so that farmers can now use their more abundant surplus labor time to create new supplies of various kinds in their villages. Meeting the new demands of urban residents is precisely the original intention behind the implementation of the Rural Revitalization Strategy (Chen Xiwen 2018a).

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Implementation of the Rural Revitalization Strategy should be based on the seven principles of the Party’s management of rural work: remaining committed to the Party’s leadership over rural affairs, giving priority to developing agriculture and rural areas, upholding the mainstay position of farmers, pursuing a comprehensive vitalization of rural areas, integrating urban and rural development, ensuring harmony between humans and nature, adjusting measures to local conditions, and making progress step by step (Gu Yikang 2017). On this foundation, wonderful industries, wonderful homes, a wonderful atmosphere, wonderful order, and wonderful lifestyles are to be realized in the countryside (Chen Wensheng 2017). Specifically, it will be necessary to establish a sound system that would guarantee urban–rural integration. First, a unified urban–rural production factor market must be established in order to expand the free flow of factors between urban and rural areas. Second, the outdated mindset which perceived rural areas as two “reservoirs” (for land and labor) must be discarded. Third, the strategy of improving agricultural competitiveness must be incorporated into the strategy of improving the overall competitiveness of the national economy. Fourth, various economic policies must be made to promote major adjustments to China’s population distribution. Fifth, the transformation of the targets of current rural policies must be completed (Dang Guoying 2018). In addition, we should also transform the modes of progress of agricultural technology, the modes of protecting farmland, the modes of urban and rural planning, the modes of urban and rural social governance, the land property rights system, and the agricultural management system. Implementation of the Rural Revitalization Strategy has to adhere to the spirit of reform and innovation and follow the requirements of the “seven musts” (qige bixu 七个必须) in order to take the road of socialist rural revitalization with Chinese characteristics. Following these requirements, we must: (1) Reshape the urban–rural relationship and take the road of urban– rural integration; (2) Consolidate and improve the basic rural management system and take the road of common prosperity; (3) Deepen structural reform of the agricultural supply side and take the road of quality agriculture; (4) Firmly maintain the harmonious coexistence between humankind and nature and take the road of rural green development;

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(5) Inherit and develop agrarian civilization and take the road of rural cultural prosperity; (6) Make innovations to the rural governance system and take the road of good rural governance; (7) Wage a precision battle against poverty and take the road of poverty reduction with Chinese characteristics (ibid.). The pathway for implementing the Rural Revitalization Strategy should also include the following: (1) Fully understand the Rural Revitalization Strategy, and change the tendency to focus on increasing agricultural production and farmers’ incomes while neglecting rural modernization; (2) Shift away from urban–rural overall planning (tongchou) to urban– rural integration, achieve the urban–rural interaction of human, land, capital, and other elements, and realize the co-prosperity and symbiosis of urban and rural civilizations; (3) Give priority to the development of agriculture and rural areas; (4) Reform the rural land property rights and agricultural management systems; (5) In the area of rural governance, rebuild rural order and institutions (Liu Shouying 2017b). When implementing the Rural Revitalization Strategy, attention should be paid to the following issues: (1) With regard to consolidating and improving the basic rural management system, we should insist on maintaining farmers’ collective ownership of rural land, the basic status of family management, the stability of the land contracting relationship, and on implementing the “separation of the three rights” (sanquan fenzhi 三权分置; see Chapter 1, III., 2., fourth point above). (2) With regard to deepening the reform of the rural collective property rights system, we should ensure fulfilment of farmers’ collective land contracting rights, house site use rights, and collective asset and income distribution rights; the basic nature of rural collective economic organizations should also be clarified.

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(3) With regard to the organic connection between small farmers and modern agricultural development, where conditions are also in line with farmers’ wishes, guidance should be given on the transfer, concentration, and development of an appropriate scale of management of contracted farmland. However, in connection with the latter point, not all arable land is suitable for large-scale operation. The key would be to provide small farmers with superior crop varieties, cultivation techniques, and services in the areas of storage, operation, marketing, and so on, which would be suitable for small farmers’ production. A good grasp of the degree of land management rights transfer, concentration, and scale management must be compatible with the urbanization process and scale of rural labor transfer, with the progress of agricultural science and technology, with the improvement of production methods, and with improvements in the level of agricultural socialization services (Chen Xiwen 2018b).

3

Institutional Arrangements and Institutional Mechanisms Affecting Rural Revitalization

At present, the realization of rural revitalization and urban–rural integration is still facing many institutional problems. Based on a comprehensive analysis of these problems, we believe that they have mainly five aspects: first, the subordinate status of villages; second, the neglect of farmers’ rights to urban areas; third, the villages’ loss of rural development rights; fourth, the failure of the current agricultural land system to adapt to the ways in which agriculture is developing; and fifth, the hindrance to the transformation of villages due to lagging reform of the house site system. 3.1

The Catch-Up Strategy, Urban Bias, and the Subordinate Status of Villages

China’s rural problems originate from a development orientation that prioritizes industry and cities. Soon after 1949, the CPC initiated China’s transformation from an agrarian country to an industrial one, and it chose a national industrialization strategy that prioritized heavy industry. Agriculture provided the necessary capital accumulation, and the unified purchase and sale of agricultural products, collectivization, the People’s

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Commune system, and the household registration system (which separated urban and rural residents) provided important support. National industrialization initiated and promoted structural change, but as a result it also formed an agriculture-industry relationship in which industrialization preceded rural modernization and agriculture and rural areas served industrial development. The rural reforms first initiated in the 1980s opened up development rights for villages. Rural land reforms, marketization reforms, and the villages’ rights to industrialize and urbanize changed the inequality in urban–rural relations, resulting in rapidly increasing rural incomes and a reduction in the urban–rural income gap. Structural change in China was promoted mainly by rural industrialization, and this was the period when China’s urban–rural relations were at their smoothest. Rural industrialization opened up farmers’ rights to participate in the industrialization of rural areas, so that the division of labor and industry in rural areas reduced farmers’ dependence on agricultural employment and income. However, whether the villages were industrializing or the farmers were autonomously urbanizing, they were still trapped in their home villages, and the pattern of urban domination over the countryside had not been fundamentally changed. After 1995, and especially after 1998, China’s industrialization and urbanization entered the fast lane. Industrial park-based industrialization emerged, especially in the coastal regions, and China became the “world’s factory.” China’s urbanization process has accelerated since then. From 1998 to 2016, its urbanization rate increased at an annual rate of 35.89%, and its urban built-up area expanded from 21,380 square kilometers to 54,331.47 square kilometers, with an average annual growth rate of 5.32%. However, under government-led park-based industrialization and urbanization, the gap between urban and rural areas’ development rights has widened, and rural industrialization has exited the stage. Under land use planning and other controls, rural areas have lost their development rights, rural industrial development has been blocked, agricultural functions have narrowed, and urban–rural gaps have widened. To earn an income, farmers rely mainly on “going out to work.” Thus, against the background of the cities’ continuous prosperity, the rural areas have fallen into decline (Liu Shouying 2018a).

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3.2

The Neglect of Farmers’ Rights to the City

From 1949 to the mid-1950s, the right of freedom of movement was protected by law. The 1954 Constitution of the People’s Republic of China (Article 91) stipulates: “Citizens of the People’s Republic of China have the freedom of residence and movement.” During the First Five-year Plan (1953–1957), large numbers of farmers poured into the cities, resulting in urban employment pressure and food supply shortages, and the urban management system was completely unprepared for them. They were regarded by the government as an aimlessly floating population (mangmu liudong renkou 盲目流动人口), so the country adopted a policy of tightening up the urban population. Every few years, local governments were required to clean out their floating populations, especially rural laborers recruited by urban enterprises outside of any plan. Since the mid-1950s, China has established an entire social system, based on the household registration system, that differentiates between urban and rural areas and strictly limits farmers’ access to cities. In 1958, under the planned economy, a conditional review and approval system was formed to control the movement of rural households to cities through the household registration system. The main channels for farmers to move into cities were recruitment for labor, recruitment for military service, receiving higher education, as dependents, or through other temporary policy channels. Under centralized planning and a “catch up and go beyond” economic development strategy prioritizing heavy industry, city gates were basically shut to farmers. The city and the countryside became two separate realms. Farmers were excluded from the processes of industrialization and urbanization. Inequality between the rights and development opportunities between farmers and city residents developed and gradually widened. The golden period for Chinese farmers’ participation in industrialization and urbanization lasted from 1978 to 1998. From 1978 to 1991, the total number of rural labor transfers increased from 32.98 million to 106.23 million, and the number of rural people in non-agricultural jobs increased from 31.50 million to 89.06 million. However, no reform of the urban management system was initiated, and the urban–rural dual system, formed during the planned economy era, was never really touched. The farmers could only take the initiative to do their own industrialization and urbanization outside the city gates. The threshold for relocating one’s rural household registration to the city was still set very high. Meanwhile, public services normally enjoyed by urban residents such as housing,

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medical care, pension, education, and so on still had nothing to do with rural residents. After the mid-1990s, however, the rapid advancement of industrialization and urbanization created opportunities for farmers to enter cities. Farmers in the central and western regions migrated across entire regions in order to “batter the walls” (zhuangcheng 撞城) of cities that had not at all accepted them, and they participated in the industrialization and urbanization process in the coastal areas. Their exodus from the villages into the cities promoted the rapid advancement of China’s urbanization. Despite the farmers’ “battering the walls” and entering the cities, the rights of the city are still given only to local residents, and the multitudes of migrant workers,1 who have made great contributions to economic and social development, do not enjoy the same basic rights and public services as city residents. For instance, with regard to children’s education, more than 20% of the children of migrant workers cannot attend full-time public primary and secondary schools, and many of the children of migrant workers who have received complete compulsory education in cities cannot take the middle school and college entrance examinations. As for medical and social insurance, migrant workers’ rate of participation in Urban Employees’ Basic Medical Insurance (chengzhen zhigong jiben yiliao baoxian 城镇职工基本医疗保险), Basic Endowment Insurance ( jiben yanglao baoxian 基本养老保险), and Unemployment Insurance (shiye baoxian 失业保险) is very low.2 In the area of housing security, urban affordable housing is basically not open to migrant workers, and the contribution rate of migrant workers to the Housing Provident Fund (zhufang gongjijin 住房公积金) is also very low. The cross-regional character of migrant workers employed far from their hometowns has caused a lot of social problems, with the problems of the “three groups that stay behind” (san liushou 三留守, i.e., wives, children, and the elderly) in rural areas especially prominent. The vast majority of migrant workers are thus

1 Translator’s note: The term “migrant workers” (nongmingong 农民工) in the Chinese context refers to rural residents who move to the cities to work, start businesses, and seek better opportunities, without formally obtaining the right to live in the city by having their household registrations changed from “rural” to “urban.” The term does not refer to American-style “migrant farmworkers.” 2 Translator’s note: These insurance programs are listed among others in the Social Insurance Law of the People’s Republic of China (中华人民共和国社会保险法).

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merely sojourners in the midst of this turbulent and magnificent urbanization, and after they reach the end of their working years, they return to their villages and to agriculture. The gap between the urbanization rate of the permanent population and the urbanization rate of the registered population has gradually widened since the 1990s. The total number of migrant workers reached 280 million by 2016, but the gap in the urbanization rates of the permanent and registered populations is still as high as 16.2 percentage points. When we look back on the more than 60 years of history of urban development and governance since the founding of the new China, we see that special actions against rural residents moving into cities occurred in the 1950s, 1960s, and 1990s—and these have not yet been changed. Such repeated actions of city governments not accepting rural residents’ access to the cities highlights the awkwardness of rural residents’ position as urban sojourners. They highlight even more the serious consequences of neglecting farmers’ urban rights. In the urbanization process, if cities cannot correctly answer the questions of to whom the city belongs, and whether farmers can enjoy the basic rights of the cities that they have helped to build, then the habitual targeting of farmers in urban governance will continue, and the kinds of thinking behind such urban governance will inevitably lead to unpredictable economic, social, and political consequences (Liu Shouying and Cao Yapeng 2018). 3.3

The Dual Land System and the Villages’ Loss of Development Rights

Among the institutional factors affecting rural development, the arrangement of the dual land system is the most important. We have reviewed the development of this arrangement in Sect. 1.3 of the previous chapter, so it shall not be repeated here. The current land administration system—in which all conversion of agricultural land is done through expropriation, only state-owned land can be used for construction, land use, planning, annual planning indicators and ownership controls, and city governments have exclusive control of land supply—is a set of efficient guarantees that promote the rapid absorption of land into cities for its conversion. The land administration system has closed off the villages’ land use rights and forms a channel for it to become urban land. The urban bias in land use has intensified the one-way allocation of labor and capital to the cities. After the urban–rural pattern shifted from one-way to two-way interaction, the one-way rural-to-urban flow of population and labor turned into

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an urban–rural cross-flow. Urbanites’ rising demand for things from the countryside brought the revival and development of rural industries, with increased rural opportunities. It also drew more capital to the countryside. Such changes in rural economic activities, brought about by changes in the demographic and capital distribution, have highlighted the inadaptability of the land system. The current decline of the villages and lack of competitiveness in the agricultural sector have a lot to do with this system. Under the current land system arrangement, farmers cannot use collective land for non-agricultural construction, which has led to a decline in non-agricultural economic activities in most rural areas. The fact that the countryside has only one industry presents a barrier to farmers’ opportunities, and this results in rural decay and the widening gap between urban and rural areas (Liu Shouying 2018b). The current land system is the biggest obstacle to the integration and equal development of urban and rural areas in China. If rural areas cannot obtain equal rights to use land for construction, they will not be able to realize equal development rights with urban areas, the development of rural industries will be blocked, the population and labor force will not be able to go to the countryside and stay for any length of time, and any capital going to the countryside will have be short-term, since there will be no prospect of making a profit. The Rural Revitalization Strategy would then be unable to find an effective pathway to implementation. 3.4

The Historical Transformation of the Mode of Agricultural Development and the Inadequacy of the Agricultural Land System

Impacted by rapid industrialization and urbanization, China’s agricultural production methods are undergoing profound and significant changes. By 2015, China’s agricultural output value and employment share only accounted for 9.2% and 30.5% of the total, respectively. The degree of differentiation among farmers had also deepened. According to a National Bureau of Statistics sample survey of 60,000 rural households, by 2016, only 18.3% of the households were purely agricultural, and 15.9% of them were purely non-agricultural; 30.1% of the households had some (less than 50%) non-agricultural income (yijian hu 一兼户), and 35.7% had more than 50% non-agricultural income (erjian hu 二兼户). As it becomes usual for farmers to “go out” to do non-agricultural work, the share of their non-agricultural income has risen, division of labor within

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farm households has also deepened, and the economic importance of the land for them has declined. While young and middle-aged laborers go out to earn non-agricultural income, the elderly and the women stay in the village, guard the family’s contractual land, and produce the food needed to ensure the family’s livelihood. The Lewis turning point for China, as measured by the marginal productivity of agriculture, really came around 2010; since then, the cost of agricultural labor has risen, and agriculture’s relative disadvantage in the competition for labor has become prominent. In the context of huge changes in the relative prices of agricultural production factors, Chinese farmers, who have long relied on high levels of labor input to increase land yields, have begun to change their input methods by drastically reducing labor input for crops and increasing machinery and capital input. The methods of agricultural development have undergone a historic change, with 2003 as a turning point. The traditional agricultural mode, in which intensive farming was used to increase land productivity, has been transformed into a more modern agricultural mode that focuses primarily on improving labor productivity (Liu et al. 2018). In the urban–rural China stage, due to the transformation of the mode of agricultural development and the high level of differentiation among farmers, the actual demand and appeal for reforming the agricultural land system and management system will once again turn the issue of agricultural land into a hot spot. The agricultural land issue at this stage still has leftover unresolved problems as well as new problems arising from the agricultural transformation. The first set of problems concerns the political and institutional choices of collective ownership. The CPC has chosen the socialist system of public ownership, and collective ownership is the basic institutional arrangement of this system in the countryside. There are different options for the realization of collective ownership. During the period of collectivization, the adopted arrangement was that collective organizations, under state control, were the agents exercising land rights. During the rural reform period, the arrangement was for members under collective ownership to exercise rights. The performance of the system under the two arrangements has been extensively tested. During the urban–rural China stage, the arrangement for members’ rights under collective ownership, which had been made during the reform period, has faced practical challenges. For example, since collective ownership is ownership by members, how can persons born later become collective members who enjoy rights to

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the land? If the number of persons in a collective decrease, then should the collective hand out membership rights? When a collective member no longer engages in managing the land, does the collective that owns the land have the right to claim that the contracted management rights issued to that member should be taken back? If a collective has a large quantity of resources not yet contracted to farmers, then to whom do the property rights of those resources belong? After those resources are put into use and recombined, then who benefits? During the urban–rural China stage, how collective ownership is arranged is a political choice, and it will have a fundamental impact on the stability and rights structure of the farmland system, which will then affect the behavior of farmers and allocation of resources. The second set of problems concerns the protection and disposal of the rights of the farmers as collective members. The arrangement and protection of farmers’ land rights is the foundation of the farmland system. The lesson from the collectivization period was that not granting land rights to farmers damages the interests of the country and the farmers themselves. The experience gained from the reform period was that granting rights to collective members, under the collective ownership of land, and providing policy and legal protection for those rights, gives farmers peace of mind and brings the country stability in the villages. However, as farmers increasingly leave the villages and engage in non-agricultural activities, and especially after attitudes among the “second generation of farmers” toward land and farmers has undergone major changes, a disjunction has emerged between the institutional arrangements for agricultural land and agricultural management systems. Even though the law clearly states that the contracting right is a property right of farmers, it is also a usufructuary right. The relationship between the farmer, with his contracted land, and the collective is that of a contractor and contractee. As the farmers increasingly become separated from the land, a separation between the right of contracting and the right of management becomes irreversible. What changes will occur in terms of the content of the contracting right? Will the system opt to head in the direction of a stronger and more complete guarantee of the contracting right, or is it heading in the direction more conducive for strengthening the right of management under the bottom line? Due to structural changes and changes in farmers’ relationship with the land, simply adhering to an ideology that does not permit response and resorting to extreme practices will further delay the system in providing for the need of actual change.

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The third set of issues concerns the rights status of the right of management and the evolution of the management system. In the relationship between the agricultural land system and agricultural management, farming rights are the most directly affected rights. With the separation between farmers and land and the increasing differentiation among farmers, the agricultural efficiency of urban–rural China depends on the arrangements on land use rights. China’s agricultural management system, considering development trends, will inevitably evolve in the direction of moderate scale and diversified business entities, but how will this goal be achieved? How will the management right be separated from the contracting right for tens of millions of small farmers? How will the management right be made into a kind of guaranteed right, and what will be the extent of the management right? How will we keep hold of the timing and degree of the empowerment? All of these are problems that we have already encountered, and they will become even more obvious and in need of solution in the future (Liu Shouying 2018a). 3.5

Rural Differentiation and the Lagging House Site System

Among the several land system arrangements in China’s rural areas, the house site system is the most backward. The decline and disorderliness of the Chinese countryside are all related to defects in the house site system, the reform of which is lagging. While China’s rural areas have undergone frequent systemic changes through land reform—the collectivization movement, the People’s Communes, and the household contracting system—the house site system has undergone a process of change that is basically similar to that of the system of farmland contracting and management rights, but the institutional arrangements differ. It presents a unique and complex picture. First, there is the particularity of the rights arrangement system for house sites. Ownership of house sites belongs to the collectives, and the collective economic organizations can allocate and control their collectively owned house sites; they also have the right to derive income from collective construction land. Farmers can obtain the right to use house sites free of charge from the collectives, and they have the right to occupy and use the homesteads in accordance with law; they also have the right to renovate and build their farmhouses, sun-drying platforms, and other attached facilities on the house sites. However, they cannot lease out, transfer, trade, buy, or sell them. If a farmer sells or leases out his house,

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he cannot apply for another one. A farmer has the ownership of his house, but because his right of use to the house site is incomplete, and the house is inseparable from the land it rests on, realization of his rights as the owner of that house is also affected. Second, there is the uniqueness of the acquisition and distribution of house sites. The right of use of a house site is to a certain extent embodied as a membership right. The prerequisite for applying for and obtaining the right to use a house site is the applicant’s membership of a collective economic organization. At the same time, applicants who have the right of membership can obtain the right to use a house site indefinitely for free. It is worth emphasizing that a farm household only has the right to occupy and the right to use the house site, and the transfer or exchange of a house site, even among members of the same collective, is not allowed. Third, there is the special function of house sites. House sites have two special social goals. The first is to strictly guard cultivated land. Both the old version in 1987 and 1998 revised version of the Law on Land Administration prevented farmers from encroaching on cultivated land by building on their house sites. The second is to stabilize the rural population. To a certain extent, house sites are places left over from the collective economy period, for the purpose of ensuring the productivity and livelihood of farmers, and they have had a very great stabilizing effect. In this regard, the house site system has at least been able to ensure that farmers will not be displaced and cause social unrest. This is the most important special function of the house sites. Now that there are political, legal, and policy dilemmas surrounding the special nature of the house site system, the difficulties encountered as a result of this system in reality are becoming greater, and the conflicts between policy and law on the one hand and reality on the other hand have intensified, which not only causes difficulties in policy implementation, but also damages the authority of the law. These dilemmas are manifested in the following ways. First, a large number of house sites are entering the market. Although farmers have no legal right to lease out, transfer, and exchange house sites, the general trend in reality is that farmers’ house sites are entering the market. The large number of house sites entering the market in different types of areas not only brings property income to farmers, but also solves the housing problem for people moving into the cities while lowering the cost of urbanization. However, this spontaneous entry into the market directly conflicts with current law.

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Second, the free distribution of house sites to collective members is unsustainable. With the accelerated pace of urbanization, the supply of construction land in rural areas, especially in the coastal region, has become so tight that it has become impossible to distribute house sites for free. Urbanization has accentuated the value of house sites, since some farmers within the collective might sell or lease out their house sites to obtain income from the property, while residents outside the collective, whether forced by the pressure of high urban housing prices or seeking an alternative lifestyle, may be forced to rent or purchase house sites (houses) on the sly. Third, the management of the house sites is ineffective. Due to the lack of management mechanisms above the township level, the extremely high cost of supervision, and weak village-level restrictions, there is no control over rural house sites—a situation making it all the more difficult to protect cultivated land. Fourth, disorderly expansion of house sites is not conducive to the healthy development of cities. Due to the serious conflict between the way house sites are actually used today and the law, there is a basic absence of governmental management of house site use; planning and use controls cannot be implemented. In the absence of governmental control, farmers’ house sites are expanding, and the housing being built on them is disorderly, even spreading. As a result, the housing in these urban villages is privately and chaotically built, without any planning whatsoever, and without adequate infrastructure and public services. Their governance is unorganized, and their public security problems are serious. A complete “two-skin phenomenon” thus emerges in the city, which increases the cost of city management and the difficulty of future renewal (Liu Shouying 2014 p. 38).

4 The Pathways and Institutional Provisions for Rural Revitalization 4.1

The General Idea

If we are guided by the implementation of the Rural Revitalization Strategy and supported by strengthened institutional supplies for enlivening villages and by institutional innovation for urban–rural integration, and if we follow the pathway of “[first] enlivening industry, [then] enlivening the people, [and finally] enlivening the villages” (huoye, huoren,

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huocun 活业, 活人, 活村), we can realize “industrial prosperity, ecological livability, civilized rural customs, effective governance, and affluent lifestyle.”3 By reshaping the relationship between urban and rural areas, urban-biased policies that are not conducive to rural economic activities will be changed, the dual urban–rural systems that hinder rural development will be reformed, and the equal development of urban and rural areas will be realized. We should go along with the change-over of development stages as well as changes in consumer demand, study the evolution of the agricultural industry in the new stage of development, improve the system in which there is the “separation of the three rights” on agricultural land, establish industrial, organizational, and service systems that combine smallholders and modern agriculture, and explore the priority development model and modernization pathway of agriculture in China. We should face up to the generational revolution among farmers and to the city-dwellers’ need for rural culture, give urban rights to rural residents who enter the city, realize rights equality for urban and rural residents, promote the urbanization of the population, promote social capital and urban human capital to enter rural areas through innovative institutional mechanisms, and upgrade and transform the structure of human capital in the countryside. By opening villages and implementing reforms of the rural planning system, the house site system, and the governance structure, rural transformation and revitalization will be promoted. We should accord with the increasing interaction between urban and rural areas, as well as the changing trends in rural economic activities. We should promote the smooth allocation and flow of production factors in urban and rural areas through reform of the land, capital, and labor markets. In this way, we can realize the symbiosis of urban and rural culture and the common development and prosperity of urban and rural areas.

3 Translator’s note: The latter phrase (chanye xingwang , shengtai yiju, xiangfeng wenming , zhili youxiao, shenghuo fuyu 产业兴旺、生态宜居、乡风文明、治理有效、生活 富裕) appeared in Xi Jinping’s speech, “Juesheng quanmian jiancheng xiaokang shehui duoqu xin shidai Zhongguo tese shehui zhuyi weida shengli” 决胜全面建成小康社会夺 取新时代中国特色社会主义伟大胜利 [Secure a Decisive Victory in Building a Moderately Prosperous Society in All Respects and Strive for the Great Success of Socialism with Chinese Characteristics for a New Era], delivered before the 19th National Congress of the CPC on 18 October 2017, and it is now written into Article 3 of Law of the People’s Republic of China on the Promotion of Revitalization of Rural Areas 中华人民共和国乡 村振兴促进法, effective 1 June 2021.

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4.2

The Target Model

(1) Equal development of urban and rural areas. We must recognize that urban–rural China is basically a transitional stage as rural China becomes urban China. To this end, we must reform the dualistic planning of the past, which separates cities from the countryside and blocks the flow of production factors between them. As for the supply of land, financing, public goods, and social security systems, we must change the systems, institutional mechanisms, and public policies which have favored cities under the one-way urbanization mindset, and thereby promote the equalization of basic public services in urban and rural areas. We must reform spatial planning and controls and formulate rural plans that will promote the coexistence, integration, and sustainable development of both urban and rural spaces, in order to realize their equal development. (2) Revolutionizing agricultural industry and modernizing agriculture. In line with the changes in people’s relationship with the land brought on by changes in consumer demand and economic structure, and with the changes in the relative price of agricultural factors, we should redefine the basic status and meaning of agriculture in the new development stage and improve the competitiveness of staple food agriculture through a new combination of major agricultural production factors and the reform of agricultural subsidy policies, so as to ensure the security of staple foods. We should promote the multi-functionalization of agriculture and greater convergence and fission in the agricultural industry through the reform of the land allocation system, increased transfer of capital to the countryside, encouragement of a cross-flow of urban and rural human resources, and the reform of rural resource property rights. Taking the separation of the three rights relating to agricultural land as the general direction, we should clarify the collective ownership of agricultural land, protect collective members’ agricultural land contract rights, give farmers more complete agricultural land management rights, and establish a basis of rights relating to agricultural land that is conducive for modern agricultural development. We consider service scale, regional industry scale, and market scale as core concerns in exploring ways to realize agricultural returns to scale. Finally, we should improve the agricultural management system, enhance the

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human capital and agricultural management capabilities of farmers, achieve a combination between farmers and the modern agricultural industry system, and realize the modernization of agriculture with Chinese characteristics. (3) Improving and transforming rural human capital. As the population urbanizes and farmers undergo a generational revolution, farmers who enter the cities should be granted urban rights, and they should be encouraged to settle in cities and become urban residents, even as farmers’ basic rights to rural land and other basic rights are protected. As rural economic opportunities emerge and rural economic activities change, some young people should be attracted to return to their hometowns in order to engage in new agriculture, new industries, and new forms of business; this will in turn create a group of rural entrepreneurs who lead the development of rural industries and enrichment of farmers. We should, in conformance with the pattern of interaction between urban and rural areas, open up the countryside (still largely closed) through reform of the collective system, build a system of convergence and cooperation between rural resources and capital, cultivate a contractual spirit, improve the policy for encouraging rural industry and bringing capital to the countryside, guide urban residents, entrepreneurs, and social capital to go to the countryside, and improve the efficiency of the allocation of rural production factors. In line with the development of rural industry, the transformation of the modes of agricultural development and production, and the changes in agricultural value chains, farmers’ human capital and management capabilities should be enhanced, through demonstration, learning, guidance, cooperation, participation, and mutual benefit. As agricultural economic activities diversify, break the closed nature of villages, improve the rural governance structure, and cultivate new village community leaders who are compatible with rural revitalization. (4) Village transformation and revival. We should face up to the reality and basic trends of rural differentiation, study the evolutionary characteristics of different types of villages, formulate rural revitalization plans, implement policies that are tailored to the different classifications of village, and find the pathways for revival of the different types of village. The supply of basic public services in rural areas should be further improved, the level of rural social

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security and elderly care services should be raised, and the overall village environment should be improved. In keeping with the advent of the intergenerational revolution, the urbanization of the population, and greater urban–rural interaction, a moderate agglomeration of villages should be implemented through reform of planning, the house site system, and the supply of basic services. We should study the conditions and methods of enlivening villages, activate the villages’ institutional supplies, institutional mechanisms, and policy arrangements in an innovative fashion, and accelerate the revitalization of qualified villages. Through the strengthening of basic public services, environmental improvement, protection of the health and security of the elderly, and targeted poverty alleviation for destitute rural groups, the moribund state of most villages will be changed, and a general rejuvenation of rural areas will be realized. (5) The interaction and integration of urban and rural areas. In line with the advent of the urban–rural interaction stage, we should promote the allocation and cross-flow of capital, labor, and land between urban and rural areas by eliminating the dualistic, systemic barriers between them. By equalizing public services in urban and rural areas, the basic conditions for integrating the two kinds of space will be realized. By expanding the reform of the land expropriation system, permitting collective construction land to enter the market, and ensuring that the same rights appertain to collective land and state-owned land, villages will gain development rights, and industry, human resources, and capital will enter the villages. The reform of the house site system will promote the transformation, agglomeration, and rejuvenation of villages, and the equal development and integration of urban and rural spaces will be realized. Establishing a system and mechanism of equality between urban and rural areas will enable the realization of a comprehensive integration of urban and rural areas and the revitalization of the countryside.

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Optional Pathways

(1) Take the approach of “enlivening industry” to promote “enlivening the people,” which will in turn “enliven the villages”—fully revitalizing rural spaces. The basis of rural revitalization consists of revitalizing rural spaces in a comprehensive manner, so that the countryside and the cities can accentuate each other, complement each other, and coexist and prosper together. The signs of rural revitalization will be “enlivened industries,” “enlivened people,” and “enlivened villages” in rural areas—and without enlivened villages, it simply would not be a rural revitalization. As for the sequence of the revitalization pathway, the first is “enlivening industry”—it is the prerequisite for rural revitalization. Without the prosperity of rural industry, rural revitalization will be as unsustainable as a rootless tree. “Enlivening industry” includes not only improving the competitiveness of traditional agricultural and a structural transformation of agriculture from an emphasis on quantity to an emphasis on quality, but also increasing agricultural added value and improving agricultural industrialization through changes in agricultural functions and forms. Then there is “enlivening the people.” When there is prosperity of rural industry in the countryside, it can attract talented persons who will start businesses, engage in agricultural economic activities, and generate returns. “Enlivening the people” is key to rural revitalization. “Enlivening the people” includes the return of some of the villages’ young people, and the entry of other people of sentiment and accomplishment from outside of the villages. Only by upgrading and transforming human capital can the development and enlivening of industry become possible, and rural areas become more vigorous. The outcome of “enlivened industries” and “enlivened people” will be “enlivened villages.” “Enlivened villages” is the destination of rural revitalization. Once the industries are enlivened, and there is a new kind of rural human capital with a lot of vitality, a new and sustainable rural lifestyle will emerge. On the pathway to rural revitalization, the most important lessons will consist of learning how to enforce village reform through government action and planning, and taking change in the villages as the sign of rural revitalization. A large number of differential policies, such as incentivization policies and subsidies, should also be used to cultivate new rural

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entities and leading enterprises, and to encourage people to return to villages to start businesses. Attracting people without industry support would not only be unsustainable, but also dampen the enthusiasm of people willing to go to the countryside, and it would lead to bias against the vast majority of small farmers. (2) Revitalize the countryside within the context of urban–rural interaction. New-stage rural revitalization consists neither of the rural reconstruction in the rural China stage, nor the absorption of the countryside by cities through rapid urbanization, but rather the revitalization within a context of urban–rural interaction. Revitalization of the countryside takes advantage of opportunities brought by such interaction to revitalize rural industries and spaces; it is realized through the cross-flow, redistribution, and interaction of production factors such as capital and labor between urban and rural areas. Two extremes should be avoided: one is to stick to the idea of a rural China and not deal with all the changes, which would only lead to the loss of rural development opportunities. The other is to let the pace of rapid urbanization continue through inertia, which would only aggravate the decline of the countryside. (3) Use land system reform as a breakthrough that will allow us to realize the equal development of urban and rural spaces. The biggest obstacle causing the poor allocation of urban and rural production factors and inequality between urban and rural development is the dualistic urban–rural land system. Currently, in order to convert agricultural land to non-agricultural land, the government must first expropriate it, and non-agricultural economic activities must be done on state-owned land, under land use and annual indicator controls. These, together with the government’s exclusive monopoly of the land market, are the root causes of the loss of rural development rights, the narrowing of rural industries, and the widening urban–rural wealth gap. Rural industries will revive and have room to develop only if the land allocation system is reformed and equality of rights appertaining to collective construction land and state-owned construction land is realized. Only on this basis can there be a continuous cross-flow and allocation of capital and labor between urban and rural areas and sustainable institutional support for rural development. On this basis, we should coordinate the equalization of basic public services in urban and rural

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areas as well as the equal rights of urban and rural residents, and promote the integrated development of urban and rural areas.

4.4 Increasing the Institutional Supply of Land for Rural Revitalization and “Enlivening Industry, People, and Villages” The key to implementing the Rural Revitalization Strategy is to deepen rural reforms, increase system supply, eliminate institutional constraints that are not conducive to rural development, use the pathway of “[first] enlivening industry, [then] enlivening the people, [and finally] enlivening the villages,” in order to enliven rural spaces in a comprehensive manner, and make it possible for rural and urban areas to complement each other, coexist, and prosper together. (1) Reforming the production factor allocation system to promote urban– rural interaction. With the transition of economic development stage, the upgrading of consumer demand, and the changes in rural economic activities, China’s urbanization has shifted from one-way urbanization to urban–rural interaction. Reforming our long-existing, dualistic urban–rural system and promoting the urban–rural cross-flow and allocation of production factors will create huge opportunities for rural revitalization. The first would be to reform the land allocation method in order to realize villages’ equal development rights. China has passed its large-scale land-based urbanization phase, and has met the conditions for reforming the land expropriation system in accordance with the public interest, market price compensation, and the principle of procedural openness and transparency. The time is right to reduce the damage to farmers’ rights and interests on their land caused by compulsory low-cost land expropriation. Supply of urban land can be guaranteed by reforming the land use structure, reducing industrial land and infrastructure-use land, and increasing innovation with the reserve land use system. Urban villages are key areas for urban–rural integration. Innovation with the land system in urban villages should be increased, and land value appreciation capture should be used to achieve capital balance for urban renewal, public land acquisition, and gains on land ownership. Farmers in urban villages should be allowed collectively to use

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collective land to provide rental housing directly, which would resolve the problem of rural people not being able to find and settle in decent housing in the city. Provided that planning and use controls are complied with, collective economic organizations and farmers should be allowed to use collective construction land for non-agricultural construction and enjoy the right to lease out, transfer, and collateralize collective construction land. The second would be to reform the planning system to ensure room for rural development. As for land use types, standards, planning, and so on, multifunctionality and allowance for new industries and new business types should be ensured, in accordance with the spatial configurations needed for urban–rural integration. The plans for rural revitalization should be compiled with a focus on ecological resilience and be based on trends in rural differentiation, agglomeration, and population movements. The third would be to realize farmers’ urban rights and promote the urbanization of farmers. Guarantee the right of urban residence for the “second generation of farmers,” encourage farmers in big cities to collectively use collective land to establish a housing rental market, thus opening urban affordable housing to migrant workers and their families, and lower the threshold for migrant workers to settle in the city. Implement urban education rights for the “third generation of farmers.” Open the public schools to the children of migrant workers, relax the restrictions against the children of migrants taking the college entrance examination in the place where their families have migrated, and extend “education vouchers” for them during the compulsory education stage at public schools. The fourth would be to open up rural rights to urban residents. Provided that certain conditions are met, persons from outside the village should be allowed to enjoy rights to village housing, land, and participation in public affairs. Urban social capital should be encouraged to go to the countryside and improve the quality of rural human capital. (2) Improving the farmland rights system and promoting the transformation of agriculture. Agricultural modernization is the foundation of rural revitalization. China’s agriculture is in a historic transition period. Farmers’ economic dependence on farmland has

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declined, and changes in consumer demand have prompted an agricultural transformation from an emphasis on quantity to one on quality. As for the mode of agricultural development, the focus has shifted to increasing labor productivity. The content, function, combination of production factors, and business conditions of agriculture all show irresistible changes. Therefore, the changes in the agricultural land and management systems will determine the success or failure of the agricultural transformation. The first would be to clarify collective ownership rights. Rights on collective resources that have not been allocated to households should be clearly defined, i.e., their ownership should be clarified, as well as the mechanism for sharing their benefits, since this would enhance the economic development capability of collectives. A reform should be carried out to promote the collectives’ property rights of verifying assets and capital, quantifying assets, and to confirm that collective shares reach the households (quegu daohu 确股到户), so as to ensure that the value of collective assets is maintained and increased. Implementation of the joint-stock cooperative system of contracted land should be explored. Provided that farm households’ basic rights on agricultural land are ensured, agricultural land resources should be reorganized and allocated. Innovations should be made with regard to the methods used to manage collective resources and assets, such as collective management, entrusted management, cooperative management, and so on, in order to ensure that collective members share the income from collective resource and asset management. The second would be to separate contracting and management rights and protect farm households’ rights. In line with the increased numbers of farmers leaving the land and village and the changes in the thinking on land and agriculture among the second and third generations of farmers, the separation of farmland contracting rights and management rights should be implemented on a voluntary basis, so as to guarantee that collective members have the rights to occupy, derive income from, lease out, and transfer their contracted land, based on their shares. Farmers who obtain urban residency should have the right to compensation for withdrawing from their contracted land, as well as the right to redeem it back within a certain period of time.

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The third would be empowerment with management and set-up rights. Clarify the legal rights status of management right separated from farm households’ contracted management rights. Contracts agreed between two parties should be protected by law, and operators should enjoy the right to cultivate the land they manage, the right to profit from it, the right to transfer it, the right to be compensated for improving its soil, and the right to use the profit derived from it as collateral. The fourth would be to innovate with the agricultural management system. Promote land transfers under the principles of voluntariness, legality, and compensation. Explore a state land trust system and carry out the acquisition, consolidation, and contracting of idle or inefficiently used land. Cultivate modern agricultural business entities, service entities, cooperative organizations, and market entities, and realize agricultural returns at scale through an appropriate scale of agricultural operations, larger-scale services, larger-scale regional planting, and marketization. (3) Promoting the reform of the house site system to speed the transformation of villages. As the population urbanizes, as generational change among farmers increases, and urban–rural interaction increases, differentiation among villages becomes inevitable. The reform of the house site system would be an important starting point for enlivening villages and preventing rural decline. The first would be to reform the system whereby house sites are distributed for free. The parts of farmers’ buildings that extend beyond the boundaries of their house sites should be recovered or used with compensation. We may consider the approach of designating a point in time, after which collective members implement paid acquisition of house sites, provided that they protect the qualification rights of the house site. The second would be to grant to farmers the property rights of their house sites. Provided that the farm households’ rights to occupy and to reside on the house sites are guaranteed, it would be possible to exchange the property rights to the house site for welfare rights, and farm households would be able to withdraw from house sites with compensation, assign them, transfer them, exchange them, and use them to engage in rural-related industries. The third would be the orderly opening up of villages to outsiders and outside capital. Provided that planning and use

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controls are followed, house sites, residential housing, and idle land in villages should be opened up to outsiders and outside capital. The effective combination of rural resources and outside capital will reveal the value of the villages and improve the efficiency of resource allocation. The fourth would be the reform of the house site management system. Include villages in the spatial planning of state land, and control and lock in the total amount of house sites in villages. Promote an appropriate degree of village agglomeration through the cross-regional use of house sites and the guarantee of qualification rights. Administrative departments would implement controls on the total amount and the planning of house sites, but the use, distribution, and disposal of house sites within each village would be handled by the village collective organization.

References Bagchi, Amiya K. 1992. “Gongyehua” 工业化 [Industrialization]. In Xin Poergeleifu jingjixue da cidian 新帕尔格雷夫经济学大辞典 [The New Palgrave: A Dictionary of Economics ], ed. John Eatwell. 4 vols. Beijing: Jingji kexue chubanshe. Cai Fang 蔡昉 and Yang Tao 杨涛. 2000. “Chengxiang shouru chaju de zhengzhi jingjixue” 城乡收入差距的政治经济学 [The Political Economy of the UrbanRural Income Gap], Zhongguo shehui kexue (2000.4): 11–22. Chang, Pei-kang. 1949. Agriculture and Industrialization: The Adjustments That Take Place as an Agricultural Country Is Industrialized. Cambridge, MA: Harvard University Press. Chen Wensheng 陈文胜. 2017. “Xunzhao shishi xiangcun zhenxing zhanlüe de tupokou” 寻找实施乡村振兴战略的突破口 [Searching for Breakthroughs in Implementing the Rural Revitalization Strategy]. Zhongguo xiangcun faxian (2017.6): 44–46. Chen Xiwen 陈锡文. 2018a. “Cong nongcun gaige sishi nian kan xiangcun zhenxing zhanlüe de tichu” 从农村改革四十年看乡村振兴战略的提 出 [Viewing the Rural Revitalization Strategy Proposal from the Perspective of Forty Years of Rural Reform]. Xingzheng guanli gaige (2018.4): 4–10. Chen Xiwen. 2018b. “Shishi xiangcun zhenxing zhanlüe, tuijin nongye nongcun xiandaihua” 实施乡村振兴战略,推进农业农村现代化 [Implementing

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the Rural Revitalization Strategy and Promoting the Modernization of Agriculture and Rural Areas]. Zhongguo nongye daxue xuebao (shehui kexue ban) (2018.1): 5–12. Chenery, Hollis, Sherman Robinson, Moshe Syrquin et al. 1986. Industrialization and Growth: A Comparative Study. New York: Oxford University Press. Dang Guoying 党国英. 2018. “Xiangcun zhenxing zhanlüe de xianshi yiju yu shixian lujing” 乡村振兴战略的现实依据与实现路径 [The Realistic Bases and Realization Pathways of the Rural Revitalization Strategy]. Shehui fazhan yanjiu (2018.1): 9–21. Gu Yikang 顾益康. 2017. “Xiangcun zhenxing de zhuolidian yao fang zai cun yiji” 乡村振兴的着力点要放在村一级 [The Focus of Rural Revitalization Must Be Placed at the Village Level]. Guangming ribao (2 December 2017). Han Jun 韩俊. 2009. “Zhongguo chengxiang guanxi yanbian 60 nian: huigu yu zhanwang” 中国城乡关系演变60年:回顾与展望 [Evolution of Urbanrural Relations in the Past Sixty Years: Retrospective and Prospects]. Gaige (2009.11): 5–14. Krueger, Anne O. 1997. “Trade Policy and Economic Development: How We Learn.” American Economic Review 87, no. 1 (March 1997): 1–22. Lenin, Vladimir I. 1959. Liening quanji 列宁全集 [Complete Works of Lenin], 2nd ed. Beijing: Renmin chubanshe. Li Ming 李明, Shao Ting 邵挺, and Liu Shouying 刘守英. 2014. “Chengxiang yitihua de guoji jingyan ji qi dui Zhongguo de qishi” 城乡一体化的国际经验 及其对中国的启示(二 二) [International Experiences of Urban-rural Integration and What They Reveal to China (2)], Zhongguo nongcun jingji (2014.6): 83–96. Liu Shouying. 2014. Zhimian Zhongguo tudi wenti 直面中国土地问题 [Facing China’s Land Issues ]. Beijing: Zhongguo fazhan chubanshe. Liu Shouying 刘守英. 2017a. “Xiangcun weihe shuaibai? Ruhe fuxing?” 乡村 为何衰败? 如何复兴? [Why Is the Countryside Declining? How Can It Be Revived?]. Caijing (2017.21): 146–149. Liu Shouying. 2017b. “Xiangcun zhenxing zhanlüe shi dui xiangcun dingwei de zai rending” 乡村振兴战略是对乡村定位的再认定 [The Rural Revitalization Strategy is a Re-identification of Rural Positioning]. Zhongguo xiangcun faxian (2017.6): 28–32. Liu Shouying. 2018a. “Chengxiang Zhongguo de tudi wenti” 城乡中国的土地 问题 [“Urban-rural China’s Land Issues]. Beijing daxue xuebao (zhexue shehui kexue ban) (2018.3): 79–93. Liu Shouying. 2018b. “Tudi zhidu biange yu jingji jiegou zhuanxing—dui Zhongguo 40 nian fazhan jingyan de yige jingji jieshi” 土地制度变革与 经济结构转型——对中国40年发展经验的一个经济解释 [Land Institutional Reform and Economic Structure Transformation: An Economic Explanation

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of China’s 40 Years of Development Experience], Zhongguo tudi kexue 32 (2018.1): 1–10. Liu Shouying and Cao Yapeng 曹亚鹏. 2018. “Zhongguo nongmin de chengshi quanli” 中国农民的城市权利 [The Urban Rights of Chinese Farmers]. Bijiao 94 (2018.1): 14–28. Liu Shouying, Wang Ruimin, and Shi Guang. 2018. “Historical Transformation of China’s Agriculture: Productivity Changes and Other Key Features,” China and World Economy 26.1 (January-February): 42–65. Liu Yansui 刘彦随. 2018. “Zhongguo xin shidai chengxiang ronghe yu xiangcun zhenxing” 中国新时代城乡融合与乡村振兴 [China”s New Era of Urban-rural Integration and Rural Revitalization]. Dili xuebao 73: 637–650. Schultz, Theodore W. 1978. “On Economics and Politics of Agriculture,” in Distortions of Agricultural Incentives, ed. Theodore W. Schultz, 3–23. Bloomington: Indiana University Press. Yang, Dennis Tao Yang. 1999. “Urban-Biased Policies and Rising Income Inequality in China.” American Economic Review 89, no. 2 (May): 306–310. Zhang Peigang 张培刚. 1992. Xin fazhan jingjixue 新发展经济学 [New Development Economics ]. Zhengzhou: Henan renmin chubanshe.

PART II

Research Methods in Property Rights and the Land System

CHAPTER 3

Property Rights, Behavior, and Economic Performance

The topic to be discussed in this chapter is the relationship between property rights on the one hand and human behavior and economic performance on the other. The significance of this research is that differences in productivity and income growth in various countries, both historically and in the present, show empirically that the property rights system relates extremely closely to a country’s economic growth. In recent years, the effects of property rights have attracted widespread attention, especially in the design and implementation of reform programs in some socialist countries. But the economic theoretical analyses on this topic to date are far from satisfactory. The lag of economic analysis in this regard has had a negative impact on the formulation and implementation of economic policies. On this basis, the present chapter attempts to conduct a preliminary analysis from the following approaches: (1) the effects of property rights; (2) the definition and enforcement of property rights; (3) reasons for the existence of different property rights arrangements; and (4) the relationship between property rights arrangements and economic performance.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_3

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1

The Effects of Property Rights

To explore the role of property rights in a social economy, we must start from a basic point and ask how it induces human behavior, because the growth performance achieved by any type of economy ultimately depends on the incentive characteristics of the various constraints that its society has and sets on individual behavior. Existing economic theories have paid great attention to scarcity of resources and adequacy of competition among the various constraints, but in fact, the various rules formulated by a society also have an impact that cannot be ignored. The scarcity of different resources determines the price of factors that people use to engage in production, which will then induce people to continuously use resources with a lower degree of scarcity (i.e., relative price) in production to replace resources with a higher degree of scarcity. However, the various rules formulated by a society stipulate the conditions and methods people use to compete and cooperate with one another. They provide people with the basic framework for deciding what they can and cannot do, and which types of production and trading are cost-effective choices. By this logic, the methodology of economic choice theory would provide a useful and revelatory approach. In our analysis, we accept the following recent developments in economics regarding the rational choice assumption: that individuals pursue not only the maximization of cash wealth, but also the maximization of the utility function, and that the variables included in the utility function for an individual include not only income, but also prestige, status, health, happiness, friendship, good interpersonal relations, and so on, so that when that individual is faced with various possible options, he will choose the one he thinks is better, and not the one he thinks is worse. When faced with various constraints (including scarcity, competitive conditions, and institutional rules), he will make substitutions and replacements within these orders of selection. For example, in a society where the opportunity to obtain cash wealth is severely restricted by power, people’s choice to use large quantities of resources to obtain power is the result of a rational choice. The reason why the manager of a state-controlled enterprise does not work hard to maximize the enterprise’s profits is because the owner does not provide him with incentives to do so. We especially want to emphasize that rational persons still face a very complex and uncertain world in which they cannot be omniscient and omnipotent. Furthermore, when they make decisions, they will also be restricted by their own talents, their

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ability to process information and adapt to the environment, and the amount of relevant information they can obtain for making their decisions. Therefore, the differences in people’s behaviors within different countries and systems are actually the result of the different constraints that they face. The core of economic policy should be the continuous reduction of various constraints that restrict people from pursuing utility maximization, instead of artificially imposing a few constraints that limit people’s opportunities for making choices. With this more realistic hypothesis on human behavior, what we want to reveal below is how property rights affect human choice behaviors. As we all know, a person cannot live in a Robinson Crusoe-like world. In order to produce and live, he or she must forge interactive relationships with others, for example, when exchanging goods or services, and produce things through a division of labor under an organizational structure. Furthermore, no matter what kind of economic system they live in, people rarely encounter, in their economic productive activities and lives, the state of equilibrium described by traditional economic theory. They often encounter unemployment, standing in line, shortages or surpluses of needed products, non-price rationing, and so on. These phenomena exist because so far there is no mechanism that can coordinate people’s actions with unfailing accuracy. The mechanism of planning has shown great capacity when mobilizing resources at high intensity, but it fails to meet expectations in terms of resource allocation efficiency. The reason is that the planning mechanism must meet the following conditions in order to allocate resources effectively: (1) The plan-maker must be an omnipotent person who not only has complete knowledge about the different characteristics of economic activities and society’s future needs, but also about the expectations of each member of society. (2) The cost of implementing each plan is zero, i.e., the goals stipulated by a plan are consistent with everyone’s goals, so that everyone who is bound by the plan can act according to the plan, and the plan-maker can fully supervise and inspect those who execute it. However, it has been proven that these two conditions are quite difficult to achieve in the few countries that have used this mechanism. In contrast to the planning mechanism, the market mechanism, which was once regarded as godlike, is not without costs in its operation. For a transaction to be concluded in a market, both parties to the transaction must “search” for possible buyers or sellers. They have to exchange information about the characteristics of the goods, they must sign contracts to

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ensure the implementation of the terms of the contract, etc. As Ronald Coase has correctly recognized, it is precisely the existence of market transaction costs that promotes some of the institutional innovations that can reduce these costs. The more technically complex a society is, and the more developed its division of labor, the less likely it is that the organization of its economic activities can be achieved in a single way. The kind of society that has better economic growth performance is precisely the society where people can freely choose among different organizations on the basis of their possible benefits and costs. Precisely because of people’s bounded rationality and the non-zero costs of transaction, it is impossible for all parties to these transactions to achieve more satisfactory situations. That is, the results of the individual pursuit of maximized profit, as first described by Adam Smith, also make the ideal of maximizing the interests of society as a whole really difficult to achieve. (Of course, we do not rule out situations where the effects of the market or the planning mechanism are quite good in certain occasions, or where the two interests are roughly the same.) Therefore, when facing economic reality, economics must look squarely at the fact that under certain forms of transactions, the realization of a more satisfactory level by some people will make the satisfaction level of other people decline. There are, for example, the problem of externalities faced by early welfare economists, the “prisoner’s dilemma” used by recent economists and game theorists to explain human behavior, and the “free-rider” problem in group actions as revealed in public choice theory. When Mancur Olson analyzed collective action, he pointed out that each individual group that maximizes individual utility does not necessarily maximize group benefits. What we want to propose in this chapter is that when we consider the inconsistency between personal interests and social interests in economic transactions, rights variables function like scarcity and competition variables, and are also basic constraints that people face when engaging in economic transactions. As Armen Alchian (1991, p. 584) defined it, “A property right is a socially enforced right to select uses of an economic good.” It includes people’s right to use, earn from, and transfer a resource or good. Transaction behavior is essentially a method of competition between the buyer and other people who can obtain similar rights from the seller. The conclusion of a transaction is actually a contract negotiation among the parties concerned on the reorganization of resources or goods and the transfer conditions between the two sides, and the existence of

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transaction costs causes the parties concerned to adopt different contractual arrangements. Therefore, the actual foundation for controlling the transaction is the right owned by the owner of the good or resource. Price is only a measure of the rights attached to this good or resource; it can effectively guide the allocation of a good or resource only when it can express the correct incentive information to the parties to the transaction. As a result, the value of various kinds of property rights contained in resources or goods will enter the utility function of decision-makers, just as scarcity and competition variables do, and changes in the rules defining property rights and in the arrangements of property rights are means of affecting people’s behavior. Since any kind of resource or good contains a specific bundle of rights, and every person in reality must form interactive relationships with other persons to meet the needs of production and living, the definition of property rights and the rules by which they are enforced is very important for this interactive relationship. It determines how people benefit from this mutual relationship, how they suffer loss from it, and how they compensate one another. We should point out that when property rights affect people’s mutual relationships, the physical entity as the external manifestation of the property rights is not important—what really is decisive is the interpersonal relationship established by the definition of the property right (the right to use, earn from, and transfer) contained in the material entity and the rules of enforcement of the right. People use these socially established rules to form reasonable expectations when they interact with others. Specifically, the degree to which the property rights are defined and enforced will determine the degree of externality caused by a transaction. When externalities exist, the users of a resource or good do not consider some of its costs and benefits; everyone who attempts to use the resource or good to maximize his or her own utility will tend to impose the resulting costs on others. If there is no definition of property rights, this kind of externality will be very common, but a clearer definition of resource property rights will encourage people to internalize a benefit effect or a loss effect, i.e., it will make the beneficiaries bear the resulting costs.

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2

The Definition and Enforcement of Property Rights

After having clarified the function of property rights, let us now take a look at how a society defines and enforces property rights. The choice of property rights structure and specific rights arrangements are determined by the state’s preferences regarding ownership and the degree to which these are thought acceptable by a society. The importance of the state in defining property rights is relatively easy to understand. Because property rights are rules used to constrain people when they are engaged in economic transactions, they require an arbitration institution external from the parties concerned in a transaction to ensure the implementation of the contract negotiated by the two parties. The arbitration is authoritative only when both parties recognize and trust the institution. Of course, when the scope of the transaction is very limited and done repeatedly between acquaintances, those with relatively high prestige in a narrow geographic area (such as a community) can act as arbiters. However, when the scope of transaction expands and breaks beyond the repeated transactions among acquaintances within a traditional community, the traditional arbitration method becomes invalid, so it is necessary to seek a more authoritative arbitration institution. In history and in today’s world, states have been born in response to such problems. The state is an institutional arrangement that is recognized by society and has a monopoly on the legal use of coercive means. It is indispensable because people need it to maintain justice, order, and stability, and to provide the basic rules for the mutual relations among the people in a society. Because it has a comparative advantage in compulsoriness, it is more economical to let it provide people with the basic rules for interaction, and because of the exclusivity of property rights, the state occupies a monopoly position when defining and enforcing those rights. As for social acceptability, it influences people’s attitudes and methods as they produce things and make transactions mainly through the customs, ethics, and conventions left over from a society’s traditions, and then, through these customs, ethics, and conventions, it also endogenously influences the state’s choice and regulation of the property rights system. Therefore, on the one hand, social acceptability can influence the choice of property rights through the formulators’ (zhidingzhe 制定者) understanding of these informal rules in a nation before they establish

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the property rights, and on the other hand, it can influence modification of property rights arrangements through feedback to formulators on the performance of those arrangements as they are enforced. The completeness of the definition of a resource property right is measured by the exclusivity of the right. Exclusive rights include the exclusivity of the use of the resource or good and the transferability of the owned right. “Exclusive use” means that the owner of the resource or good has unrestricted use right to it within a permitted scope: he can use it in any way and exclude other people from using it. If some aspects of the selected use include the right of other owners to use their resources or goods, this use negates the other owners’ control over their right to use their resources or goods. This means that if the owner of the good or resource has chosen its use, this use must not affect the material properties of other people’s goods or resources. However, this does not mean that the use of goods or resources by the owner does not have any impact on the goods or resources of other active groups. If I exchange the goods I use with other people, it will have an effect on the exchange value of still other people’s goods, thereby affecting their “utility.” The point to be emphasized here is that the permitted scope of exclusive use corresponds to its social acceptability and the license of the law. If the use of certain aspects of a good or resource is not socially acceptable or violates what is legally permitted in a society, the measures taken to stop such use are not considered to be infringements. Of course, a society with too many precepts and unsound laws may limit people’s opportunities too much due to these artificial rules, but we shall not launch into a discussion of them here. The exclusive use of resources or goods does not mean that the arrangement of “whoever possesses it uses it” is the most effective one. In fact, exclusive resources or goods possessed by an owner can be used to greatest value only when they can be freely transferred. This is because: (1) Whether a person maintains ownership of a resource or good for a certain period of time is judged by his level of knowledge at the time, as well as by his use of it and the expected benefits. As his cognitive ability changes, his expectations for this resource or good will change. Therefore, if the right of ownership is freely transferable, he can transfer the good or resource rights he possesses to other people who have greater expectations for the good or resource. (2) Because people have differences in abilities, knowledge, and so on, they will have different skills when dealing with goods or resources, and because they cannot have

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equal abilities in bearing the risk of value changes, or deciding how much to invest, or how to produce, etc., this naturally causes them to follow the principle of comparative advantage, and everyone, in terms of property rights, becomes specialized. Therefore, if property rights can be transferred freely, people will concentrate their ownership on the areas where they believe they have comparative advantages, thereby promoting the specialization of property rights. People’s specialization in property rights increases social wealth, in the same way that the specialization of industries increases labor productivity, which also produces wealth. The value of the right to a good or resource is manifested when it is exchanged or combined with the goods or resources owned by others. This sort of exchange or combination of rights between resource owners is carried out through mutually recognized contracts. Therefore, under the premise of exclusive right, the free transfer right implies essentially that it must include the right to freely choose the form of the contract. Resource owners can divide rights according to voluntary contracts, by leasing out, arranging for inheritance, tenancy, etc., and they can also combine use rights according to voluntary contracts, as in a corporate structure contract. Therefore, a contract is a stipulation of the form and conditions of the transferred resource rights that are agreed upon by both parties to the transaction. The impact of different contract forms on the allocation of goods or resources depends on the strength of the owners’ exclusive rights to those goods or resources and on the specific provisions of the contracts. When the two parties to the contract transfer the goods or resources, if there is no compulsory provision on forces other than the two parties, and the contract is reached after the two parties agree, the efficiency of the allocation of the resources or goods will not be affected. However, costs must be paid, whether for the definition of the property rights or the enforcement of the property rights. The cost of defining property rights includes the cost of establishing and maintaining the organization used to define property rights, the cost that the property rights formulator (zhidingzhe) incurs in understanding and comparing various alternative property rights arrangements, and the cost of understanding the possible reactions of people affected by the property rights rules. These costs are necessary to establish effective property rights. The degree of information supply in these areas will determine the effectiveness of the selected property rights arrangements. As for the kind of arrangement the property rights formulator chooses, it depends on a comparison between

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his expectation of the benefits of the new arrangement and these costs. For now, we shall set this point aside and analyze it later. The existence of property rights enforcement fees is due to the widespread existence of transaction fees. It is impossible for any party participating in the contract to have a full understanding of the other party’s information, such as his past performance, his professional ability, trustworthiness, and so on. Furthermore, in a contract for the combination of rights, since the total output caused by this combination will not be the sum of the sub-outputs of the individual input owners (otherwise, they would not have been able to cooperate), it becomes very difficult to measure and calculate the input and output of each cooperating member. To maximize personal benefit, each person participating in the contract will seek to impose part of the resulting costs on other members, resulting in the reduction of producer incentives and thereby affecting the performance of cooperation. To mitigate the reduction of cooperation benefits caused by measurement and calculation issues, the members participating in the cooperation will agree to choose an expert supervisor to monitor and measure the performance of each input, e.g., the manager in the typical corporate structure, the guarantor in a land lease, and so on. However, since the enforcement of the contract is done by an agent, any deviation between the agent’s utility function and the contract negotiator’s utility function will lead to insurmountable agency problems. The size of these fees will have a great impact on the form and performance of the contract. Given the resource owner’s exclusivity of use and right of free transfer, he will choose the contract based on the cost to be paid for the enforcement of the property rights, and the parties to the contract will seek a contractual arrangement that maximizes the benefits of the division and reorganization of rights and minimizes the enforcement costs.

3 Why Different Property Rights Arrangements Exist On the basis of the analysis above, we can reveal why a society’s property rights arrangements are not single and exclusive. There are many factors affecting the structure and arrangement of property rights in a society, but the following two are the most basic: one is the expected benefits and expected costs of adopting an exclusive arrangement on a resource, and the other is a society’s preferences on ownership.

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Given a society’s preferences on ownership, when the expected benefits of the definition and enforcement of a property right are greater than the expected costs resulting from it, this property right arrangement may be selected. Therefore, on the one hand, people have a demand for a resource or good that is exclusive only when it has a price, and as its relative economic value increases, the property rights arrangement may evolve from a vague form into something clearer. On the other hand, owing to cost considerations, over a certain period of time, even a resource that yields economic benefits may have to adopt a non-exclusive form due to the high cost of defining and enforcing the property rights to it. Factors that lead to excessively high costs from defining and enforcing property rights may include: (1) the characteristics of the resource or good (e.g., agricultural land assets are easier to define than mountain and water resources); (2) lack of technology for defining and enforcing the property right; (3) the existence of various laws, mandatory governmental regulations, or various informal rules, the violation of which incurs excessively high costs. From an evolutionary point of view, the difficulties in the definition and enforcement of the property rights described in factors (1) and (2) may increase the economic value of this resource, making the benefits of definition and enforcement greater than the cost, and certain groups in society may be induced to create new technologies to solve these difficulties. Factor (3), meanwhile, relates to a society’s preferences on ownership options. The following discussion will focus mainly on this area. When there is no difficulty in defining and implementing property rights, a society will also adopt non-exclusive property rights arrangements. This is determined by the social acceptability and preferences on ownership that we have mentioned earlier. The degree of social acceptability refers to whether the behavioral relationship between people caused by a property rights rule is consistent with the existing morals, customs, and ethical norms of a society or community. If the degree of agreement between the two is relatively high, the rule’s degree of acceptability will be greater, and as a result, the cost of enforcement will be lower. If there is more conflict between the two, then the rule’s degree of acceptance will be lower, and the cost of enforcement may be higher. As for a society’s preferences on ownership, the existing facts show that the state has a decisive influence on society’s choices on ownership, and that this choice, to a large extent, is a root cause of a country’s rapid economic growth or decline.

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Why would a state choose a non-exclusive property rights arrangement? In the previous section, we have revealed the comparative advantage that the state has as an institutional arrangement for the definition of property rights. To answer our question here, we must understand how these functions given to the state are implemented. Since security, justice, and the formulation of game rules are prescribed by the ruler, and since the rules formulated by the ruler must be enforced by agents of his choice, the possible results of the state’s choices on and definition of property rights may be reflected primarily in the ruler’s behavior and decisions. The difference between this and an entrepreneur and a consumer in terms of behavior and decision-making is only a difference in the variables included in the utility function. A ruler cares about his own survival, prestige, power, how his society evaluates him in the present, how history will evaluate him, and so on. Therefore, the performance of the state in fulfilling its functions depends on the behavior and decisions of the ruler and his agents. In Douglass North’s analysis, the implementation of state functions has the following three essential characteristics: First, the state uses a number of services, such as protection of justice, in exchange for benefits. Because it has economies of scale in providing these services, it specializes in these service organizations, so that the total income of the society is higher than the total income of those societies in which each person protects his own property. Second, the state attempts to act like a discriminatory monopolist. It separates each group of society’s members and designs the property rights of each person in order to maximize the state’s benefits. Third, because there are often competitors to provide the same services, the state will be restricted by the opportunity costs of different members of the society. Therefore, the degree of the state’s monopoly power is a function of the frequency of substitution by different groups. The answers to why a state would adopt non-exclusive property rights arrangements are largely based on the above three characteristics of state functions. Let us examine the first characteristic. When the state provides its basic services, such as setting out game rules, it may also seek to maximize rental income obtained by divided groups or stakeholders. To achieve this goal, the ruler will determine a few systems for reducing transaction costs and increasing the country’s total tax revenue. This means that the ruler will provide some services to reduce the costs of determining, negotiating, and enforcing contracts. However, the ruler will do

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so only when the result of providing these services is consistent with an increase in the ruler’s rental income. When it is inconsistent, the ruler will prefer to keep the latter, which is conducive to tax collection but not necessarily conducive to a clearer definition of property rights. Moreover, for the ruler, in comparison with non-exclusive property rights, exclusive property rights will require higher transaction costs, because they require more careful supervision and measurement. Therefore, if the ruler is not threatened when choosing non-exclusive property rights, he will be more inclined to adopt non-exclusive property rights arrangements. As for the second characteristic, since the economy is composed of economic activities with different production functions, various economic activities must be monitored and measured, and the property rights arrangements of different economic activities must be established, in order to obtain institutional rents and maximize monopoly rents. However, because different economic activities have different characteristics, the difficulty of defining and enforcing property rights will also differ, and the rents that the various economic activities bring to the ruler will also differ. Therefore, the ruler will adopt an exclusive property rights arrangement for an economic activity only in those circumstances that can increase the ruler’s income without hindrance to the acquisition of this rent, and where the cost of defining and enforcing the property rights is not high. Otherwise, the ruler would rather choose a non-exclusive property rights arrangement. As for the third characteristic, because the ruler has competitors, he will also take measures to ensure the stability of his position. When the ruler is threatened, the opportunity costs for different members of society differ. Because each group has different bargaining power in the definition of property rights, and the tax burdens they bear differ, the allocation of services provided by the ruler also differs—it cannot be the same. Generally speaking, the ruler may provide more services to groups with strong bargaining power, for his own benefit. This leads the ruler to determine property rights rules in a way that is more beneficial to these groups, regardless of their impact on efficiency. There are two other very important factors, besides the ones discussed above, that will cause the state’s property rights to become ineffective. One is the ruler’s limited rationality. That is, even if the ruler’s desire is to increase national wealth and people’s welfare, when he is making

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decisions on how to achieve this goal, his choice of non-exclusive property rights arrangements may be due to the limitations of his knowledge, ability to understand the system’s performance, and the characteristics of his personality. The other is agency problems arising from the implementation of state functions. Because state functions are implemented by agents selected by the ruler, and because the agents’ utility function cannot be completely consistent with the ruler’s, the rules established by the ruler may also change when the agents enforce them. Even though the ruler will establish some rules to restrict the agents’ behavior, the high cost of supervision and implementation of these are such that the final implementation result may also deviate from the effective property rights rules. From this point of view, the larger the size of the country, the more complex the types of economic activity, the higher the costs of property rights enforcement, the more serious the agency problems when centralizing, and the greater the deviation between the results of property rights implementation and the original intention of the definition of property rights.

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The Relationship Between Property Rights Arrangements and Economic Performance

Thus far, we have given our preliminary understanding of the inner meaning of property rights from an economic perspective. Finally, we shall use the above analysis as a basis to discuss the relationship between the institution of property rights and economic performance. Economic performance, good or bad, is reflected mainly in the level of per capita income, which is used as an indicator for clearly dividing the various countries around the world into rich countries and poor countries. For a country that seeks economic development, there may be nothing more important than raising the per capita income of its citizens. Unfortunately, while a number of less-developed countries are working hard to reach this goal, the economic models that economists build have been of little assistance, and the policy recommendations derived from those models, once some of the countries formulated them and put them into effect, have had harmful effects, because the models are based on the systems (economic and political) and development levels of developed countries. Therefore, in these models, institutions are regarded as being given exogenously; all of the purely engineered production functions only need an input of capital (material capital and human labor capital) and

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technology into the input–output box, which can then produce the kind of output the people need. Therefore, the prescription for wealth given to less-developed countries is that as long as they have high accumulation and high investment, their economic growth will accelerate. But it turns out that this is not the case. This growth method has not been successful, whether the countries have imported the systems of Europe and the United States, or whether they have imported the systems of countries that practice centralized power. It has been especially unsatisfactory in increasing per capita income. The reason is that the basic premise of this growth method seldom exists in the countries that lag behind: when people in these countries engage in economic activities, they often encounter trouble due to high transaction costs. Sometimes an economic activity that can be carried out at a low cost in developed countries cannot be done in less-developed countries because of its extremely high cost. Therefore, the key point in the economic growth performance of a society is not whether the country has adopted a fashionable name in politics, but whether some of the specific rules the society has set have reduced the transaction costs of people engaged in economic activities, and whether these rules can form stable expectations when people interact with others, because it is only these rules that are the factors that actually affect people’s behavior and decision-making. From this perspective, we can say that an economy with better economic growth performance must be a society where the formulated institutional rules can lead people to more productive activities. By contrast, the poor economic growth performance of some societies is not because they lack abundant social resources, or are lazy by nature, or lack an innovative spirit, but because the institutional rules they designed have led people into more unproductive activities. The systems created by these societies are often extremely advanced in terms of promoting redistribution; regulatory, monopolistic, licensing, and quota systems are extremely common. But by contrast, they are extremely lacking in systems that provide people with property rights protections and that reduce transaction costs. This not only produces social unfairness, but also causes most people to lose the opportunity to create economic income. As a result, the economic growth performance of the entire society is poor. Therefore, when some less-developed countries seek economic development, what their governments must do is not to impose restrictions on what people can and cannot do, but to reduce transaction costs by formulating a few specific systemic rules.

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A Simple Conclusion

We would like to point out here, at the end of the chapter, that our emphasis on the significance of introducing the property rights variable into the economic analysis framework and its importance in real economic activities does not mean that other variables affecting people’s behavior are unimportant. For example, as long as transactional relationships occur, price serves as a mechanism conveying information to people on what is or is not cost-effective, and it is always more sensitive than other mechanisms. Our intention here is merely to express the following: (1) When people are considering how a society can become more efficient, the function of property rights is very important. Since it is impossible for people to have no friction in their transactional relations, having a clearer definition of rights when resolving conflicts of this nature is fairer and more reasonable than any other method. (2) “Property rights” is not an empty slogan or a political term, but a very real thing. On the one hand, it determines how, whenever people enter into an interactive relationship, they may benefit or lose, and how they may compensate each other, so that they can form reasonable expectations on behavioral decisions. When these rules are clear and reasonable, they can provide people with the incentives to make better use of resources and to work hard, and there will be few incentives for people to infringe on each other’s property rights, cause externalities, or not work hard. On the other hand, the definition and enforcement of property rights also have costs. The level of these costs will affect the specific forms of contracts and specific arrangements of property rights. Therefore, only when the benefits of defining and enforcing the property rights are greater than the resulting costs, people will seek exclusive arrangements for it. Otherwise, common property rights may still be an optional arrangement. (3) The existence of non-exclusive property rights arrangements has technical factors, but usually they are caused by institutional arrangements. Incomplete property rights, which are caused by various regulations, have led to a great number of externalities, which create inconsistencies between the labor that people expend and their remuneration. More seriously, these regulations make people use their energy and resources in redistributive efforts instead of promoting economic growth, and the result is social injustice. (4) When less-developed countries seek economic development, the important thing is not a change in the name of their system or a simple imitation, but whether the rules they set reduce the cost of people’s

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economic transactions and whether they are conducive to the formation of people’s stable expectations. Therefore, for these countries, as long as they change some constraints that restrict people’s opportunities, they will certainly be able to achieve impressive economic performance.

Reference Alchian, Armen A. 1991. “Property Rights.” In The World of Economics, edited by John Eatwell, Murray Milgate, and Peter Newman, 584-90. New York: W. W. Norton & Co.

CHAPTER 4

Perspectives for Understanding Property Rights in Land

Whether from the perspective of theory or policy, any discussion of land issues must start with property rights. However, when reading the literature, one can sense clearly that in discussions of property rights in land, the domestic and international contexts and concerns are very different. The former still have a strong focus on discussing the advantages and disadvantages of ownership, while the latter mainly explore “what property rights are justifiable and to evaluate critically existing property institutions” (Munzer 1990, p. 2). This division cannot be simplified as differences of stages or differences in initial systems. The key lies in what kind of analytical method should be adopted with regard to property rights. Old traditions in the study of land issues have hindered us from objectively analyzing real-life property rights issues, thereby affecting the resolution of actual cases.

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Property Rights in Land: The Most Basic Institutional Arrangement in a Society

In Chinese discourse on land, there is a tendency to deliberately ignore the importance of property rights in land, assuming that the issue of property rights is not so important and is artificially created, and that farmers do not care about the extent of their property rights. There is also a tendency to criticize efforts to improve land property rights. For © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_4

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example, some people believe that China’s rural land policies, summed up with the phrases, “An increase in the number of people [in a household] will not entail an expansion of the land, and a decrease in the number of people will not entail a shrinking of the land,” and, “over a long term without change,” both of which relate to farm households’ land use contract periods, will cause instability in rural areas, and that the process of confirming farmers’ land rights is not only costly but also ineffective, etc. As for those who hold to the latter sort of discourse, they need to be reminded of two points. First, farmers do not need someone else to express what they think in their hearts—just let the farmers speak for themselves. What the researchers should do is simply record what farmers say without altering it. This in itself would be of great help. Then they can do a bit more and analyze why the farmers are saying and thinking this way, and that would be enough. Second, when investigating subjective issues, they should realize that knowing how to ask questions is also crucial. For example, even when the interviewers clearly know how rural land ownership by farmers is legally defined, they still ask farmers, “Do you want the land to be owned by the state, by collectives, or privately?” What sort of shocking answers do they expect from the farmers? Sometimes they ask, “Do you want land adjustment?” and, “Do you want to keep ‘over the long term without change’?” Of course, the households whose members have increased will reply that they “want land adjustment,” so how can they expect the same farmers to reply to the other question that they “want to keep ‘over the long term without change,’” with lofty airs and refined sentiments? As for the importance of property rights in land, leaving aside ideology, there is no doubt that a stable property system is one of the most basic institutional conditions of a society, regardless of its political system. There is no need to repeat the reasons, because if the property rights system is not well-resolved, the society would scarcely be able to build a credible political order, form stable economic expectations, or establish a regular social environment. Thus Armen Alchian (2008, p. 422) has pointed out, “The definition, allocation, and protection of property rights is one of the most complex and difficult set of issues that any society has to resolve, but it is one that must be resolved in some fashion.” From the perspective of legal arrangements, the laws governing land in some European countries are derived from the laws governing the rights to general objects. They have general laws on property, and the

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laws governing land are a part of them. In some English-speaking countries, land rights are considered in customary law and are enforced by the courts when necessary. England has separate laws on land and property. After independence, the United States has also treated land differently from other types of property. Later on, many states adopted civil codes, but constitutional rules on the protection of property rights apply to all properties, and land is of course included. When discussing land property rights, there is a saying that they differ from the property rights on general objects, and that the principles of property rights on general objects do not apply to land property rights. Just as every kind of object has its own characteristics, so does land. However, if one were to propose that land property rights do not follow the rules of general property rights, it would be a misunderstanding. As for definition, a property right is the right to use something in a specific way. A land property right merely concretizes that “something” as a plot of land; it is a rights arrangement, enforced by society, on how that land is used (Needham 2006, pp. 30–32). A property rights system in the general sense requires clarity, certainty, and stability when giving the relationship between people and their things, and a system of land property rights is no exception. There must be clear and enforceable rules on how to use, benefit from, and transfer the land, so as to give stability to the people who use it. “Stability” in land rights includes three levels of meaning. First, it consists not only of enabling users to have stability on how the land is used, but also stability on how the value of the land is to be realized. Only when land rights are protected and can be exchanged can land use become a source of wealth. Second, it consists not only of stability for the users of a plot of land, but also to other relevant parties. Other people do not own this plot of land, but how the land owner uses it will affect them. Third, it provides stable and sustainable norms for the social order. When the property rights on land are stable and society has rules to follow in its relationship with land interests, only then will the use of land be sustainable. Decisions on land rights will not only affect us today, but will also affect our children, and even our children’s children, in the future.

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2

Land Property Rights as the Relationship between Rights and Interests Attached to the Land, Not Land as a “Thing” Itself

In discussions on China’s land issues, there has been a long-term tendency to emphasize “things” rather than “rights.” The participants in these discussions show concern about farmers’ land holdings but ignore the rights to the land held by farmers. They are specifically embodied in the following ways: (1) On the one hand, they constantly emphasize that farmers should not lose their land, but on the other hand, some local governments have been expropriating large tracts of farmers’ land at low prices. (2) On the one hand, they profess wanting to help farmers to keep their land, but on the other hand, they set numerous restrictions on their land rights, e.g., farmers’ contracted land cannot be used as collateral, house sites can be used only for residential housing for a village’s collective members, collective construction land cannot be transferred, and so on. The Anglo-Saxon legal tradition clearly declares that what a person owns is not a resource, but the rights to the resource, and that these rights are the property. Needham points out that land property rights are the relationship between people—the person holding the right and all others—not a relationship between the holder of the right and the land (Needham 2006, p. 32). Daniel W. Bromley states it more clearly: “... things and circumstances are not protected because they are property. Rather, those things and circumstances that are protected become, by virtue of that protection, property” (Bromley 1998, p. 25). If the way of using land is a right, it must be recognized and protected by law. If there is no protection and regulation of the right, valuable resources may be abused. If land rights are not effectively protected, then, even if people were to buy land at high prices, the establishment of a market for land rights would still be impossible. Due to the great variations in land property rights, their arrangements are very complicated, and land interests may change as if by magic, so it is critically important for the state to define, recognize, and protect land rights. The recognition and protection of land rights generally include the following categories: (1) the right to use a piece of land in a certain way; (2) the partial right to use a piece of land exclusively; (3) the complete right to use a piece of land exclusively; (4) the right to separate out a

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part of the rights; and (5) the right to transfer part or all of the rights to others and to realize the capitalization of land. Since the protection of property rights is one of a country’s most important functions, and since land rights touch on numerous complex political, economic, and social areas, the central authorities must legally recognize economically effective and socially acceptable land use methods. Some artificial restrictions on land use have resulted in the incompleteness of land rights and have increased the cost of law and policy implementation.

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Land Ownership under Different Systems

China’s laws and policies have a tradition of emphasizing the institution of ownership and ownership rights. This is not only related to the particularity of our political system and ideology, but also relates to the use of the civil law system in the legal reconstruction after the reforms of the early 1980s. In the contracting of production to households (bao chan dao hu 包产到户) by the villages, the reform separating land ownership rights and use rights was carried out. While collective ownership of land was retained, the farmers’ use rights were continuously strengthened. However, in the implementation of legal regulations and policies, major issues such as the subject of ownership, the content of the rights, and the relationship between ownership and use rights were not clearly stated. This defect not only created the awkward situation of two rights subjects in reality, but also affected the deepening and direction of reform. The Western continental law tradition starts from the “full ownership” of things. Ownership is not a limited enumeration of specific rights to the object, but consists of all possible rights. People with full ownership are also given the power to separate out specific rights, which can then be exercised by other people, but these other people do not own these rights—they are only authorized by the owner to exercise them. Roman law used “ownership rights” to describe how all the possible rights on a thing were owned by a (legal) person, meaning that the owner could use the thing, enjoy it, and dispose of it. The full form of ownership of land included: (1) the right to use, (2) the right to harvest, and (3) the right of possession or occupancy (zhanyou quan 占有权). The owner could separate out the first two rights and still maintain the right of possession or occupancy. Both the Napoleonic Code and the German legal tradition used or use the concept of full ownership.

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Anthony M. Honoré (1961, p. 371) proposed that full ownership is “the greatest possible interest in a thing which a mature system of law recognizes.” He enumerated the various rights bundled under ownership, and treated their summation as constituting “full ownership.” Separately, they are the following: (1) The right to possess, i.e., to have exclusive physical control of a thing. The right of possession can be understood as the right to exclude others from using it or to exclude others from benefiting from it. (2) The right to use, which refers to the owner’s personal use and enjoyment of the thing owned. (3) The right to manage, which is the right to decide how and by whom the thing owned shall be used. (4) The right to the income, or the benefit derived from foregoing personal use and allowing others to use it for reward. (5) The right to the capital, or the power to transfer the thing. (6) The right to security, i.e., immunity from expropriation. (7) The right of transmissibility, which is the right to bequeath a thing in perpetuity. (8) The right of absence of term, which is the lack of a time limit on ownership. (9) The prohibition of harmful use, meaning that the owner has the responsibility to restrain himself from harming others when using the thing. (10) The liability to execution, i.e., the liability to have the thing taken away for debt. (11) Residuary rights characteristics, i.e., the rules on modifying or invalidating ownership on derelict things. William Blackstone, who had a significant influence on English and American thought on property rights, also used the concept of “ownership”: “The right of property is that sole and despotic dominion which one man claims and exercises over the external things of the world” (Blackstone 1776, vol. 2, p. 2). D. R. Denman (1978, p. 28) speaks of “the aggregate [of rights] which is ownership” in common law. In English law, it is called “fee simple,” the owner’s permanent right of ownership, or absolute possession of the interest of the land (Sparkes 1999, p. 44), although this right has never been absolute, because the land in the United Kingdom is ultimately owned by the sovereign. The terminology used in American law is similar to that used in the United Kingdom, but is “fee simple absolute”—the rights held by owners are absolute. Under a private rights system, whether it is within a continental or Anglo-American legal system, the above definitions of ownership and the content of the rights that comprise ownership would not cause trouble with regard to land, because the owner is the holder and disposer of the ownership of land. However, in China, the current land rights structure

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separates ownership from use rights. As long as ownership is maintained, the law confers upon the right of use an actual economic meaning. If one were to simply apply the Western definition of ownership, the entire focus on empowerment and the holding and exercise of rights should be centered on the owner. In this way, the right of use would be derived from the ownership, and the owner would have the right to claim the benefits generated by the right of use. But if one aims to consolidate, strengthen, and make complete the right of land use, so as to make the right of use and right of ownership into two independent rights, then it will be necessary to further clarify the content of ownership and the relationship between ownership rights and use rights in law, make the right of use a full and complete right, and establish the concept of “the full right of use.”

The Contractual Arrangement of Control Rights and Rights Bundles: The Core of Evaluating the Effectiveness of Land Property Rights 4

During the Third Plenary Session of the Eighteenth Central Committee of the CPC (November 2013), it was proposed that, premised on the separation of collective ownership and use rights, the separation of contracting rights and management rights should be enforced again. This policy formulation has guided the direction of theoretical research in recent years. An experiment on the separation of the three rights was carried out in Yueqing County (now City), Wenzhou City, Zhejiang, in the late 1980s and early 1990s. At that time, the idea of insisting on collective ownership, perfecting the right of use, and revitalizing the right of management was rather popular. However, in the past few years, after people busied themselves more with urban–rural coordination, hardly anyone has talked about this. In recent years, with increased market transaction activities and the development of factor markets, the division and transfer of land rights have become fact. With the continuous movements of the rural population and labor force, the de facto separation of the land contract right and management right has become a widespread trend. The further separation of the contracting and management rights was the correct response of policy to reality. However, existing laws have left numerous unresolved

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issues in areas such as the division and transfer of land rights, the granting of limited rights ( fenxiang quanli 分项权利), and so on. To deepen understanding in these areas, we must first get rid of the long-standing tradition of analysis with “emphasis on ownership and little attention on specific rights.” Interestingly, this tendency also exists in the West. Indeed, Needham has criticized the tendency thus: “Discussions about property rights often limit themselves to one of many possible rights, namely the right of ownership. This simplification then causes a simplification in discussions about the practical implications of property rights.”1 In many societies, we can find that there are many kinds of rights, that property rights have changed greatly, and that their practical significance is very complex and subtle. For this reason, Bromley emphasizes, “It is the right to control which is the most interesting in contemporary property issues and conflicts” (Bromley 1991, p. 159). Fortunately, in the Anglo-Saxon legal tradition, where greater attention is paid to the economic significance of the “rights bundle,” it is believed that a parcel of property is a kind of land interest that can be defined and protected by law. Only the monarch is the ultimate and absolute property owner. No one else owns the land, but other people can hold an interest in land. This tradition has led to the greater attention in British law on the contractual rules for the division of land rights and the resulting rules of interest. The United States has followed the British way of looking at land rights, though the absolute property owner has become the owner of land in perpetuity. Harvey M. Jacobs thusly describes the situation in the United States: A courthouse record shows that I am the owner of record of a parcel of land. What if, when owning my land, I sold the mineral right to a multinational mining corporation, sold the right to harvest old-growth timber to a paper company, donated the development right to a local land conservation organization, and leased the access right for the fall hunting season to a local hunting club? I am the owner of record … I own the soil, maintain the fences, and pay the bills, while others own key rights, some of which

1 Needham (2006, p. 35). Needham here summarizes ideas presented in Blomley (2004).

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may be more valuable than the rights I have left in my portion of the property bundle. (Jacobs 1998, pp. 245–246)

The shift from the emphasis on ownership to the emphasis on rights bundles facilitates the analysis of rights contracts and legal regulations. If I sign a lease with a landlord for a building, the lease is property. This lease shows that I have the right to use it according to the contract, and that I can even sell the lease. The regulation and enforcement of limited rights on land will affect the way the land is used and the results of that use. Needham points out: In Britain, leasehold rights may be traded, in the Netherlands not. One result is that business users take a long lease in Britain, for if their need for space changes, they can assign the lease to someone else. Business users in the Netherlands, on the contrary, rent for short periods, to avoid the inflexibility of a long commitment which cannot be assigned to another. A Dutch business user who wants security of tenure coupled with capital growth buys the freehold of the space, for a rental lease brings no capital growth to the lessee. As a result, more commercial space is held freehold in the Netherlands than in Britain. This results in smaller buildings and in the absence of business parks which are managed as a whole. (Needham 2006, p. 9)

In the division of land rights, the rights on land property include all kinds of things that are attached to the land, whether above, on, or below. The degree of rights to the use of above-ground and underground space is determined by law. In addition, the rights on movable objects on the ground are regulated by the law, not by the rights on the land itself, because the movables are not “attached” to the land. The last point to be made here is that a special way of using land property becomes a right only when it is recognized by law. The continental law system enumerates those rights that the law recognizes and protects. Once a rights practice is recognized by law, a new right is created. Through the enumeration and recognition of new rights, the land rights system becomes increasingly clear. But in the common law tradition, adopting this approach is more difficult, because two parties may sign a contract, and if the court enforces it, it becomes a right that other people can use. Once the owner of the original right finds that the right is not beneficial for him, he will create a supplementary right in order to protect himself. Therefore, this right

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can be written by law at any time, but it might also change the next day, leading to very complicated rights changes (Needham 2006, p. 36). In China, determining how to separate the three rights under collective ownership will require further refinements in policy implementation and legal improvements. When farmers’ land contract rights are divided and transferred, are they still restricted by land ownership? Is the land management right a right derived from the contract right, or is it an independent right? Are the specific rights of the land management right determined by the contractor and operator independently, or do they require special legal provisions? Is the land management right a land surface right within the agreed period of a contract, or is it a full property right?

5 The Robustness of Land Property Rights: Premised on the Fulfillment of Responsibilities and Obligations As opposed to the deliberate neglect of property rights, or governmental infringement of property rights, is the idea that holding property rights is equivalent to doing whatever you want and profiting from them, regardless of the need to shoulder the corresponding responsibilities and obligations. This is manifested, first, by engaging in various economic activities on land (including contracted land, house sites, and collective construction land), regardless of laws and planning controls; using collective construction land to obtain rental income, but not providing the corresponding public goods; individuals pursuing only the maximization of property rights causing damage to the interests of other people or entities, etc. These phenomena reflect an absolute, liberal view of property rights. Another manifestation is a lack of respect or sense of responsibility, either by individuals or organizations, for the rights that should be enjoyed by other individuals. This causes rights infringements to become very common. A property right is a social creation; in the words of Alchian and Demsetz (1973, p. 17): “What are owned are socially recognized rights of action.” The notion of rights would be irrelevant on an isolated island with no one else around. A right concerns a mutual relationship between a person and an organization (or more precisely, a legal person). Therefore, when one person enjoys a right, there are other people with joint liability (Hohfeld 1917). If I have the right to occupy a building in a certain way,

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then everyone else has the responsibility to allow me to do so. The relationship between rights and responsibilities must be regulated, otherwise rights would have no importance. Some of these interrelationships exist in the form of unwritten contracts, but in modern society, it is more often written down in a clear manner and protected by legal force. The function of the latter method is to make the owner of the right obligated to let everyone else perform their responsibilities, so that he can enjoy his rights. The prerequisite for a person to enjoy rights is that he must bear corresponding responsibilities or duties. Needham (2006, p. 31) cites the following examples: Under Dutch law (Civil Code, book 5, article 42) it is forbidden to plant a tree within 2 metres of the boundary of the land without permission of the neighbour. The owner of the land on the other side of the boundary has, therefore, the right not to have a tree within 2 metres of her boundary. If I plant that tree without her permission, I have not fulfilled my duty to my neighbour. She might not be troubled by my tree, in which case she will not insist that I carry out my duty to her. But if she is troubled by it, she can ask me to remove it, and if I refuse to do so, then she may take me to court to oblige me to remove it. The duty might affect different persons in different ways. Suppose, for example, that I rent space in an office building. Other possible users of that space have the duty to keep out, and the landlord has the duty in addition to let me in, provided that I abide by the terms of the lease. Very often, the duty can be expressed in terms of inclusion and exclusion. The right includes some people (those who may enjoy it) and excludes all the rest (those who may not enjoy it).

One of the responsibilities of land rights is a special one, and that is the implementation of planning controls. The implementation of land use planning has generated many exclusive uses on land rights, which affect the rights and interests of land owners. Once a local government approves the land use plan, this indicates that there is a legally binding force on the use of a specific plot of land. If the owner does not want to use the land in accordance with this prescribed method of use, he may adopt a method that excludes others from realizing the legal use of the land. To ensure that land use planning is enforced, the government may adopt the method of expropriating ownership. This last point is the most overlooked, if we compare it with the characteristics of land property rights described above. Especially in a society

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where, for a long time, little importance was attached to property rights, ensuring owners’ fulfillment of responsibilities and obligations may be the longest and most difficult task. In the future, it will be necessary not only to continuously cultivate respect and a sense of responsibility to the government (executive power) and various public and private rights, but also to cultivate people’s awareness of their obligations when they realize their rights, as well as their sense of responsibility toward others when they exercise their rights.

References Alchian, Armen. 2008. “Property Rights.” In The Concise Encyclopedia of Economics, 2nd ed., edited by David R. Henderson, 422–423. Indianapolis: Liberty Fund. Alchian Armen and Harold Demsetz. 1973. “The Property Right Paradigm.” The Journal of Economic History 33, no. 1 (March): 16–27. Blackstone, William. 1776. Commentaries on the Laws of England, 9th ed., 4 Vols. London: W. Strahan and T. Cadell. Blomley, Nicholas. 2004. Unsettling the Land: Urban Land and the Politics of Property. New York: Routledge. Bromley, Daniel W. 1991. Environment and Economy: Property Rights and Public Policy. Cambridge, Mass.: Blackwell. Bromley, Daniel W. 1998. “Rousseau’s Revenge: The Demise of the Freehold Estate.” In Who Owns America? Social Conflict Over Property Rights, edited by Harvey M. Jacobs, 19–28. Madison, Wisc.: University of Wisconsin Press. Denman, D. R. 1978. The Place of Property: A New Recognition of the Function and Form of Property Rights in Land. Berkhamsted, Hertsfordshire: Geographical Publication Ltd. Hohfeld, Wesley N. 1917. “Fundamental Legal Conceptions as Applied in Judicial Reasoning.” Yale Law Journal 26 (1917): 710–770. Honoré, A. M. 1961. “Ownership.” In Oxford Essays in Jurisprudence, edited by A. G. Guest, 370–375. Oxford: Oxford University Press. Jacobs, Harvey M. 1998. “Conclusion: Who Owns America?” In Who Owns America? Social Conflict Over Property Rights, edited by Harvey M. Jacobs, 245–250. Madison, Wisc.: University of Wisconsin Press. Munzer, Stephen R. 1990. A Theory of Property. Cambridge: Cambridge University Press. Needham, Barrie. 2006. Planning, Law and Economics: The Rules We Make for Using Land. London: Routledge. Sparkes, Peter. 1999. A New Land Law. Oxford: Hart Publishing.

CHAPTER 5

The Contract Structure and Incomplete Property Rights of the Farmland System

At the core of the institutional changes that have taken place in rural China is the contracting of production to households (bao chan dao hu 包产到户), which has always been a focus of attention since the day it was put into practice. In this chapter, we intend to focus on the significance of economic methods in specific analysis. In other words, we do not intend to get involved in the debate over whether private ownership or state ownership or collective ownership is good. Instead, we will focus our attention on which factors in the current agricultural land system structure restrict farmers’ investments, asset accumulation, and long-term expectations. Therefore, what we wish to express in this chapter is not a prescription for the future direction of China’s agricultural land system, but a description of the institutional factors that need improvement, and the focus will be placed on the analysis of these restrictive factors at the farm household level.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_5

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Methods of Institutional Economic Analysis

Before describing the characteristics of China’s current agricultural land system in detail, let us first talk about the main points of the analysis of the “institution” in the general sense.1 The renowned new institutional economist Douglass C. North has pointed out that institutions are sets of rules, which are established for people to engage in mutual relations2 ; they are a series of restrictions on people’s behavior. It is precisely based on these rules that people clarify what may or may not be done, so as to form reasonable expectations on which kinds of action are more cost-effective (Huke 1981). Therefore, an institution or system’s basic function is to induce people to make behavioral decisions and influence the economic performance of a society through these decisions. A discussion of an institution in the economic sense does not make a subjective judgment on its quality, but examines what kind of results it will have, as a real existence, on human behavior and economic performance. The basic point in institutional economic analysis is: what kind of system or institution will yield what kind of a behavioral response in a rational person, and which behaviors will produce which economic consequences. Since the analysis of the institution or system is applied on specific parties, the institution is no longer mysterious, subjective, unique, and indisputable, but is alive, objective, and can be felt in real life. It can thus be compared, selected, and analyzed. Institutional analysis in the latter sense is exactly what we in this chapter want to emphasize and apply. So, how do institutions or systems affect people’s behavior and economic performance? This depends on the degree to which rules in the system incentivize human labor, as well as the incentive orientation.3 The degree to which rules incentivize people’s efforts depends

1 Translator’s note: It should be pointed out that the Chinese word used to translate “institution” (zhidu 制度) is the same that is usually translated as “system.” Thus zhidu in these pages is translated either as “institution/institutional,” or “system/systemic,” but sometimes either translation is possible. 2 Regarding the definition of “institution,” readers should especially read North (1990, pp. 3–11). 3 I think it is more conducive to analyze the relationship between the system and economic performance from the perspective of the incentivization degree and incentive orientation, especially when analyzing the reasons for an underdeveloped country’s economic development, where this distinction will be more pertinent, because in these countries, we often find that their systems do not provide enough incentives for people,

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on the consistency between the remuneration structure contained in the system or institution and the amount of effort supplied by people’s labor. If an institutional arrangement can create consistency between people’s efforts and the rewards they deserve, they will supply a large amount of effort; conversely, if an institutional arrangement causes a separation between people’s efforts and their rewards, then they will supply a small amount of effort. However, the system or institution’s incentives for the supply of effort do not mean that it can induce “effective” economic growth. Whether it promotes economic growth also depends on its incentive orientation on people’s behavior. If an institutional arrangement can encourage people to allocate resources (including material and human) and their efforts in productive activities more effectively, then it can promote economic growth, and a society’s economic performance will improve. By contrast, if an institutional arrangement is more “effective” in motivating people to allocate resources and efforts in nonproductive activities, it will hinder economic growth, and it then becomes an important source of poor socioeconomic performance. In the effects of an institution or system’s incentives on behavior, two aspects are crucial: one is the integrity of the property rights arrangements within it, and the other is the ability of economic organizations to measure effort and rewards. The degree to which effort is incentivized has a lot to do with the incentive orientation. Property rights arrangements are the most important kind among all the institutional rules affecting people’s behavior. By definition, “A property right is a socially enforced right to select uses of an economic good.”4 Property rights are embedded in the entity of an asset or good. When we say that a person (or an organization) owns the property rights on an asset or good, it does not refer to the quantity of stock he or she owns in it, but refers to the rights he or she owns on choosing how to use it, how to benefit from it, and how to transfer it. The actual content of ownership is reflected by the quantity of rights in this bundle of rights.5 Therefore, whether an asset or good’s

and that their incentive orientation is directed more toward a “submissive production nature” (shunsheng xingde 顺生产性的). 4 See Alchian (1991, p. 584); for a Chinese translation, see Alchian (1994, p. 166). 5 This summary of the content of property rights as the rights of use, income, and

transfer was first pointed out by Prof. Steven Ng-Sheong Cheung (Zhang Wuchang 张 五常 in Mandarin) and later accepted by institutional economists. This book also adopts this summary; see Cheung (1970).

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value is great or small is determined by the quantity of rights contained in it, and the exchange of items between people is actually a contract negotiation on how to measure these rights. It is the value of the rights in the goods that determines the value of the goods exchanged. Obviously, the role of property rights is to influence people’s decisions on production, asset accumulation, and investment decisions through the definition of these rights bundles on assets or goods. Precisely on the basis of these rights rules, people decide which form of contract should be adopted when conducting economic transactions with others (such as a transfer of all or part of the rights on a property, the term limit of the contract, etc.). Among the factors determining the behavior of the owner of the asset or good, the fullness of the property rights he enjoys is the most important. So-called “full property rights” means that the asset owner has the right of exclusive use, the exclusive right of income, and the right of free transfer. Let us examine each of these in turn. The right of exclusive use means that the asset owner has an unrestricted right to use the asset within a permitted scope. He can use his asset in any way (provided that he does not, for instance, assault other people with it) and can exclude others from using and restricting control of his asset. The exclusive right of income means that the asset owner can fully enjoy the results of his use of the asset. As for the income he obtains by using the asset in a legal way, the government or other organizations (individuals) cannot seize it by coercive means, nor can they erode it by other means (such as artificially lowering its price, imposing unfair taxes, etc.). The right of free transfer means that the asset owner has the right to decide whether the asset is transferred, to whom it is transferred, and which form of property right transfer should be adopted. In a society where economic transactions are becoming more and more advanced, the transferability of property rights also becomes very important, because whether a person holds property rights to an asset is determined by his expectations for maintaining this right. Furthermore, because people have differences in ability and knowledge, their skill in using assets also differ. If the property rights in the asset can be freely transferred, then it can be put to the most valuable use.6

6 On the importance of asset transfer, see Zhang Wuchang (Steven N. S. Cheung) (1987) and Liu Shouying (1992).

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In contrast to the full property rights as defined above, if the property owner’s enjoyment of one or all of the rights is restricted or eroded, we call them “incomplete property rights.”7 Incomplete property rights are manifested either in a restriction in the right of choice in the use of an asset, or an erosion of the right to use the results of asset production, or as a prohibition on or an erosion of the right to transfer an asset. Sometimes it is manifested as a combination of these things. In reality, full property rights, like fully competitive markets, seldom exist. By contrast, incomplete property rights seem to be more common. Between fully complete and fully incomplete property rights exists a huge space for different options. When an actual property rights arrangement approaches full property rights, the results produced through people’s efforts are more stable relative to their own ownership expectations. They will have more incentives to find more favorable ways to use resources more effectively, and as a consequence, their economic performance is also better. On the contrary, if the actual property rights arrangement is far from full property rights, restriction of any one of the rights will destroy their expectations for the results of their efforts in production. The resulting instability of expected results will lead to short-term behaviors in investment and asset accumulation and allocations of effort toward productive activities will result in poor economic performance. From the discussion above, it can be seen that the integrity of property rights plays a decisive role in human behavior and economic results. In reality, we often feel the effects of incomplete property rights on our choices. There are still many areas to be explored concerning the causes of incomplete property rights, but among the many causes, there is one that deserves the most attention: a large number of incomplete property rights are caused by improper arrangements of institutional rules. Therefore, an adjustment of state behavior will be more conducive for greater clarity in property rights. Efforts toward this aspect of institutional change will continue to lead economic growth into a path of virtue.

7 Among the articles that I have studied, the concept of “property rights incompleteness” was first pointed out by Harold Demsetz (1988a, pp. 1–2), in which he proposed that when people research regulation, they are actually researching the property rights incompleteness caused by regulation: “The incompleteness of ownership may be understood first as the deletion of some of the private rights in the bundle of rights used to determine ‘complete’ ownership.” See also Demsetz (1988b). For the Chinese translation, see Demsetz (1999, p. 189).

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A second aspect of the incentive effect on behavior that tends to attract attention are structural and efficiency issues of the economic organizations through which property rights can be realized. This issue appears within such organizations because the value of a person’s rights in a resource cannot be realized through market exchange. For their own purposes, people often combine their own resource rights into an organization, in order to engage in cooperative production. The original purpose of cooperative production is to take advantage of each person’s specialized comparative advantages, so as to achieve a greater benefit than can be realized in separate production. But to realize this benefit, a fatal problem may be encountered: within the organization, the inputs and results of each member’s labor are not as easy to correlate as they are in separate production; what can now be measured is only the organization’s total output, but it is impossible to determine precisely each member’s contribution share toward the output. The difficulty of measuring inputs and outputs makes it impossible to determine with precision the rewards that everyone deserves, which results in low incentives for cooperating members to work hard. This issue directly led to Alchian and Demsetz’s proposition, in their famous article, “Production, Information Costs, and Economic Organization,” that the efficiency of an economic organization depends on its ability to measure each person’s input and remuneration.8 If the economic organization’s measurement ability is poor, and there is only a loose connection between remuneration and productivity, its productivity will be relatively low, but if the measurement ability is strong, its productivity will be relatively high. The measurement capability of an economic organization depends mainly on: (1) the size of the organization (obviously, in a small-scale organization, such problems are easier to solve than in a large-scale organization), and (2) the establishment of a rights structure within the organization. The economic organization must determine how to develop experts with greater supervisory capability to supervise the cooperating members, so as to maximize the organization’s efficiency. This involves one of the most difficult problems to solve that we have encountered thus far: how to ensure that the supervisor has the incentive to supervise members while keeping his own behavior from deviating

8 Alchian and Demsetz (1972); for a Chinese translation, see Alchian and Demsetz (1994, p. 61).

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from the goals of the enterprise’s owners. However, since that is not the main subject of this chapter, we shall not discuss it further here.

2 The Contract Structure and the Incomplete Property Rights of China’s Current Farmland System In line with the general theories discussed above, when we launch into the following analysis, we should examine the land system or institution’s significance with regard to behavior, instead of merely stopping and dwelling on the legal meaning of land ownership in China, so as not to get bogged down in ideological disputes that have no practical significance. Based on the main points of institutional economics summarized in the previous section, our analysis will focus mainly on: (1) the contract structure of the current agricultural land system; (2) the organizational characteristics of agricultural land management; and (3) the specific content of the farmland property rights arrangement, the performance of incomplete property rights, and its impact on farmers’ behavior. The institutional reform called the “Household Joint Production Contract Responsibility System” ( jiating lianchan chengbao zeren zhi 家 庭联产承包责任制, of which the most common form was the contracting of land, other resources, and output quotas to individual households, or bao gan dao hu 包干到户) was started by farmers in a small number of impoverished rural areas of China in the late 1970s in order to escape a survival crisis and later implemented throughout the country, but it was basically the result of the farmers’ autonomous choice. One particularly interesting point about this change is that when this system was adopted, even though the restrictions imposed in various regions differed somewhat, some aspects of the institutional arrangements were very consistent: (1) In almost all of the arrangements, the original production teams (shengchan dui 生产队) were replaced by family organizations, which then served as the decision-making units for agricultural production and management. (2) In almost all of the arrangements, contracts in the form of “pay enough to the state, leave enough for the collective, and keep the remainder as your own” ( jiaogou guojia de, liuzu jiti de, shengxia dou shi ziji de 交够国家的,留足集体的,剩下都是 自己的) were selected. (3) When collective land was subcontracted out

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to individual farm households, in all arrangements, there was emphasis on the need to “firmly adhere to the collective ownership of the land, without change.” This shows that although the subsequent evaluation of this system reform was still a bit hasty and rough in certain respects, within the political and economic environment at that time, the farmers, who were the main innovators of this system, still made the most rational choice. The emphasis on “firmly adhering to the collective ownership of the land, without change,” reduced efforts to obstruct this change from those who believed that the People’s Communes had to be “large in size and collective in nature” (yi da er gong 一大二公), which at the time was still the mainstream ideology, hardened through habit. The promise of “pay enough to the state, leave enough for the collective” guaranteed that the various interests relating to the structure of the original agricultural land system (the state, urban residents, collectives) would not suffer a loss of actual economic benefits due to this change. Therefore, by recognizing these restrictions, the farmers reduced the costs of changing to the household contracting system, and in exchange, they obtained huge benefits from the system change: (1) the family, a production unit in which effort and remuneration are more easily linked, gained recognition; (2) the internal measurement and supervision costs of this organization are extremely low; (3) it is extremely competitive vis-à-vis other family units; and (4) this new agricultural business entity, the farm household, also obtained residual rights to land use and income under the land subcontracting mechanism (although these rights, the analysis of which we shall focus on later, were still incomplete due to existing institutional constraints). The effects of the institutional change from the production team system to the household contract responsibility system in rural China were very significant. From 1979 to 1984, China’s agricultural output grew at an average annual rate of 7.7%. Of course, several other reforms launched at the same time in the rural areas during this period also contributed to this rapid growth. These included substantial increases in the order prices for agricultural products, the liberalization of the agricultural products market, and the increase in agricultural investment. However, among all these reforms, the most important contributions came as a result of the Household Joint Production Contract Responsibility System. However, under the same household contract responsibility system, China’s agricultural growth decelerated sharply after 1985; the crop farming industry’s output growth in particular fluctuated for several years

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in a row. As a result, the effectiveness of this system became, once more, a focus of attention in policy circles and public opinion, and some places have resorted to the practice of “strengthening the collective economy” to shake up family management in the current farmland system. Regardless of the politics and ideology behind these claims, the experiences of China and other countries around the world have proven that the result of reimposing collectivization would only be a return to extremely low agricultural productivity. We have already presented the theoretical implications of these experiences—as long as the farmers still have personal interests, collective management would entail insurmountable supervision and measurement difficulties, which will not be completely resolved through improvements in production and supervision technology.9 Therefore, family management is by no means just an “expedient solution.” However, this is not to say that China’s current agricultural land system has no problem at all. On the contrary, it does have some factors restricting farmers’ long-term farming behavior. I believe (at variance with popular views) that these constraints are not caused by the organization now engaged in farmland management, but by the constraints in the contract structure of the household contract responsibility system, which leads to the incompleteness of farm households’ land property rights. Let us analyze the possible impact of these restrictions on the behavior of farmers. We can first take a look at the actual content and consequences of “collective land ownership.” As I have pointed out earlier, to “firmly adhere to the collective ownership of the land, without change,” may have been a reflection of a more political and ideological perspective on some levels, but in the farm households that form the focus of this chapter, collective ownership does not manifest itself merely as an empty shell of illusory ownership—it also has practical meaning. In actual operation, collective ownership actually exists in at least the following two areas:

9 This viewpoint was confirmed by our investigation of the reform of the Soviet agricultural land system in the autumn of 1991. There, despite high per capita arable land area and a high degree of mechanization, the farms’ production efficiency was extremely low. At that time, the reform of the family responsibility system in rural China had attracted a great deal of attention from reformers there. A major part of the ongoing reforms of the agricultural land system in the former Soviet Union consists of cultivating new agricultural business entities with families as the basic units. Interested readers may consult Guowuyuan fazhan yanjiu zhongxin nongcun jingji Sulian kaochatuan (1992).

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First, under the collective ownership framework, it often occurs that some “higher-ups” (shangji 上级), using the title of owner, erode farm households’ rights to use and derive benefit from the land. We know that from the establishment of the People’s Communes in 1958 to the implementation of the household contract responsibility system, the inherent property rights arrangements in China’s collective land ownership have undergone several changes, following changeovers of the units making decisions on production and distribution. Before the reform establishing the household contract responsibility system, the collective ownership of rural land was a three-tiered system, as summed up in the slogan “Threelevel Ownership, with the [Production] Team as the Basis” (sanji suoyou, dui wei jichu 三级所有,队为基础). Under this system, even though the production team was the unit deciding land use and income distribution, it was the higher tiers, the “higher-ups,” that actually controlled the right to plant crops and extract the surplus of income. After the implementation of the household contract responsibility system, the farmers became much more proactive than the production teams had been in terms of their control of land use and distribution of income surplus, but in fact, individual higher-ups’ use of variously named cost-sharing fees that they levied on farmers were already having an important impact on farmers’ enthusiasm for engaging in agriculture. Second, the collective ownership of land is actually embodied in the rules on assigning collective land to farmers. During the production team era, collective land ownership was expressed by the fact that every member of this collective had the right to a share of the income derived from the collective land. After changing to the household contract responsibility system, collective land ownership was manifested also by the fact that every member who had been born and raised within the area of the collective had the right to use a share of the land; this was a basic rights law contained in collective ownership. Therefore, when every collective unit in rural China was implementing the Household Joint Production Contract Responsibility System, almost all of them adopted the distribution rule by which land use rights were equally divided according to person (or according to work). In addition, since the land was collectively owned, this meant that every new legal member who was born within this collective area should also have the right to share the same land rights as the original members. This produced a dilemma: a central Party document stated that the “land contract period of 15 years, without change,”

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was to be preserved, but in most places, it became necessary to readjust land allotments in line with increases or decreases in the population: The China Land Research Group [in the early 1990s] conducted a sample survey on 300 villages across the country, and based on the results from 253 valid sample villages, they concluded that since the implementation of the household contract responsibility system, 65.2% of the villages had readjusted the land allotments, and approximately 80% had responded that the pressure to make the adjustments were due to population increases or decreases. (Zheng Fengtian 1995)

Thus was formed the most unique land distribution system in the history of our country.10 However, the costs of operating and implementing this institutional arrangement are very high: (1) The land must be readjusted in line with population changes every few years, with each new adjustment carried out based on what the collective’s total population is after the change, and the arable land is allotted based not only on acreage but also quality. As a result, it is quite difficult for farm households to have the land they use in one period reallotted to them in the next period, so it becomes impossible for them to form any long-term expectations with regard to investing in the land they use. (2) Since each collective member has equal rights to collective land, this means that the land allotted to them is equal in terms of acreage, quality, and burden. In this way, each time the collective land is distributed to all members of the collective, all these conditions must be taken into account as the land is divided. In consequence, the land possessed by each farmer is extremely fragmented and scattered, resulting in diseconomies of scale in the farmers’ investment in this land. 10 In Chinese history, there have been two types of land equalization programs. The first, according to the research of Mr. Zhao Gang (赵冈), occurred after war. Due to great population loss, leaving a large amount of land deserted, the state divided these lands equally among the people. After this equalization, the private ownership of land was guaranteed. However, such land equalization events were rare, and not as frequent as occurs under the current collective land ownership system. The second type was the equal distribution of farmland to sons through inheritance.

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(3) Regarding implementation, since the population, land, and parcels must each be rechecked before each readjustment, and a division method acceptable to all members must be found, the cost of implementation is also extremely high. (4) The equal distribution of collective land by population cannot take into account the differences of human capital among individual farm households for conducting agricultural operations. In fact, after the implementation of the Household Joint Production Contract Responsibility System, the differences among farmers in terms of their agricultural management capabilities not only exist, but are also gradually widening. However, under the arrangements of this collectively-owned land-sharing system, farm households cannot find an amount of farmland commensurate with their own human capital on their own initiative. This is obviously not conducive to putting China’s scarce farmland to more economical and effective use.11 Besides the impact of collective land ownership on farmers’ behavior, as analyzed above, there is another constraint in the Household Joint Production Contract Responsibility System’s contract structure: the contracting farmers’ commitments to fulfil their obligations to the state and the collective. Does this also affect farmers’ behavior? In my opinion, it does. Among their obligatory payments to higher levels (judging from stipulated accounts), “leaving enough for the collective” includes the wages and daily expenses of the community’s grassroots cadres and private teachers, as well as the costs of setting up and running local businesses. Farmers are dissatisfied with these kinds of fees, mostly because of unclear accounts and the cadres’ spendthrift habits, so their significance in terms of farmers’ behavior is less than their significance in terms of justice. However, the other item, “paying enough to the state,” does have a significant impact on farmers’ behavior. After the implementation of the Household Joint Production Contract Responsibility System, each contracting farm household’s obligation as to what must be delivered to the state is actually a portion of the grain that the original production team had been obligated to sell to the state. As for the farmers, they

11 Points (1), (2), and (3) above, on per capita land distribution system under collective ownership, are based on Zhou and Liu (1989); point (4) is based on Liu (1993).

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do not mind the obligation to pay (historically, for centuries, they were traditionally obligated to pay the “imperial grain tax”), but they do mind the nature of the obligation. The farmers’ obligation to sell grain to the state is a product of the state’s drive to industrialize, and its purpose is to supply urban residents with low-price rationed food products. Therefore, farmers must deliver a certain fixed quantity of specified crops (grain, cotton) in accordance with state requirements. Furthermore, the price for this portion of grain sold to the state can only be set by the state; they have no negotiating status. After the implementation of the Household Joint Production Contract Responsibility System, the nature of farmers’ obligations did not change. As for the results: (1) Since farmers are required to deliver specified numbers of crops, they have to set aside a commensurate area of farmland in order to plant these specific crops and fulfill their obligations. In addition, in some places, local governments also use administrative means to ensure they obtain the required numbers of crop varieties and fulfill their task of grain acquisition—regardless of whether these varieties can be profitable. From this, it can be seen that farmers are still greatly restricted in terms of crop choice and land use rights. (2) Since the crops’ sales prices are prescribed by the state, farmers have no negotiating status, but under the dual-track price system for crops, the state’s prescribed price is generally lower than the market price. This is equivalent to the state levying some “hidden taxes” to draw a certain amount of income from farmers.

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A Brief Conclusion

This chapter is a preliminary attempt to analyze China’s current agricultural land system from an institutional economics viewpoint, in which institutions are given a more tangible economic meaning, i.e., an institution or system’s existence has an analyzable value only when it is manifested as an influence on human behavior. We emphasize that economic analysis of a system is by no means a ploy to avoid the hot topic of the “pros and cons of ownership,” because, in our opinion, the political sensitivity of the ownership issue has seriously hindered people from paying attention to the institution or system’s practical effects. In fact, the

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ownership system itself has actual economic content, and an economic analysis of the system can just make up for shortcomings in this area. By applying the methods of institutional economics to the analysis of China’s current agricultural land system, we have arrived at some arguments that differ somewhat from popular views. First, we disagree with statements to the effect that the potential for family-run businesses is exhausted. Whether or not an economic organization is effective depends on its ability to measure and balance the efforts and the remuneration its people. From this point of view, there is still no organization more effective than the family as a production and business unit. If an economic organization is, by subjective whim, arbitrarily “upgraded,” it will inevitably lead to bad consequences, like those we have experienced in the past. Second, we also disagree with extremely popular and overly emotional blind statements about “strengthening the collective economy,” because, in our opinion, the true content of property rights is not a stock of assets, but rather the right to decide these assets’ use, and to decide the rights rules on how the benefits are to be distributed. If, regardless of the actual situations in various places, a piece of these publicly accumulated assets is used to build the so-called collective economy, this will not only fail to achieve the expected effect of releasing the collective’s superior advantages, but will instead cause the erosion of farmers’ property rights and dampen the farmers’ enthusiasm for managing their agricultural business. Third, as a result of our analysis, our view on rural property rights is that we must study the actual property rights (consisting of the right to use, right to derive income from, and right of transfer) in China’s current agricultural land system and see how the integrity of these rights affect farmers’ behavior. We conclude that under the current agricultural land system, there are still some institutional constraints (such as the arrangement, under collective land ownership system, of allotting land to farmers equally based on local population, and the obligation to sell food crops to the government) that affect the strength of farmers’ property rights on land, and thus limit their pro-active attitude toward their agricultural operations. The further reformation of the farmland system should begin with mitigating the constraints of current institutional arrangements on farmers.

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References Alchian, Armen A. 1991. “Property Rights.” In The World of Economics, edited by John Eatwell, Murray Milgate, and Peter Newman, 584–590. New York: W. W. Norton & Co. Alchian, Armen A. [A.A. A’erqin 阿尔钦]. 1994. “Chanquan: yige jingdian zhushi” 产权: 一个经典注释 [Property Rights: A Dictionary Definition]. In Caichan quanli yu zhidu bianqian: chanquan xuepai yu xin zhidu xuepai yiwen ji 财产权利与制度变迁: 产权学派与新制度学派译文集 [Property Rights and Institutional Change: Collected Papers on Property Right and New Institutional Economics ], 166. Shanghai: Sanlian shudian. Alchian, Armen A. and Harold Demsetz. 1972. “Production, Information Costs, and Economic Organization.” The American Economic Review 62, no. 5 (December): 777–795. Alchian, Armen A. [A.A. A’erqin 阿尔钦] and Harold Demsetz [H. Dengmusaici 登姆塞茨]. 1994. “Shengchan, xinxi feiyong yu jingji zuzhi” 生产、信 息费用与经济组织 [Production, Information Costs, and Economic Organization]. In Caichan quanli yu zhidu bianqian: chanquan xuepai yu xin zhidu xuepai yiwen ji 财产权利与制度变迁: 产权学派与新制度学派译文 [Property Rights and Institutional Change: Collected Papers on Property Right and New Institutional Economics ], 61. Shanghai: Sanlian shudian. Cheung, Steven N. S. 1970. “The Structure of a Contract and the Theory of a Non-exclusive Resource.” Journal of Law and Economics 13, no. 1 (April): 49–70. Demsetz, Harold. 1988a. “Introduction.” In Ownership, Control, and the Firm: The Organization of Economic Activity, edited by Harold Demsetz, Vol. 1, 1–2. Oxford: Basil Blackwell. Demsetz, Harold. 1988b. “A Framework for the Study of Ownership.” In Ownership, Control, and the Firm: The Organization of Economic Activity, edited by Harold Demsetz, Vol. 1, 12–28. Oxford: Basil Blackwell. Demsetz, Harold [Haluode Demusaici 哈罗德·德姆塞茨]. 1999. Suoyouzhi, kongzhi yu qiye—lun jingji huodong de zuzhi 所有权、控制与企业——论 经济活动的组织. Trans. by Duan Yicai 段毅才 et al. Beijing: Jingji kexue chubanshe. Guowuyuan fazhan yanjiu zhongxin nongcun jingji Sulian kaochatuan 国务院发 展研究中心农村经济访苏考察团 [Delegation on Rural Economy to the Soviet Union, Development Research Center of the State Council]. 1992. “Sulian nongdi zhidu de gaige: fangxiang yu kenengxing” 苏联农地制度的改革: 方向 与可能性 [Reform of the Farmland System of the Soviet Union: Directions and Possibilities]. Jingji shehui tizhi bijiao (1992.3): 19–24. Huke, Robert E. 1981. “Review of Asian Village Economy at the Crossroads: An Economic Approach to Institutional Change by Yujiro Hayami and Masao Kikuchi.” Economic Geography 59, no. 4 (1981): 456–457.

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Liu Shouying 刘守英. 1992. “Chanquan, xingwei yu jingji jixiao” 产权, 行为 与经济绩效 [Property, Behavior, and Economic Performance]. Jingji shehui tizhi bijiao (1992.2): 12–18. Liu Shouying 刘守英. 1993. “‘Liang tian zhi’ bianqian yu zhengfu xingwei” “两田制”变迁与政府行为 [“Changes of the ‘Two-field System’ and Governmental Behavior”], Nongye jingji wenti (1993.6). North, Douglass C. 1990. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press. Zhang Wuchang 张五常. 1987. Zailun Zhongguo 再论中国 [Revisiting China]. Hong Kong: Xinbao chuban. Zheng Fengtian 郑风田. 1995. “Woguo xianxing tudi zhidu de chanquan canque yu xinxing nongdi zhidu gouxiang 我国现行土地制度的产权残缺与新型农地 制度构想 [The Incompleteness of Property Rights in Our Country’s Current Land System and A New Concept of Agricultural Land System]. Guanli shijie (1995.4): 138–146. Zhou Qiren 周其仁 and Liu Shouying 刘守英. 1989. “Meitan: yige chuantong nongqu de tudi zhidu bianqian” 湄潭: 一个传统农区的土地制度变迁 [Meitan: Land System Changes in a Traditional Farming Area]. Internal document of the Office of Development, Agricultural Research Center, State Council (since republished in Tudi yanjiu baogao 土地研究报告 10).

CHAPTER 6

The Basic Logic of China’s Land Reforms

China’s land system reform has always been a hot and controversial topic, since it is an area where consensus is difficult to reach. After the Third Plenary Session of the 18th Central Committee of the CPC approved the “Decision of the Central Committee of the CPC on Some Major Issues Concerning Comprehensively Deepening the Reform” (中共中央 关于全面深化改革若干重大问题的决定) in November 2013, all sectors of society generally responded well to the content of the land system reform, but there have also been some dissenting voices, which is normal. In the face of disputes, the central government determined the principles of the land system reform. It decided on a plan, which was followed by local trials, and then it was uniformly put into effect, with laws leading the way. In my opinion, when society has not yet reached full consensus on an issue, forming policies and systems through testing and trials, and solving questions on the legitimacy of reforms through revisions to law, are the correct pathways to reform in this area. From a research perspective, there are many contending voices on this issue. Having such big disagreements is a good thing, since it can stimulate us to think more rationally and comprehensively and to analyze things more objectively. Recently, I have been thinking that if we are going to solve the land issue, we need to seriously clarify the strategies and pathways of the land system reforms since the Third Plenary Session of the 11th Central Committee of the CPC (December 1978), i.e., we need to © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_6

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reflect on the logic of China’s land system reforms, what kinds of problems they are now encountering, and whether they still work. One of my views is that over the past few years, a compromise is being sought on the advancement of the reforms, and that we may have already touched on the fundamental problems. If we do not work hard on fundamental problems and find breakthroughs on the deeper issues, it may be difficult for the reform of the land system to make great progress.

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Two Major Constraints on Choice and Change

China’s land system reforms have always been subject to two major kinds of constraint—a system constraint and a target constraint. The two constraints determine the choices and changes for the entire land system. As for the system constraint, the land system in China is a fundamental one in the country. Rural land is collectively owned, and urban land is owned by the state—these are the main forms of public ownership. In decision-making on reform, the topics that most attract people’s attention are how the land system may be reformed, the direction of the reforms, and how alternative institutional arrangements may affect public ownership. The system constraint is manifested mainly in three areas. First, in the legitimacy of governance. Because the CPC bases its governance on the remaking of ownership, firm adherence to public ownership determines the legitimacy of its governance. The farmers’ land, divided among them from the hands of the landlords under the leadership of the CPC, was the magic weapon with which the CPC obtained political power, so the public ownership of land is also the basis of the legitimacy of its governance. Second, in socialism with Chinese characteristics. The “characteristics” are embodied in the leadership of the CPC and its adherence to public ownership. The public ownership of land is the most unique institutional arrangement among all of China’s “characteristics.” Third, in the basic economic system. The “basic” quality is embodied in the coexistence of multiple economic components, led by the public ownership system, and the land system is the most basic system within the basic economic system. The system constraint basically determines which land system reforms are optional and which are not. The second kind of constraint is a target constraint. At the Second Plenary Session of the 7th Central Committee of the CPC (May 1949), Mao Zedong proposed transforming China from an agricultural country

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into an industrial one. The CPC has been working hard toward this goal since 1949. The core of this transformation consists of modernizing the economy. Whether during the planned economy period or the reform period, regardless of how many controversies, difficulties, and setbacks the country has faced, economic modernization has always been a basic consensus and goal of the ruling party. The Third Plenary Session of the 18th Central Committee (November 2013) put forward the “fifth modernization,” which is the modernization of the state governance system and governance capabilities—in fact, the modernization of the system. To transform China from an agricultural country to an industrial country, it is to a certain extent necessary for agriculture to serve industry and rural areas to serve cities. Therefore, the choices and the reforms of China’s land system have in fact always been faced with two constraints: the first has been that the land system is the most important form of public ownership, and the second has been that the distribution of land benefits must serve the goal of turning an agricultural country into an industrial country. These two major constraints also determine the threefold basic logic of China’s land system reforms: First, ownership is locked. Public ownership of land is locked, and other institutional forms are excluded. The main manifestations of public ownership are the state ownership of urban land and the collective ownership of rural land. This cannot be modified. What reforms can do is to explore the forms in which the public ownership of land may be realized. Second, a basic theme in land system reform has been to make an issue about the separation of the rights of ownership and the rights of use. The first level of the land system structure is ownership, and the second level is a configuration of use rights. By separating the two and expanding the power of use rights, full rein is given to the functions of property right incentives and stabilized expectations, the enthusiasm of land users is mobilized, and land use efficiency is improved. Third, land becomes a tool of development. Economically speaking, demand for land is a derivative demand. It should be inductive, i.e., land plays whatever role economic development wants it to play. However, from the planned economy period through the reform period on to the present, we somehow got it backwards. Through the entire development process, the land has actually acted as an engine—it became a tool for plotting development. In order to transform China from an agricultural country into an industrial one, and to achieve the goal of economic

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modernization, the land has fulfilled the role of engine, running at the head of the train and pulling all the carriages forward. In the reform of the land system, actually three kinds of land are looked at: the first is the contracted land allocated to farmers, the second is the house sites where the farmers build their houses, and the third is converted agricultural land, i.e., non-agricultural land that has been converted from agricultural land. In institutional change, since the ownership of these three kinds of land is basically locked in, the entire reform process is carried out through the logic of the “separation of the two rights” (ownership and use), but the functions of these rights are weakened at both levels. How shall we explain this? For the contracted land within farmland, the current logic is that we maintain collective ownership while strengthening the farmer’s rights of use. That is to say, property rights are strengthened after “separating the two rights,” (ownership and use), and then the system of ownership is changed so that ownership becomes a legal, nominal ownership. In the separation of the two rights, the latter (use) is stronger. This is the logic of reform for contracted farmland. For house sites, things are different. Although there is a separation of collective ownership and use rights for house sites, as the system has evolved for this type of land, the outcome is that the former has been strengthened, while the latter have become vague. When the house site system was being established, collective ownership rights became stronger and stronger, while the protections of farmers’ use rights, within the institutional framework, were lacking, so that the property function of house sites for farmers has basically disappeared. The situation for converted farmland is even worse. When the conversion of farmland sets into motion the structures of state ownership for urban land and collective ownership for rural land, the outcome of the “separation of the two rights” becomes in actuality a division between the two systems of ownership. This division leads to the cancellation of both the collective ownership rights and the land use rights of the farmers.

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Choice and Change in the Land System How Efforts to Reform the Land System Have Never Stopped

Institutional choices and changes with regard to land have attracted the utmost concern. Before the agricultural land reform of the 1980s took place, the results of such institutional choices after 1949 may be summarized in four sentences. The first is, Private ownership of farmland by landlords was abolished. This “land reform” basically consisted of abolishing private ownership by landlords and replacing it with ownership by farmers, but private ownership still remained. The second is, The farmers’ ownership was replaced by cooperative ownership, i.e., elementary communes. During the era of elementary communes (chuji she 初级社, 1949–1956), the land was still privately owned, but cooperative ownership replaced farmers’ ownership. The third is, Cooperative ownership was replaced by collective ownership. The “elementary communes” became advanced ones; during the People’s Commune era, collective ownership replaced cooperative ownership. The fourth is, The means of production (including land) were owned on three levels, and the production team was taken as the basic accounting unit. The three levels meant that the first level of ownership was the production team, but in fact there were several other levels of ownership that continued to play a role; however, the production team was still the foundation. Research on the defects of the collective ownership of farmland has already yielded a conclusion. Since administrative power replaced the function of property rights, the incentives for producers were low, and rewards were incommensurate with the amount of effort they put in, leading to poor production performance. Consequently, another reform took place—initiated at the grassroots-level and then implemented with the support and interaction with reformers at the local and central government levels—whereby farm output quotas were established for each household. These reforms were implemented throughout the country, and then institutionalized through law. Many people now criticize the rural land reforms for having stagnated since the mid-1980s, but in my opinion, this criticism is not very appropriate. In fact, the problem is not that there has been no reform—reform has always been going on, and efforts have continued since the mid1980s. The problem lies in the fact that the choice of system has been settled, so that things can only be done this way, i.e., strengthening use rights without disturbing the ownership system. How can this be done?

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First, the later reforms started with the contracting period. The most important thing for farmers as far as property rights are concerned is that they want stability of expectation. That is, they want the contract period to be continuously extended to the point that their relationship with the land is stable. A 15-year contracting period was set starting in 1984, and in the second round of contracting, it was extended to 30 years (during this period, it was proposed that “an increase in the number of people [in a household] will not entail an expansion of the land, and a decrease in the number of people will not entail a shrinking of the land” [zeng ren bu zeng di, jian ren bu jian di 增人不增地、减人不减地], and an experiment conducted in Meitan, Guizhou was elevated into national policy and law). In 2008, the “over a long term without change” proposal was raised. This institutional arrangement was made to stabilize expectations. There has always been a lot of controversy about “an increase in the number of people will not entail an expansion of the land, and a decrease in the number of people will not entail a shrinking of the land.” This was an institutional arrangement devised in 1987 by the central government, on the basis of the experiment at Meitan, Guizhou. At a time when it appeared that reforms would not be able to go on further, Mr. Du Runsheng 杜润生 proposed the establishment of a reform pilot zone, and there were three aspects of the proposed land system. One of them, tried in Meitan, Guizhou, was “an increase in the number of people will not entail an expansion of the land, and a decrease in the number of people will not entail a shrinking of the land.” In fact, this was a fundamental reform of the entire collective ownership system. One of the most important arrangements in the collective ownership system is membership in a collective economic organization: everyone has a share. Since everyone has a share, then if someone is added, he too should have a share, and if someone is subtracted, then his share should be removed. Therefore, the result of this membership-based arrangement in the system should be that land adjustments are made when the number of members increase or decrease. But the result of that, in turn, would be that farmers’ expectations are affected, and their shares of the land would become smaller and smaller. The pilot project in Meitan meant that the future relationship between farmers and the land would be fixed, and not adjusted for any increase or decrease of members. From that time onward, land would no longer move from anyone’s hands.

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The proposal of extending the contracting period “over a long term without change” was raised in 2008. As an institutional arrangement, “over a long term without change” meant that not adjusting land on the basis of any increase or decrease of collective members turned into a basic system arrangement. What does “over a long term without change” mean? The phrase as it originally appeared in the central government documents was “... [to be] implemented over a long term without change, based on a stable subcontracting relationship.” This means that people were to be in full correspondence with the land. Several reform proposals were raised when “over a long term without change” was suggested in 2008. One was to double the 30-year length of the subcontracting term, or extend it to 70 years, the same age as the state. The opposing voices at the time pointed out that even if the contractual period were extended from 30 to 70 years, it would still be a land system with a time limit. Another point of view was that a “permanent tenancy system” should be implemented. Some people at the time objected to this, saying it was a philosophical concept—nothing is really permanent—so the arrangement was later called “over a long term without change.” The institutional arrangement of “over a long term without change” really meant changing from a land system with a time limit to a land system with no time limit, so that whoever holds the land now can continue cultivating it for a long time. However, it said nothing about who the land belongs to—that would have been tantamount to breaking the first bottom line. One could only speak of who has the contractual management right of this land. The second reform after the mid-1980s was a fine-tuning of property rights. Recall that property rights consist of the right to use, the right to income, and the right to transfer the property. Actually, a great deal of effort has been made in this area in rural land reform. For example, the first reform in this area was to cancel the unified purchase and sale system in place during the early reform period; when the income right was given to farmers, the right to income was fine-tuned. In 2004, the Agricultural Tax was abolished, so that all income derived from the land went to farmers. Under the second reform, the principal status of farmers was constantly emphasized, so that property rights were transferred to families and farm households. Farm households are the principals of property rights—this is something that has been emphasized since the 1980s, and it was constantly re-emphasized in the 1990s, because many people thought

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that the farm household was too small a unit, or that farmers were ignorant and did not understand the market. To maintain the principal status of farm households, the family contracting management system was even defined as a basic operating system and “the two-level management system that is based on household contractual management and combines centralized operation with decentralized operation” was written into law. In addition, since 1984, farmers have been allowed to transfer land. Since then, the rules of land transfer have been continuously improved, with the establishment of the principles of “lawful, voluntary, and compensated.” The third reform since the mid-1980s was legalization, i.e., the contractual management rights stipulated in the Law on Land Contracts in Rural Areas and the Property Rights Law were made into a property right, so that the original contracting and subcontracting relationship (a contractual relationship) became the farmers’ property right to the contracted land. 2.2

Outcomes of the Logic of “Separating the Two Rights”

Obviously, the people who were engaged in designing the system, with its logic separating ownership and use rights, were very painstaking in their efforts. If we can continue going down this path of reform, then we shall do so. But now it seems that there are more and more problems. What are the outcomes of the logic of the reforms “separating the two rights”? First, the “collective” still appears from time to time. The original intentions behind the reforms were to consolidate the right of use, let property rights fulfill their function, and let farmers cultivate the land well. However, events later on proved that because the collective still exists as a single-tier entity (yiji zhuti 一级主体),1 some collective organizations will interfere with farmers’ property rights. The second problem is that the explanations attached to whatever “things” are grown by the “collective” are vague and unclear. This is a very big issue in rural governance nowadays. Currently, the collective shows its real strength mainly by being the first to act; strongmen within

1 Translator’s note: This term derives from the slogan “ownership on three levels” (sanji suoyou 三级所有) of the collective era, with “ownership” referring to the means of production, which includes land. The still-existing collectives are the remnants of the old “production teams” of the People’s Communes; ownership on the earlier three tiers has become ownership on a single tier.

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the collective take it upon themselves to convert farmland into land for construction. This has happened in Huaxi Village (华西村, a wealthy community in Jiangyin, Jiangsu) and in all the villages surrounding Beijing. Now these things grown by the “collective” are a source of endless trouble, due to an inherent lack of a clear property rights arrangement. The things grown by the “collective” nowadays cannot be separated from two institutional genes: one is dependence on collective land, and the other is dependence on collective membership. However, to whom do the things grown on collective land belong? As the vague, unclear things grown from the mother get bigger and bigger, more and more people get mixed up in them. This is leading to many difficulties in rural governance. The third problem is that the contracting and subcontracting relationship between collectives and farming households is at odds with empowering farmers with land property rights. As long as the collective’s ownership of land currently in the farmers’ hands does not change, the collective’s economic organization contracts it to the farmer. This sort of arrangement, in law, is a kind of contractual relationship, i.e., an obligatory creditor-debtor relationship. However, the Property Rights Law grants farmers land property rights. As the right of the creditor becomes property, how can the contracting and subcontracting relationship under collective ownership be realized? The fourth problem is that the idea of membership rights has been strengthened, which hinders the exercise of exclusivity in property rights. Given that ownership by the collective does not change, the outcome of reform is that ownership by the collective has become ownership by its members. The central policy intended to sever this tie, but the problem now is that people have internalized their membership. In farmers’ thinking, collective ownership means that everyone has a share. But once “everyone has a share,” this generates a very big conflict with two elements of the system mentioned above: “an increase in the number of people [in a household] will not entail an expansion of the land, and a decrease in the number of people will not entail a shrinking of the land,” and, “over a long term without change.” A farmer will say, “Don’t we have collective ownership? Then why is it, when my family grows, we don’t get more land? And why is it that, when my neighbor’s family shrinks, they don’t lose any land?” They will also ask, “Why is it that when the collective’s assets increase, it doesn’t give me any dividend?”

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Where do these things originate? From the entire concept of membership, which has strengthened into something deeply rooted in the farmers’ thinking. The collective ownership that farmers now recognize is a set of membership rights, but the final result of recognizing these membership rights is that it becomes difficult to exclude them from the property rights. For example, Nanhai District (南海区), in Foshan City (佛山市), Guangdong had always been exploring reform of the collective shareholding system, and in the end, it proved to be very difficult. Initially, when the agricultural land became collective construction land, the collective said, “You won’t have to cultivate your land any more—we’ll convert it to shares, and then everyone will be paid dividends based on their shares, and the land will be collected and managed.” This was in fact an extension of the rights of membership to non-agricultural land, and the farmers said yes to it. However, if this continues, one faces a big problem, and that is equity welfarization. As long as you are a member of a collective, there will always be money to share, and as a result, the assets grown on such a “collective” will never really mature. Because of the length of time involved, the farmers are not at ease. Later on, the people in Nanhai District tried to make the equity fixed—that is, members of the collective organization received dividends based on their shares, and when people were added to the collective, they purchased shares. But because the new people did not work, finally this approach was eventually done away with. Now they use families as units for the fixed equity: instead of continuously dividing things within the collective, the families divide things among themselves. The fifth problem is the combined protection of “contracting rights and management rights”—it is felt that neither is being protected. The Law on Land Contracts in Rural Areas and Property Rights Law protect farmers’ land contractual management rights. When the contractor and the manager is combined, there is no problem with “contractual management rights” as a kind of rights protection. In the early days of reform, farmers were basically farming on their own. However, later on, the contractor was not necessarily the manager. For example, 260 million people have now left the countryside, and even after leaving they still have the contracting right, though they no longer cultivate the land back home. In other words, the contracting right and the management right are separated. The outcome of the combined rights protection is that when the possessor of the contracting right no longer

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cultivates a parcel of land, he transfers out the management right, but the farmer continues to worry that once he does so, he will never get it back. This problem already occurred during the second round of contracting. In addition, the economic organization of the collective will sometimes weaken the farmers’ contracting rights in order to strengthen their own management rights. Therefore, the contracting rights and management rights are in fact separated, and nowadays, many problems are encountered in conjunction with the two rights as the system operates. Sixth, there have also been big problems relating to the conferral of contractual management rights. Contractual management rights now encompass the rights of occupation, use, derivation of income from, and transfer of a property, but the property cannot be collateralized, used as security, or inherited. As a result, there was a great deal of dispute over collateralization or mortgage and security rights whenever contractual management rights were bestowed. Everyone worried that when a contractor incurred risk in a mortgage, it would lead to the loss of contracting rights. Therefore, in 2013, the Third Plenary Session of the 18th Central Committee of the CPC separated the contracting right and the management right: the right of mortgage was established for management rightholders, but not for contracting rightholders. But did this solve the problem? Not really. Another problem has been the lack of inheritance right. Now, among the farming households that had participated in the first round of contracting, the elderly couples that had headed them are long gone. Does their land go back to the collective, based on the contractor-subcontractor relationship, or does it pass down to the next generation, based on property rights? If it passes to the next generation, is it split among the inheritors, or does it go to the eldest son, as traditionally done in Japan and Europe? The system has no arrangement for such things.

3

Choice and Change in the House Site System

The structure of the house site system is more complicated. Before the reforms, the logic of the house site system was not very consistent with the logic of the contracted land system. First, the private ownership rights of a house site were always kept by the commune—unlike the farmland, because at that time it was desired that agricultural land had to serve the purposes of industrialization. Second, there was the “separation of three rights”: the collective ownership of the house site was separate from the

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farmer’s right of use of the house site, and the right of use of the house site was separate from the private ownership of the house itself. That is, ownership was collective, use right was given to the farmers, and the house was privately owned. Even during the Cultural Revolution, documents put great emphasis on this stipulation: the parcel of land occupied by the house was not transferable. Thus the “separation of three rights” system was actually formed before the reforms. After this system was formed, the structure of the house site system since the reforms have had the following features: First, it included a system in which farmers could obtain their house sites from the collective for free. This was made definite after the reforms, but after the farmers received this parcel of land, what if they wanted to build their own houses? Second, membership status through the ongoing reforms has been difficult to realize. Before the reforms, there were many documents stipulating that as soon as any military person, teacher, overseas Chinese, and so on who had once left the village returned, that person could be allotted a house site. After the reform, membership status was strengthened: as long as you are member of the collective economic organization, you can receive a house site. However, since the number of house sites in a village is limited, how will the distribution needs of an increasing number of members be met? Third, the designation of house site land as a category of land for construction occurred only after the initial reform. Because the Law on Land Administration did not go into effect until 1987, before this time, there was simply no land category called “construction land” ( jianshe yongdi 建设用地). However, as for which rights appertain to the house sites, the Law on Land Administration does not say. After being classified as construction land, house sites are subject to construction land indicator control, and to build houses on them, farmers must obtain permits based on the construction land indicators. But in fact, it is fundamentally impossible for a farmer building a house to obtain such a permit, because once control of the indicators reaches the county level from higher levels, the county uses them to issue permits for construction and development. How is it possible that the county would extend such a permit to a farmer? Therefore, the designation of house sites as construction land is not reflected in rights—only in a strengthening of control. If the farmer uses construction land, it is considered a violation of the law.

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Fourth, government regulation increased. A farmer has a special kind of usufructuary right on his house site. Generally, usufructuary rights include the right to occupy, the right to use, and the right to earn income from a property, but only the rights to occupy and to use appertain to the house site—there is no right to earn income here. Therefore, the house site system has become a right of residence that a member obtains free by virtue of his or her status from the collective economic organization. What have been the consequences of the reform logic of “separation of three rights” in the house site system? First, the fact that the collective locks up the boundaries of each house site has proven to be more harmful than good. One basic boundary of a house site is that only a member of the collective economic organization can obtain it, and ever since that boundary was locked, non-members cannot use it. But is this lock effective? Although the boundary is legally locked, it is rather the boundaries of the collective of which the house site is part that are being constantly broken. Especially along the coast and in suburban areas, the divergence between the law, which defines house sites by membership status, and the reality is steadily growing. Second, in comparison with contracted land, collective ownership of house sites has been realized, but the right of use has been weakened. This will be a very big problem that the reform of the house site system is facing. In which direction will it be changed? Will collective ownership be further solidified, or will it make right of use even stronger, as it is with contracted land? The difference is now quite large: some people say the former should be stronger, and others say the latter. Third, the right to use a house site and the ownership of a house are now separately empowered. The right to use a house site is the collective’s—it is the use right under collective ownership—but the house itself is privately owned by the farmer. The documents from the Third Plenary Session of the 18th Central Committee of the CPC (2013) mention that the farmers’ housing property rights may be, as a pilot, mortgaged, used as a guarantee, and transferred, but they do not mention the right of use of a house site—this means they were thinking of making house ownership more and more important in the future. However, this ownership lies on the foundation of the use right of the house site, and there is a physical indivisibility and division of powers between the two. The farmers have come up with many workarounds, and in some places they now basically equate the house site use rights with their ownership of their houses.

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Fourth, making house sites into a kind of construction land only strengthened the power to control use, but full use rights were not extended to farmers on this construction land. The rights appertaining to a house site include only the right to occupy and the right to use, but not the right to derive income. However, the difference between the rights attached to house sites and to construction land is growing larger and larger. In fact, a great number of farmers’ house sites are already being traded. In addition to the coastal areas, this is happening basically wherever rural populations are highly mobile.

4

Choice and Change in the Rural Land Conversion System

Let us first look at the arrangements of the rural land conversion system. First, the state ownership of urban land and collective ownership of rural land as stipulated in the 1982 Constitution amount to the greatest single set of institutional arrangements for the conversion of rural land. In the beginning, the design of two coexisting systems served the purpose of preserving the rights of the collective, but after China entered its period of high-speed urbanization, the arrangement of the two ownership systems instead served the process of nationalizing land. Second, the conversion of agricultural land is always done through expropriation. In other words, expropriation is done based on the land’s original use. Third, the designers of these institutional arrangements claimed to have made reference to modern Western countries’ land zoning regulations, but in fact, it was the “three layers of control”: urban planning, land use regulation, and ownership control. Now the conversion of land is all a part of urban planning, which expands outward from the center. Urban planning is a kind of “hard plan,” with hard constraints. Then, what is controlled by land use controls? They control the conversion of agricultural land to construction land; they are controls on the scale of land conversion and on land use. Since urban planning is a hard constraint, land use control is actually a soft constraint. Fourth, city and county governments monopolize the primary market for land. Fifth, there is a set of institutional arrangements relating to land capitalization and land mortgage financing.

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The advantage of these arrangements supporting the entire land conversion process is “speed.” This is how the face of entire cities have been able to change all at once, why industrialization and development have been able to go so quickly, and why China has become the “world’s factory” and the world’s second largest economy. However, these arrangements have had the following aftereffects: (1) The entire economy operates along a vicious circle: land assignments → local government credit guarantees → land mortgage and financing platforms → reliance on real estate as an export. All four of these links now deserve close attention. Land assignments,2 local debt, land mortgaging and financing platforms, and real estate are all facing risks. First of all, the era of low-cost urbanization, which was supported by land assignment revenue, has ended. The cost of land acquisition, demolition, and resettlement is very high, and local governments’ net income from land transfer continues to decline. Second, local debt is basically supported by land assignment revenue and by taking out new loans to cover old ones. Third, there are many problems with land mortgaging and financing platforms. Finally, real estate is facing a big problem: with land prices and real estate prices so sky-high, is it really possible for real estate companies to build and sell so many high-priced apartments? (2) Everyone now advocates “the new urbanization”: efficient, inclusive, and sustainable—meaning that the old urbanization becomes inefficient, non-inclusive, and unsustainable. (3) A dilemma in land governance. The Third Plenary Session of the 18th Central Committee of the CPC (2013) proposed modernization of the governance system and governance capacity. If the land governance problem is not resolved, this modernization will be difficult to accomplish. (4) Issues of the “new farmers” (新农民). Formerly, it was always said that farmers’ issues were always problems of farmers in rural villages. One issue with new farmers now is that they cannot obtain any share of the interests on land—it is a problem of value-added 2 Translator’s note: It is important to remember that when “assignment” (churang 出 让) is used in conjunction with land, it refers to the state or local governments’ assignment of the right to use the land, which is an important source of revenue.

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income distribution. Another issue is the dilemma—a very serious one—that exists between farmers who move into a city and the land they leave behind, and it is necessary to find a solution.

5

Land Reform Must Be Done from the Roots

In general, the most important theoretical bases supporting this system are: (1) public ownership; (2) the special nature of land; (3) the landuse control system; and (4) the benefits of land value increases, which return mainly to local governments. No one can claim that we have not worked hard to reform the institutional arrangements for the conversion of contracted land, house sites, and agricultural land under the “separation of the two rights” and the system of immovable ownership. If we continue following this reform logic, we will face very big dilemmas, and we need enough wisdom to find a new reform logic. In my opinion, it is time to reflect on the logic of the separation of the two rights and begin to do surgery on its roots. This will involve the following: My first recommendation is the reform of collective ownership. If reform of collective ownership is not pushed forward, it will be very difficult to continue using the model of the “separation of the two rights.” If reform is needed now, which route shall we follow? Under the public ownership system, will it be feasible to change the system of collective ownership? The first would be the reform of farmland. Besides “over a long term without change,” another important system design is the reform of the contractual management rights, which endows the contracting right with the functions of possession, use, income and circulation. That is to say, the contracting right is realized (right of use, right of income, right of circulation), and then the contracting right is transferred to the future managers, and the right of management is endowed with more complete rights. The second would be the reform of house sites, which is currently the most controversial area, because everyone worries that farmers will simply sell off their house sites, causing them to be displaced en masse, so now the talk about house sites has been on “protecting the farmers’ usufructuary rights on the house sites, reforming and improving rural house site system,” and then, “Select a number of pilot projects for prudently and

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steadily advancing farmers’ rights to promote the rights to mortgage, use as security, and transfer their residential property.” Basically, this is still designed according to the “separation of three rights” system (i.e., the collective ownership of the house site is separate from the farmer’s right of use of the house site, and the right of use of the house site is separate from the private ownership of the house itself). What would the core of the institutional reform of the house site be? If the usufructuary rights on the house site are still limited to the right of occupation and the right of use only, that would not amount to any reform. The important issue is to which extent that usufructuary right on the house site should be expanded. My recommendation would be to expand the usufructuary rights on the house site, at the very least, to be equivalent to those of usufructurary rights as they are generally understood—namely, the right of occupation, the right of use, and the right of income—and then to reform house site usufructuary rights by category. For example, in urban–rural integration areas and coastal areas, which no longer have welfare distribution, pilot reforms can be carried out on house sites based directly on the property rights system. Occupation, use, income, and transfer will be treated according to property rights. Reform in more traditional areas can be postponed a little. At the core of another reform for improving the house site system is the question: to what extent can the system, which is based on the free distribution of house sites to members, be reformed? How can it be improved? My suggestions are, first, to change “free distribution” to “compensated distribution,” and to reform the system in which members are entitled to receive house sites. I have already mentioned that in the coastal areas and urbanized areas, there is no more welfare distribution. It may be possible to follow the process of urbanization in these areas and to open up the present system whereby boundaries are demarcated according to collective membership status, so that house sites can enter the land market. My second recommendation is to reform the separate governance of the two ownership systems. If the system of state ownership of urban land and collective ownership of rural land is not reformed, then it will be impossible to make progress in the reform of the system for converting agricultural land. The greatest problem now is determining how to solve the problem of state ownership of urban land. The most contentious area is the space between urban construction land and urban planning

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land. Much of this land has not yet been expropriated by the government, but the planning controls do not permit people to use it. Will this collectively owned land continue to be expropriated in the future, or will future reform follow the route suggested by the Third Plenary Session of the 18th Central Committee, of having “construction-use land that is managed by collectives enter the market”? This issue will be at the heart of future reform. Third would be the reform of the land governance system. At its heart, this deals with the relationship between the government and ordinary people, with the core issue being the distribution of land value-added income. If the design of the principles of distribution (farmers’ shares, different classification of farmers for income distribution, etc.) is not done well, it will become a powderkeg in the future. Finally, we must bring the land issue back to normality. Instead of having land serve as the engine driving development, it should rather induce demand. Recovering normality means changing the current model in which local governments must constantly depend on land assignments, and making them go back to being service providers instead of land business operators. Only on this basis will it be possible to design the arrangements of the entire land system according to modern principles. If land continues to be an engine for promoting development, the reform of collective ownership, the reform of the separate governance of urban and rural land, and the reform of the land expropriation system cannot really make progress. Only when normality is recovered on the land issue can other land system reforms be promoted, modern land systems be constructed, and society’s operations be normalized.

PART III

Empirical Studies on the Rural Land System

CHAPTER 7

Structures and Changes in the Collective Ownership of Rural Land in China

1

Basic Characteristics of the Studied Areas

To study the dynamics and influencing factors of China’s rural land system after the contracting of production to households (baochan daohu) was implemented, we selected eight representative sample research areas as the objects of our research. They are: Yin County (鄞县; ten villages), Yueqing City (乐清市; ten villages), and Shaoxing County (绍兴县; ten villages) in Zhejiang Province; Weihui City (卫辉市; ten villages) in Henan Province; Anfu County (安福县; six villages) and Nancheng County (南城县; ten villages) in Jiangxi Province; and Gongzhuling City (公主岭市; 13 villages) and Dehui County (德惠县; 13 villages) in Jilin Province. The selection of the sample areas was mainly to consider the differences of these counties (cities) in terms of economic structure, farmers’ income, living standards, crop types, geographic location, and land resource endowments. The basic characteristics of these sample research areas are shown in Tables 1 and 2. Table 1 lists the economic and resource endowment status of each sample study area when the household contracts were implemented, and Table 2 lists their situations during the survey year (1993). The 30 villages in Zhejiang Province, located in eastern China, are traditionally high-yield areas but with extremely scarce land resources. They are also in an area with the most significant structural changes after the reform. When household contracting was first implemented, the © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_7

153

0.61 4.22 674 206 1.7

2.89

645

532

30

Yueqing City

1.18

Yin County

17.1

396

690

3.75

0.82

Shaoxing County

19.2

206

218

4.6

1.8

Weihui City

7

408

270

4.5

4.85

Dehui County

10.6

471

429

4.4

4.13

Gongzhuling City

Main socioeconomic characteristics of the eight sample study areas in 1981

Cultivated land per capita (mu) Farm household land scale (mu) Grain yield per mu (kg) Net income per capita (yuan) Village average fixed assets (1000 yuan)

Table 1

0.99

118

304

5.4

2.5

Anfu County

6.59

251

485

5.1

1.87

Nancheng County

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0.44 3.8 682.8 165.5 1184 64 23.3

2.65

733

18.4 1687

59

2150

Yueqing City

0.89

Yin County

437.8

78

116.7 2340

897.7

3.45

0.66

Shaoxing County

51.1

22

81.8 959

575.7

4.14

1.56

Weihui City

10.3

11

142.7 759

373.1

4.53

4.47

Dehui County

6.9

16

185.7 929

544.6

4.1

3.81

Gongzhuling City

Main socioeconomic characteristics of the eight sample study areas in 1993

Cultivated land per capita (mu) Farm household land scale (mu) Grain yield per mu (kg) Orders per mu (kg) Net income per capita (yuan) Non-agricultural income share (%) Village average fixed assets (1000 yuan)

Table 2

1.7

17

126 866

458.5

4.7

2.25

Anfu County

11.7

9

212 973

557.5

4.9

1.66

Nancheng County

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grain yield per mu in these three counties (cities) exceeded 600 kg. At that time, Yin County and Shaoxing County had already accumulated a certain amount of collective assets. In 1981, the average fixed assets in the villages of these two counties had reached nearly 30,000 yuan and 17,000 yuan respectively, and their per capita income, 532 yuan and 396 yuan respectively, was also much higher than the national average. Over the ten years of the reform, these villages in Zhejiang Province maintained their high grain yields. By 1993, the grain yields per mu in the three counties were 733 kg, 682.8 kg, and 897.7 kg, respectively. However, the tension among people over scarce land resources had become even more conspicuous. In 1993, the per capita arable land in Yin County, Yueqing City, and Shaoxing County were only 0.89 mu, 0.44 mu, and 0.66 mu, respectively—meaning that in comparison with 1981, the per capita arable land had decreased by 0.29 mu, 0.17 mu, and 0.16 mu, respectively. The scarcity of arable land resources forced these regions to accelerate the pace of structural change, and this made non-agricultural income the main source of farmers’ income. By 1993, the non-agricultural income share of farmers in these three counties (cities) reached 59%, 64%, and 78%, respectively. The development of non-agricultural industries greatly increased farmers’ income levels. By 1993, the per capita net income of farmers in these three counties (cities) was as high as 1,687 yuan, 1,184 yuan, and 2,340 yuan, i.e., 3.17, 5.75, and 5.91 times their 1981 income levels. In sharp contrast with the 30 villages in Zhejiang Province, the farmers from the 26 villages in Gongzhuling City and Dehui County in northeastern Jilin Province may be said to have used their relatively expansive land resources from the past to the present to serve as their foundation. Per capita arable land in these counties (cities) was as high as 4.85 mu and 4.13 mu respectively when production was first contracted to households. By 1993, though per capita arable land had decreased, it was still as high as 4.47 mu and 3.81 mu. Due to abundant land resources, they fared better than other regions during the collectivization period. In 1981, their farmers’ per capita net income was as high as 408 yuan and 471 yuan respectively. However, after the reform, their land resource advantage had become a burden. On the one hand, for the farmers in these communities, the more extensive land resources per capita meant that the motivation for structural change was not as urgent as in areas with scarce land resources. Therefore, in 1993, their agricultural income still accounted respectively for 89% and 84% of their income. On the other hand, since they lived in a

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major grain-producing county or city, the farmers had greater obligations to deliver their grain to the state. In 1993, for example, the proportion of orders per mu in the two places accounted respectively for 38% and 34% of the grain yield. The basic characteristics of the 26 villages selected from Anfu and Nancheng Counties in Jiangsu and Weihui City in Henan were between those of the above two regions. The crop varieties of Anfu and Nancheng Counties were similar to those of Zhejiang, and are typical doublecropping rice cultivation regions. Fortunately, they were somewhat richer in land resources than the selected counties in Zhejiang, with per capita arable land in 1993 amounting to 2.25 mu and 1.66 mu respectively. However, since the reform they still maintained the characteristics of a typical traditional agricultural area: agriculture was still the main source of the farmers’ income. By 1993, the non-agricultural income shares in the two counties were still 17% and 9%, respectively. The slowness of structural change affected the increase in farmers’ income. By 1993, the per capita net income in the two counties was 866 yuan and 973 yuan respectively. However, they carried a heavy burden as a grain-producing area: the proportion of orders per mu in grain production was as high as 27.38% and 38% respectively. In comparison with these two counties, life in Weihui City, Henan was comparatively better. Non-agricultural income amounted to 22% of the farmer’s total income, and the average order per mu was also low, at 81.8 kg. It can be seen that the differences in the structural characteristics, resource conditions, and institutional constraints among these research areas facilitate our study of the evolution of China’s land system after the reform and of the factors that influenced it.

2

The Nature of the Household Contracting System in Land Collective Ownership

From land system reform through the many stages of collectivization, both the relationship between village communities and the outside world and the property and contract relationships within village communities underwent fundamental changes. Due to the strength with which these institutional reforms were carried out, the national interest was deeply rooted in the village communities’ land, and the relationship between village communities and the country was no longer a simple one: a village was no longer a communal entity that would be at peace if it were only

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to fulfill its obligations to pay taxes. After collectivization and rebuilding, the village leaders, even though they were not on the state payroll, shouldered the top-down connection at the most basic level in China’s political structure, and to a large extent acted as the implementers of the nation and government’s interests. Meanwhile, the collective ownership structure, which had been established through state action, was also quite different in meaning from the “common ownership” (gongyouzhi 共有制) discussed in economic theory: an arrangement in which every member of the “community” (shequ 社区) enjoys an exclusive right to use community resources. After living through many institutional transformations and living for more than ten years under the traditional collective system, Chinese farmers were no longer the “subsistence” (shengjixing 生计性) farmers of the past, who depended on the small plots of land that they owned (or rented). Through the remaking of collectivization, all farmers became collective members who enjoyed the rights to a share of the collective’s surplus after sending on what the state required. Under this institutional arrangement, every member of the collective had a right to basic survival (everyone had a food ration) and a right to share income according to gender, age, and the nature of their agricultural work (the work points system). Therefore, for these “commune members” who lived under the collective system, when they tried to change their living conditions by changing the institutional arrangements of collective farming in the late 1970s and early 1980s, they first had to face the question of how the interests of the state and the collective would continue to be protected when the system changed. The second question was how they would carry out a fair redistribution of rights and obligations within the collective. The protection of national interests was a prerequisite for the legalization of such new institutional arrangements. When household contracting was implemented, the collective continued to retain its status as landowner. Although this status did not confer as much power as enjoyed by the original production team, it still enjoyed the legal rights of land ownership, as well as the right to decide the division of the land, land adjustment, land use conversion, and land burden adjustment for the entire village. In addition, the realization of national interests was also guaranteed in its distribution of land. The specific method it used was to apportion the task of food acquisition, which originally was the collective’s, to each household, according to the size and the nature of the land apportioned to each household. Different collectives would adopt slightly

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different task allocation methods depending on their respective resource endowments and economic development. As for the specific methods by which the sample villages apportioned food acquisition, when we asked them how the grain obligations were shared when they contracted production to the households, a large majority of the villages in Zhejiang and Jilin (56.7% and 92.3%, respectively) had chosen the method of sharing grain order tasks equally based on the farmland for which they were responsible (i.e., their contracted land or zeren tian 责任田). However, a large majority of the villages in Henan and Jiangxi (60% and 90.9%, respectively) chose the method of sharing grain order tasks equally based on all of the collectives’ land. The regional differences in how the collectives apportioned tasks for the state may have reflected how they made rational adjustments based on their differences in resource endowment and in the degree of their farmers’ dependence on land. Compared with their protection of the national interest, the villages’ protection and realization of their own collective interests showed greater flexibility. On the one hand, in terms of rural organization and property rights structure, the villages continued to be the first-tier vehicles of rural grassroots political power, and at the same time, they were given the functions of land ownership, which provided the legitimacy for village committees to collect fees from farmers. On the other hand, although household contracting required farmers to “pay enough to the state and leave enough for the collective,” it was not clear from the beginning how much the “collectives” should keep and what they should do with it; the means of protecting collective interests were also not as powerful as those used to protect the state’s interests. The villages therefore showed great differences in the ways they protected collective interests through their implementation of contracting production to households. In Zhejiang, for instance, where community enterprises had attained a certain scale, only 36.7% of the villages received collective public funds from land, and more than half used revenue from channels other than land (36.7% from village-run enterprises and 26.6% from other sources) to defray public expenditures. In Jilin, 60% of the villages relied on other means besides land. It was only in Henan and Jiangxi where the vast majority of villages still depended on income from land to pay for public expenditures (see Table 3). From this, we can see that the flexibility that the farmers had in protecting collective interests in the early stage of household contracting

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Table 3 Allocation of national and collective interests in household contracting in the sample regions

National Tasks

Collective Public Funds

By population By total land By contracted land area By population By land Village enterprises Other

Zhejiang (%)

Henan (%)

Jilin (%)

Jiangxi (%)

3 40 57

20 60 20

0 8 92

9 91 0

0 36.7 36.7

20 80 0

4 36 0

0 91 0

26.6

0

60

9

may have been an expedient measure to reduce resistance to reform, but it also heralded the profound changes in China’s rural grassroots fiscal relations after the reform. After the beginning of the reform, this change at the village level moved toward two extremes. One extreme may have been due to some village leaders shifting their energies to non-agricultural fields, resulting in an improvement in the structural efficiency of community resource allocation and a reduction in the level of burden on land. The other extreme may have been due to the inability of leaders in some villages to open up other revenue sources; in order to pay for the basic expenses required to maintain the first-tier organization, the villages had no choice but to collect fees from farmers. However, after the right of use and right of income of land were given to the farmers, tension arose between the interests of the village-level organizations and the farmers as soon as the fees collected by the village committees from farmers became inconsistent with the supply of public goods needed by farmers. From the village-level perspective, the readjustment of land interests among the state, collectives, and farmers was not as critical or as difficult as determining how to redistribute land rights among farmers within a village. The crux of the problem was how to determine who had how much right to the collective land within the village. The difficulty lay in determining the extent of each member’s rights under the original collective system, and how each member was to be treated; at the same time, it also had to take into general consideration possible changes in the

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community’s existing resource endowments and the relationship between its people and its land. Collective property rights were manifested in the production team in two ways. First, every member of the production team had the right to membership (each member, regardless of whether they were men, women, young, or old, or whether they participated in collective labor, could get a share of rations). Second, the labor force in each collective enjoyed the right to a share of the income from the results of their productive work according to age, gender, and type of agricultural work performed. When the collective property arrangement changed its units of production and income distribution from the original production teams to farm households, it was necessary to make the rights that every member of the original production team had in the collective manifest (or concretized) for every member of the farm households. In theory, since this was an evolution of collective ownership, one possible way of redistributing land rights among village farm households was to divide the village collective land into two types: “grain ration fields” (kouliang tian 口粮田), where each person in the village with membership rights to the land would be given an equal share of the land, and “contract land” (zeren tian; also known as chengbao tian 承包田), to which everyone of working age in the village was entitled. However, when the villages actually divided the land rights, the differences among different villages’ resource endowments, structural conditions, and original distribution of benefits could also affect their transaction costs. As a result, villages may differ in the redistribution of land rights among each member, or in the specific arrangement of how many rights each person enjoys over the land. Below, we shall analyze the selection mechanisms that village farmers used to determine how many rights each member would enjoy, and how they divided the collective land.There were three possible arrangements for determining the amount of land rights each member would enjoy: 1. Dividing the land equally among the entire population of the village; 2. Dividing the land into ration fields and contract fields, with ration fields divided equally by population, and contract fields divided equally by labor; 3. Dividing all the land equally by labor.

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It is not difficult to conclude that, at the farmers’ level, the redistribution of land rights under the three arrangements listed above had the egalitarian colors that many people have already commented upon. But in fact, the quantity of land rights distributed under the three land rights arrangements were not the same. In the first, one can say that every member of the village had an absolutely equal share of the land, but in the second and third, this was not the case. In the second arrangement, each member has absolutely equal rights only to the ration fields, but as for the contract fields, only those of working age had an equal right. In the third arrangement, a member of the village could have rights to the land only after reaching working age. We can see, therefore, that the three arrangements, if ranked in their degree of equalization, would be: (1), (2), and (3). Table 4 shows the results of our survey. As for the methods of distributing land of different qualities, the community collective also had four different options: (a) Divide land of different quality equally. The usual practice was to first divide the community’s land according to different quality (good, medium, poor) and distance from the village, and then each farm household would obtain the land according to the membership rights it should have in the collective. (b) Evenly distribute only the medium-quality land; farm households would then draw lots for good and poor land. Table 4

Membership rights and methods by which farmers realized land rights

Person-land correspondence Method (1) Method (2) Method (3) Other Further land distribution methods Method (a) Method (c) Method (b) Method (d) Other

Zhejiang (%)

Henan (%)

Jilin (%)

Jiangxi (%)

16.7 53.3 26.7 3.3

100 0 0 0

3.8 92 0 4.2

36 64 0 0

92 0 0 4 4

91 0 9 0 0

60 3 20 7 10

70 20 0 10 0

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(c) First convert all the land into standard areas, which would then be randomly distributed among the farm households in the village. (d) Distribute all land to farm households randomly as to quality, but unlike method (c), farm households that received good land had to pay the price differential between good and poor land; the farm households that received poor land received the compensation accordingly. In terms of the probability of farmers obtaining land, the degree of egalitarianism of the above arrangements, in order, was: (a) > (b) > (c) > (d). However, if we rank these methods by cost, the order was just the reverse. In a way similar to their decisions on membership rights, most villages in Jiangxi and Henan provinces (91% and 70%) chose the absolute land division method. In Zhejiang, 60% of the villages choose an absolute land distribution method, and 40% of the villages choose a less equal land distribution method. In a way unlike their decisions on membership rights, most villages in Jilin also chose an absolute land redistribution method—this may be due to the relatively uniform land quality in the province. Through this analysis of the implementation process of the village-level contracting of production to households, we found that the significance and profound impact of the contracting of production to households that occurred in rural China in the late 1970s and early 1980s went far beyond the farmers’ basic motivation to survive by “equally dividing the fields.” It was essentially a revolution in the reconstruction of the land resource and property rights contracts within the villages—carried out by Chinese farmers after more than 20 years of collectivization. The structure of the collectively-owned land system arrangement formed by the reforms can be summarized as follows: First, the replacement of the production team by the farm household rebuilt the latter’s status as the basic unit of economic decisionmaking and income distribution. Second, farm households promised to “pay enough to the state and leave enough for the collective” in exchange for land use rights and residual rights of income, which not only protected the interests of

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the original interested parties under the new institutional arrangements, but also made the residual rights mechanism more effective in terms of realizing the incentive effect in production. Third, in their collective communities, farm households realized the membership rights of each member in the collective ownership through the apportionment of rights to and obligations regarding the use of collective resources by legal village members. In comparison with the original state-controlled land ownership structure, the “community orientation” of collective ownership after the reform was strengthened. Fourth, due to the relaxation of the state’s control over agricultural production organizations and specific property rights arrangements, the village community level gained greater autonomy in arranging the land system according to its own resource characteristics. This laid a legalized institutional foundation for China’s rural grassroots to independently adjust the form of land institutional arrangements in accordance with changes in structural and resource conditions in subsequent economic development.

3

Evolution of Farmland Property Rights After the Contracting of Production to Households

After developing a more realistic understanding of the internal mechanisms, constraints, and institutional arrangements of China’s rural land system reforms that occurred in the early 1980s, it becomes relatively easy for us to grasp further changes in the institutional arrangements for China’s farmland that occurred after these reforms. The next part of this chapter will continue to use the village data from this survey to analyze the context of these changes and the factors that determined these changes. 3.1

Factors Determining the Institutional Changes

Compared with the earlier rural system reforms of the socialist era and even the period when household contracting became widespread, among the driving forces of rural land system reforms after the contracting of production to households, the coercive influence of higher levels of government (especially the central government) was relatively weak, and when specific institutional arrangements were being chosen and changed,

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the community orientation became stronger. This change in the power balance of the institutional changes was essentially the result of the contracting of production to farm households. As mentioned above, if we look at the institutional arrangements of the late 1970s and early 1980s reforms, even though the central government produced a series of documents at the time to guide the reforms’ implementation, when the villages actually implemented them, they gave full consideration to their own actual situation without violating the spirit of the documents. In addition, and perhaps more importantly, this reform took the right to use land and the right to income from land and brought them down to individual farm households, which then brought added benefits to relevant interest groups. Therefore, as far as the higher levels of government were concerned, as long as their interests were not challenged by the implementation of this system, they would not be strongly motivated to change it. Moreover, after the rights to land were delegated to individual farm households, the costs and risks from readjusting the land system were also greatly increased. For example, such an attempt would bring instability to the farm households’ land rights and the destruction of their expectations, which would in turn damage agricultural productivity, as well as the interests of the state and other relevant groups. However, because of the strengthening of the community orientation of the land rights arrangement after the contracting of production to households, the farmland system would change even more in a direction compatible with communities’ resource endowments and structural characteristics. Therefore, our investigation of the further changes in the farmland system after the contracting of production to households also followed how changes in villages’ structural characteristic led to changes in the arrangements of the farmland system. In our earlier description of the sample areas’ characteristics, we had already seen increasing heterogeneity among Chinese villages after the reform. This heterogeneity was manifested, on the one hand, in the differences in degree of the tension over the supply of land resources within each village, and on the other hand, in the degree of structural change among them. Based on these two indicators, we could divide the sample research area into the following categories: the first category was an area where tension over the supply of land resources was greater, but the degree of structural change was great. The thirty villages in Zhejiang Province were of this kind. In 1993, per capita arable land in the three sample Zhejiang counties was 0.89 mu, 0.44 mu, and 0.66 mu, and their

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share of non-agricultural income reached 59%, 64%, and 78%, respectively. The second type was an area with a small amount of land resources and little structural change; examples such as Weihui City, Henan and Anfu County and Nancheng County, Jiangxi can be included in this list. Per capita arable land in these areas was, respectively, 1.56 mu, 2.25 mu, and 1.66 mu, and their non-agricultural income share was only 22%, 17%, and 9%. The third category was an area with a large stock of land resources but little structural change; Gongzhuling City and Dehui County in Jilin can be included in this list. Per capita arable land in these locations were as high as 3.81 mu and 4.47 mu, but their non-agricultural income shares were only 16% and 11% respectively. The increasing heterogeneity among villages inevitably brought changes in the thinking on land and the capability to implement land system arrangements among the main parties in the villages—the village committees and the farmers. This in turn could affect later adjustments to the land system arrangements, made in line with the individual villages’ resource endowments and economic structures and which varied somewhat from the time when production contracts were first issued to households. The relationship between changes in village structure and changes in the current land system was manifested mainly in two areas: first, whether and how changes in village resource endowment and economic structure affected changes in farmers’ thinking on land membership rights and adjustments of the corresponding land system arrangements, and second, whether changes in a village’s resource endowment and economic structure affected the above-mentioned changes in the agricultural land contract structure and in later adjustments of the land system arrangement caused by changes in contract structure. 3.2

Changes in Thinking on Membership and Adjustments of Land System Arrangements

As expected, after the contracting of production to households, the collectively-owned land membership system indeed became an important factor in village land readjustments. Among the 78 villages surveyed in the valid sample, 70% had undergone land readjustment, in which the basic consideration was demand in the village population for land membership rights. Among these readjustments, 32% involved a redivision of all land in the village, and 55% involved land adjustments based on changes in the population of farmers.

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At the same time, we also found that changes in the structural conditions among the villages had indeed led to changes in the farmers’ thinking on land membership rights. Among the 78 villages, those in Zhejiang had the lowest rate of land readjustment due to their relatively high share of non-agricultural income: 46.7% had not undergone land readjustment, and 30% of the villages had undergone it only once. In Jiangxi and Henan, however, where the share of non-agricultural income was still quite low, the land readjustment rate was higher. In Jiangxi, 36.4% of the villages had undergone one land readjustment, and 45.4% had undergone two; in Henan, 30% had undergone one land readjustment, and 70% had undergone two. Meanwhile, the resource endowment of villages also affected the frequency of land readjustment. This was specifically shown in the rural areas of Jilin: since the per capita arable land there was relatively high, the farmers were relatively unwilling to have the land readjusted. Thus, 30.8% of the villages had never undergone land readjustment, and 69.2% had undergone it only once. It is worth noting that our survey also found that, for the farmers, the structural changes impacted only the function and the content of their land membership rights. That is, after farmers turned increasingly to nonagricultural income sources, the importance of their income through their land membership rights declined. However, this did not necessarily lead to legal village members to abandon their “everyone has a share” rights to the land. When we asked whether the farmers’ land would be taken back when their economic and social status changed, we did so while thinking of the stability of farmers’ non-agricultural income and whether their contracting rights could be preserved. We considered the following three scenarios: (1) they leave the village, work in the city, and obtain a registered permanent residence; (2) they leave the village, live in the city, but do not obtain the same rights as urban residents; (3) they work in the city but still live in the village. Among the three scenarios, the level of dependency on the land is greatest in (3), lowest in (1), and somewhere in between in (2). The results of the survey showed that for scenario (1), most villages in the grain-producing areas (100% in Jiangxi and 60% in Henan) would reclaim their land from the farmers; the proportion in Jilin was lower, at 42.3%; and in Zhejiang, most villages would not reclaim the land. For scenario (3), in Jiangxi, 18.2% of the villages would reclaim the land, and 18.2% would force the farmers to transfer the land; in Jilin and Zhejiang, the degree of enforcement was second; only in Henan were there no

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restrictions. For scenario (2), the outcomes were somewhere between those of (1) and (3). The importance that farmers attached to land membership rights were verified in my own 1995 field investigation in Gangyan Village (港沿村), Yueqing City, Zhejiang (it was one of the sample survey villages). This village had made a major and thorough adjustment to the land system at the end of 1994, in which the collective retained ownership, each farm household had the right to occupy the land, and the land contractor had the right of use to the land. This differed from its original system, in which a person could retain membership right under his name, regardless of whether he used it, as long as he was a member of that village. After the village used various means to convey this decision to the villagers, wherever they were working or doing business, no one was willing to abandon his right to the land; one family even flew back from Italy to preserve this right. Therefore, when we consider the efficiency of the land system, this mindset among the farmers may need to draw our attention. The impact of changes in farmers’ social status on their land membership rights is shown in Table 5. 3.3

Changes in Contract Structure and Property Rights Arrangements

Similarly, as expected, resource ratio and structural change also affected the implementation of household contracting, which in turn produced an impact on farmland property rights arrangements. To reflect the impact of the degree of structural change on household contracting and on farmers’ land use rights, we selected two indicators: one concerned the guarantee of fulfilling obligations to the state, and its indicator was the attitude shown by a village government when a farmer’s contracted land was left uncultivated; the other, which reflected the realization of collective interests, was whether a village committee took back a farmer’s contracted land when he violated relevant village regulations. In the end, we found that most villages would not ignore the first situation: 62.3% of the villages would intervene in this behavior and impose penalties for it. But the degree varied in different regions. In economically developed areas, the village committee intervened more strongly on letting land go to waste. For example, in Zhejiang, where farmers’ nonagricultural income share was relatively high, 90% of the sample villages

0 0 10 30 60

30 0 60 10 0

10

40 20

30 0

50

20 0

Yueqing City (%)

20 10

Yin County (%)

0 10

70

20 0

70 10

20

0 0

Shaoxing County (%)

30 0

10

60 0

0 100

0

0 0

Weihui City (%)

25 6

25

44 0

0 61

13

13 13

Dehui County (%)

20 20

20

20 20

20 60

20

0 0

Gongzhuling City (%)

Changes in farmers’ social status and their influence on farmers’ land membership rights

1. Farmers “go out” to work: All land is reclaimed Only contracted land is reclaimed Land is compulsorily transferred Compulsory planting No regulation 2. Farmers become city residents: All land is reclaimed Only contracted land is reclaimed Land is compulsorily transferred Compulsory planting No regulation

Table 5

0 0

0

100 0

0 67

33

0 0

Anfu County (%)

0 0

0

100 0

0 60

0

40 0

Nancheng County (%) 7 STRUCTURES AND CHANGES IN THE COLLECTIVE …

169

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would intervene. The other provinces, in order, were Jilin, at 60%, Jiangxi, at 54.5%, and Henan, at 10%. The difference in the disposal of farmers’ land rights in different regions was related to the difficulty these regions had in fulfilling their obligations to the state: the more developed a region was, the lower the willingness of farmers to depend on fulfilling obligations to the state in exchange for reaping the benefits of farming. Therefore, villages in these regions had greater difficulty in meeting their obligations to the state. However, the fulfillment of obligations to the state was not negotiable at the village level, so this inevitably led to stronger governmental intervention in farmers’ land use. This was also confirmed by our investigation in Yueqing City, Zhejiang. There, to prevent land from going to waste, the local government stipulated that farmers would be fined 1,500 yuan for every mu of land left uncultivated. In contrast, when protecting collective interests, the constraints on land property rights were much weaker. With regard to the second indicator—the handling of people in the village who violated village rules—most villages, with the exception of some villages in Jiangxi and Jilin, could not easily rescind farmers’ contracting rights. The impacts of the protection of state and collective interests on land property rights is shown in Table 6. Because the village committees’ interventions in dealing with farmers’ land are mainly based on the fulfillment of obligations to the state, they generally did not intervene strongly in cases that did not jeopardize the property rights arrangements they had made in fulfilling those obligations. More specifically, with regard to handling land inheritance during the contract period, 53.2% of the villages permitted their natural inheritance, and another 19.5% permitted it as long as the case was filed with the village committee. Similarly, in the handling of farmers’ land transfers, our survey results showed that when farmers wanted to transfer land, whether freely or with compensation, most villages also permitted it, as long as they fulfilled their food crop obligations or filed the request with the village committee. It was only when farmers wanted to assign their land for a certain price that the attitude of most village committees became stricter. This differed from the usual view of Chinese agricultural economists, which held that the low rate of land transfer after the implementation of household contracting was due to the restrictions imposed on land transfers. Our analysis did not support this judgment. The reasons for the low rate of land transfer could be sought in other areas.

0 0 70 30

40 0 0 60 80 10 0 0 10

100 0

60 10 10 20 40 20 0 0 40

Yueqing City (%)

0 0

Yin County (%)

20 0

0

60 20

30

0

50 20

100 0

0 0

Shaoxing County (%)

20 20

0

30 30

30

0

70 0

80 0

10 10

Weihui City (%)

0 12

0

69 19

68

19

13 0

44 50

0 6

Dehui County (%)

20 30

10

30 10

20

40

40 0

80 20

0 0

Gongzhuling City (%)

Impacts of the protection of state and collective interests on land property rights

1. Land deserted Ignored Only contracted fields looked after All land looked after Not regulated 2. Villager violations of village regulations Behavior halted Cessation of villager benefits Reclamation of farmers’ land Other 3. Inheritance of land Permitted Permitted with village consent Permitted only for ration fields Not permitted Other

Table 6

17 0

0

66 17

83

0

17 0

33 50

17 0

Anfu County (%)

(continued)

9 17

1

53 20

20

80

0 0

80 20

0 0

Nancheng County (%)

7 STRUCTURES AND CHANGES IN THE COLLECTIVE …

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(continued)

4. Land transfers 1) Compensated land transfer Permitted Permitted with village consent Not permitted Other 2) Uncompensated land transfer Permitted Permitted with village consent Not permitted Other 3) Permanent transfer Permitted Permitted with village consent Not permitted Other

Table 6

90 10 0 0

0 50 10 40 50 20 20 10

10 10

30 70 0 0 20 50 20 10

Yueqing City (%)

30 50

Yin County (%)

20 20

20 40

0 0

70 30

0 0

60 40

Shaoxing County (%)

20 50

20 10

0 10

50 40

20 30

50 0

Weihui City (%)

19 62

6 13

6 18

63 13

6 18

63 13

Dehui County (%)

0 10

60 30

0 20

40 40

0 20

40 40

Gongzhuling City (%)

83 0

17 0

33 34

33 0

33 34

33 0

Anfu County (%)

20 20

40 20

0 0

100 0

0 0

100 0

Nancheng County (%)

172 S. LIU

7

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Conclusion and Policy Implications

The first conclusion of this chapter is that after the household contracting reform of the late 1970s and early 1980s, the power that governed the changes in China’s rural property rights system underwent major changes. The central government’s control over the structure of land ownership and its dominance in the configuration of interests, as it was under the traditional system, gave way to influences in the community structure (including the actual strength and interests of the various stakeholders). Therefore, after the reform, the widening differences of economic structure in rural communities and the villages’ varying capability in community integration inevitably led to a diversification of changes in the structure of rural land property rights arrangements. The second conclusion is that after the power of the community was strengthened as institutional arrangements evolved, the land system’s evolution depended on the impact of these changes of structural factors on the new collective land rights structure formed by household contracting. Specifically, changes in the economic structure could affect land’s importance for farmers’ income, which inevitably led to changes in farmers’ thinking on membership rights in collectively owned land. This change will form the main line of change in the path of collective ownership in China. In other words, the fate of China’s collective ownership will depend on how farmers’ thinking on land membership rights evolves, which in turn will depend on future changes in economic and social structure. Therefore, our field survey left us with a very meaningful case study, which enables us to observe how a resource under co-ownership can further evolve.

CHAPTER 8

China’s Rural Land System: Features and Problems

China’s current rural land problems can be broken down into three main areas: the farmland contracting management rightssystem, the house site system, and rural collective construction land. This chapter will sort out how the corresponding rural land systems were formed, the systems’ features, and the problems that have arisen in each of the three areas.

1

Establishment of the Household Contracting System

The Third Plenary Session of the Eleventh CPC Central Committee (1978) opened the curtain on China’s reform and opening up, of which the reform of the rural land contracting system led the way. This systemic change, which has had a major impact on the fate of hundreds of millions of farmers in China and the country as a whole, was initially launched in poverty-stricken areas. It later won the praise of reform-minded local and central leaders, and was then carried out throughout the country through a policy push and finally through institutional establishment by law (Zhou Qiren 2013, pp. 161–173). In September 1980, when the CPC Central Committee issued a circular entitled “Several Problems in Further Strengthening and Improving the Responsibility System in Agricultural Production” (关于 进一步加强和完善农业生产责任制的几个问题), it could only stress that © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_8

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“the collective economy is the unshakeable foundation of the advances of China’s agriculture toward modernization,” due to the constraints of the institutional environment and ideology of that period. At the same time, it required that China “should begin from [consideration of] actual needs and conditions and allow multiple forms of operation, multiple kinds of labor organizations, and multiple kinds of compensation methods to exist simultaneously.” As for the various forms of the household contract responsibility system, such as the contracting of production to households (bao chan dao hu 包产到户, i.e., assigning production responsibility to peasant households) and the contracting of wide-ranging output quotas to peasant households (bao gan dao hu 包干到户, which came later), these could only be subject to differential handling: they were limited mostly to remote mountainous regions and impoverished areas that had, for a long period of time, “depended on food sold back to them by the state in order to eat, depended on loans in order to produce, and depended on relief in order to survive,” and to production teams where the masses had lost confidence in the collective. By 1982, policymakers had become even more determined to implement reforms. The first central document of the CPC Central Committee for that year was devoted to the issue of agricultural production responsibility. This document emphasized that “China’s agriculture must adhere to the road of socialist collectivization, and the public ownership of basic production materials such as land is, for the long term, unchanged.” At the same time, it stated clearly that “the production responsibility system that the collective economy must establish is also, for the long term, unchanged.” It clearly affirmed that the operational method of contracting of wide-ranging output quotas to peasant households, wherein each household operated independently and was responsible for its own profits and losses, was established on the foundation of public land ownership. Farmers and collectives maintained a contractual relationship, which differed from the small, private, individual economy before communization, and they became an integral part of the socialist agricultural economy. In theory, it demonstrated the relationship between the agricultural production responsibility system and mainstream ideology and eliminated the ideological hindrance to the reform of the household responsibility system. In 1983, the CPC Central Committee issued the circular, “Several Issues Concerning Rural Economic Policies” (当前农村经济政策的

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若干问题), which comprehensively demonstrated the rationality of the contract responsibility system for joint production: Using farm households or groups as contracting units, it has expanded the autonomy of farmers, given full rein to the strengths of small-scale operation, and overcome the ills of overconcentrated management, ineffective shows of labor, and egalitarianism; it has also inherited the positive results of earlier communization, and firmly maintained public ownership of basic production materials such as land as well as certain functions of unified management, which have enabled the new productivity to work more effectively for many years. This operational method, combining decentralized and unified operational methods, has broad adaptability; it can adapt to the current situation of manual labor and characteristics of agricultural production, and it can adapt to the need for productivity development in the process of agricultural modernization. Under this mode of operation, household management contracted by separate households is only one management level in the cooperative economy and a new type of family economy. It is essentially different from the small, private, individual economy of the past, and [the two] should not be confused.

From this time, the debate at the policymaking level on the basic system for rural areas came to an end, and the household contract responsibility system was universalized throughout the country. By the end of 1984, 99% of the production teams and 96.6% of the farmers in China were engaged in the contracting of output quotas to farm households (Du Runsheng 2008). 1.1

Formation of the Household Contract Responsibility System

With the establishment of the rural household contract responsibility system, the policy orientation of the rural system mainly focused effort on empowerment with property rights, perpetuation, legalization, and institutionalization of the right to manage agricultural land contracting. First was to continuously extend the land contract period and stabilize the relationship between farmers and the land. The first central document of CPC Central Committee issued in 1984, “Circular on Rural Work in 1984” (关于 1984 年农村工作的通知; CPC Central Committee and State Council, 1984, No. 1) proposed “extending the land contract period, encouraging farmers to increase investment, cultivating land resources, and implementing intensive operation. The land

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contract period should generally be more than 15 years.” During the second round of contracting in the early 1990s, the land contract period was extended to 30 years. In 2008, the Third Plenary Session of the 17th Central Committee proposed “stabilizing the existing land and contracting relationship and implementing it over a long term without change.” Second was to establish the household contract responsibility system as the basic economic system of rural China. In 1991, the CPC Central Committee, in its “Decisions on Further Strengthening Agriculture and Rural Work” (关于进一步加强农业和农村工作的决定), first proposed: a two-tier management system that combines the responsibility system based primarily on household contract production and a system of unified management combined with independent management, to serve as the basic system of rural collective economic organizations in China, to be stabilized over the long-term stability and continuously improved.

This was further given further emphasis in “Policy Measures Concerning the Current Development of Agriculture and the Rural Economy” (关于当前农业和农村经济发展的若干政策措施; CPC Central Committee and State Council, 1993, No. 11) and the Third Plenary Session of the 15th CPC Central Committee in 1998. The 1999 Constitution clearly states, “The rural collective economic organization implements a two-tiered management system based on family contract management and a combined unified and independent management.” The Law on Land Contracts in Rural Areas of 2002 clearly states that “the state implements the rural land contract management system.” In 2003, the Third Plenary Session of the 16th CPC Central Committee further strengthened the expression: “Land household contracting management is the core of the basic rural management system.” The Property Rights Law of 2007 stipulated: The rural collective economic organization shall implement a two-tier management system characterized by the combination of centralized operation with decentralized operation on the basis of household contracted management. The system of land contracted management shall be implemented to the cultivated land, wood land, grassland, and land for other agricultural uses that are owned by farmers’ collectives as well as those that are owned by the state and exploited by farmers’ collectives.

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When this system came under continuous questioning, the Third Plenary Session of the 17th Central Committee in 2008 fully affirmed the status and function of this system with a very clear attitude: The two-tier management system based on household contract management and a system of unified management combined with independent management is the basic rural management system, one that adapts to the socialist market economy system and conforms to the characteristics of agricultural production. It is the cornerstone of the party’s rural policy and must be unswervingly upheld.

Third was to clarify the content of land rights under the household contract system and to improve land contract management rights . (a) The public nature of farmland was declared. At the beginning of reform, it was made clear that: “Contracted land may not be bought or sold, may not be leased out, and may not be converted into a house site or land for other non-agricultural uses.” When the Law on Land Contracts in Rural Areas was promulgated in 2003, it was further clarified legally: “After the contracting of rural land, the nature of the land’s ownership remains unchanged. The contracted land cannot be bought or sold.” (b) The relationship between the collective owner and the contractor was clarified. The Law on Land Administration (adopted at the 16th Meeting of the Standing Committee of the Sixth National People’s Congress on 25 June 1986) states: “Land owned by farmers’ collectives shall be contracted and managed by members of the collective economic organization. The contractor and subcontractor shall conclude a contract that stipulates the rights and obligations of both parties.” The Rural Land Contracting Law (adopted at the 29th Meeting of the Standing Committee of the Ninth National People’s Congress on 29 August 2002) stipulates: Members of rural collective economic organizations have the right to subcontract rural land contracted out by the collective economic organization according to law. No organization or individual may deprive or illegally restrict the right of members of rural collective economic organizations to subcontract land.

(c) The farmers’ contract management rights were protected as property rights. Policies and relevant laws through the years stipulate that during the period of statutory contracting, no organization or individual may

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interfere with farmers’ autonomy in production and operation, illegally adjust and take back contracted land, forcibly transfer contracted land against the farmers’ will, or illegally occupy farmers’ contracted land. (d) The power of land contracting right was improved, and the land property rights of farmers was protected by law. The Third Plenary Session of the 15th CPC Central Committee (1998) and the Third Plenary Session of the 17th CPC Central Committee (2008) proposed to protect farmers’ rights to occupy, use, and derive income from contracted land in accordance with law, and to grant farmers long-term and guaranteed land use rights. The Rural Land Contracting Law (adopted at the 29th Meeting of the Standing Committee of the Ninth National People’s Congress on 29 August 2003) further listed out the rights of contractors, i.e., the right to use, derive income from the contracted land, the right to transfer the contracted land management right, and the right to autonomously organize production, operation, and disposal of products. If the contracted land is expropriated or occupied, farmers have the right according to law to obtain corresponding compensation. During the contract period, the contractor may not take back the land from the subcontractor nor make adjustment to the subcontracted land. (e) Special provisions were made to protect of subcontracting rights and interests of migrant workers. In response to cases in which farmers in many places lost their subcontracting rights when they went elsewhere for work, and an increase of disputes arising from such cases, the State Council in 2004 issued the “Urgent Notice on Appropriate Resolution of Current Rural Land Contract Disputes” (关于妥善解决当前农村土地承包纠纷的 紧急通知), which clearly stipulated: During the statutory contracting period, no organization or individual may interfere with the farmers’ autonomy in production and operation, illegally adjust and take back contracted land, forcibly transfer contracted land against the farmers’ will, or illegally occupy farmers’ contracted land. It is necessary to respect and protect the land contracting rights and operational autonomy of migrant workers. During the contracting period, except in cases when the entire family of the contracting party change to a non-agricultural household register upon moving into a city divided into districts, the farmer’s land contractual management right shall not be rescinded. Farmers who return home to work in agriculture, provided that they have obtained the contracting right during the second round of contracting, must return the contracted land to the original contracted farmers to continue farming. If the rural organization has

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already contracted out, on a short-term contract, to another farmer the land of the migrant worker, then it must give the income derived that contract to the original farmer who owns the land contracting right, and after that [short-term] contract expires, it must return the land to the original contracted farmer for cultivation. If it is a long-term contract, the contract may be revised and the contracted land returned to the original contracted farmer in a timely manner, or, on a consensus basis, resolved through payment to or increase of compensation to the original contracted farmer. As for the small number of farmers who have gone out for work elsewhere and did not participate in the second round of contracting, but who have now returned to the countryside demanding contracted land, it is necessary to distinguish their different situations and properly handle the cases through democratic consultation. If the farmer’s household registration is still in the rural village, in principle it should be agreed that he should continue participating in land contracting. If conditions permit, [the case] should be settled by an adjustment of mobile land1 ; if there is no mobile land, [the case] can be settled through land transfer.

When the Rural Land Contracting Law was enacted in 2003, legal provisions were also made for the disposal of contracted land after farmers went out to work elsewhere: Within the duration of the contract, if the household that undertakes the contract shifts to a small town and settles down there, its right to operate the contracted land shall be sustained, or its lawful right to circulate the operation right of the contracted land shall be permitted according to its free will. Within the duration of the contract, if the household that undertakes the contract shifts to a city that is divided into regions, thereby becoming a non-agricultural household, the cultivated land and the contracted grassland shall be returned to the party that gives out the contract. If the household undertaking the contract refuses to return such land, the party that gives out the land shall be entitled to withdraw it. Within the duration of the contract, when the party undertaking the contract returns the contracted land to the party that gives out the land or when the party that gives out the contract lawfully withdraws the contracted land, if the input of the party undertaking the contract improves the production capability of the contracted land, it shall deserve a corresponding compensation.

1 Translator’s note: The collective economic organization can set aside as much as 5% of the collective’s land as mobile land ( jidong di 机动地), which allows itself some flexibility.

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(f) A registration system was established for land contractual management rights . The Measures for the Administration of the Certificates of the Right to Contracted Management of Rural Land (农村土地承包经营权 证管理办法), enacted in 2004, requires the local people’s governments at or above the county level to issue certificates for the right to contracted management of rural land. The Property Rights Law (2007) stipulates: The right to the contracted management of land shall be established as of the effectiveness of the contract on the right to the contracted management of land. The local people’s government at or above the county level shall issue a certificate of the right to the contracted management of land, a forestry right certificate or a grassland-use right certificate to the holder of right to the contracted management of land, register it in the brochure and confirm the right to the contracted management of land.

The first central document of the CPC Central Committee (2008) demanded the necessity of “ensuring rural land contracted management rights to the households.” The first central document of the CPC Central Committee (2009) demanded: “... steadily implement the pilot project for the registration of contracted management rights of land and carry out the certification of the area, space location, and ownership of the contracted land parcels to the farmers.” The first central document of the CPC Central Committee (2010) reiterated, “... fully implement the ‘four to the household’ [measures] of contracted land parcel, area, contract, and certificate, and expand the scope of the pilot program to register the contracted management rights of rural land.” The first central document of the CPC Central Committee (2012) demanded, “Accelerate the rural cadaster surveys and have the confirmation, registration, and certification of ownership of the various categories of rural collective land basically completed in 2012.” (g) The system for transferring contracted management rights for farmland was improved. The first central document of the CPC Central Committee (1984) already stipulated: When a collective member requests contract termination or reduction of contracted land because he is no longer able to cultivate it or has transferred to a different industry, the land may be handed over to the unified arrangement of the collective, or with the consent of collective members, negotiate the transfer of the contract to another party, but they cannot modify the content of the terms of the contract with the collective. The

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subcontracting conditions may be agreed upon by both parties, based on local conditions. The farmers’ investment in land should be reasonably compensated. Some specific methods, for example, on giving grades to or fixed evaluations on land, may be formulated through members’ democratic consultation, which may then be used as a reference for compensating farmers on investment at the time the land use rights are transferred. Reasonable compensation measures should also be stipulated for reductions of land productivity due to predatory management.

Documents from the Third Plenary Session of the 14th CPC Central Committee in 1993 stipulated: With the insistence on the collective ownership of land as a premise, the contracted management right of inherited development production projects is allowed, as well as the compensated transfer of the land use rights in accordance with the law. In a small number of places where the economy is relatively developed, various forms of moderately-scaled management for transfer of contract, shareholding, and so on may be adopted, based on the principle of voluntary participation of the masses.

In 1998, the Third Plenary Session of the 15th CPC Central Committee stipulated: The rational transfer of land use rights must be carried out in accordance with the principles of voluntariness and compensation, and the transfer cannot be forced on a farmer for any reason. In a small number of places that indeed meet conditions, various forms of moderately-scaled operations of the land may be developed, on the basis of increasing the degree of agricultural intensification and of the voluntary participation of the masses.

By 2008, the Third Session of the 17th CPC Central Committee had already fully updated the content: Strengthen the management of and servicing of rights to the contracted management of land, establish and improve the market for the transfer of land contractual management rights, and allow farmers to develop various forms of moderately-scaled operations for the transfer of land contractual management rights, such as transferring contracts, leasing out, exchanging, shareholding, etc. Where conditions permit, it is possible to develop business entities of scale such as large professional households, family farms, and farmers’ professional cooperatives. The transfer of land contractual

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management rights shall not change the collective ownership of the land, change the use of the land, or damage the land contractual rights of the farmers.

The first central document of the CPC Central Committee (2009) states: Adhere to transfer the land they contract to work on in return for compensation on a voluntary basis and in accordance with relevant laws, and respect the farmer’s principal status in land transfer. No organization or individual may force a transfer or prevent a voluntary transfer.

The first central document of the CPC Central Committee (2013) states: Adhere to transfer the land they contract to work on in return for compensation on a voluntary basis and in accordance with relevant laws, guide the orderly transfer of rights to the contracted management of rural land, encourage and support the transfer of contracted land to large professional households, family farms, and farmers’ cooperatives, and develop various forms of moderately scaled operations. In combination with the basic construction of farmland, farmers are encouraged to adopt mutually beneficial exchange methods to solve the problem of the fragmentation of contracted land. Land transfer must not be done through mandatory orders, to ensure that farmers’ rights and interests are not harmed, that the land use is not changed, and that the land’s general agricultural productive capacity is not destroyed. The establishment of a strict system for permitting access to and monitoring farmer-contracted farmland (forest land, grassland) leased out to industrial and commercial enterprises is to be explored. Standardize land transfer procedures, gradually improve thirdlevel service networks in counties and villages, and strengthen services for communicating information, policy consultation, contract signing, price evaluation, and so on.

1.2

Features and Problems of the Current System for Land Contractual Management Rights

Taking stock of the salient features of current system for land contractual management rights in rural China, we may identify the following:

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(a) Firm adherence to the collective ownership of land. The collective ownership of land is the most important legacy of the movement in China to communalize rural land. It is a major component of China’s basic, socialist system and the single institutional arrangement that most distinguishes China’s rural system from those found in other countries and regions in the world. Adherence to the collective ownership of land was the premise and foundation for the CPC’s attainment of power, and it also became the basis that influenced the changes in China’s rural system. Therefore, even though it had encountered three years of unremitting disasters during the collectivization period, the bottom line of the rural system returned only to the kind of collective ownership characterized by “Three-level Ownership, with the [Production] Team as Basis” (sanji suoyou, dui wei jichu 三级所有, 队为基础). During the surging wave of reforms in the 1980s, when reformers were promoting management by households and reinstating the system of land ownership by farmers, they also repeatedly emphasized that the household responsibility system was being carried out under the premise of collective ownership. During the 1990s, when the basic management system for rural areas was being defined, it was again necessary to emphasize “unified management combined with independent management” (tong fen jie he 统分结合), with collective ownership being the most important source of legitimacy in the “unified” part of the agricultural management system. After the reform, the collective ownership of land has the following connotations: farmers maintain contractual relationships with the collectives, the collective organizations have the right to contract out and dispose of land, and land users are not allowed to buy or sell land. Each collective member equally enjoys the right to use collective land, and collective ownership evolves into a collective ownership of membership. Each member of the collective enjoys the right to distribute income after the land is no longer farmed. (b) Farmers become owners of land property rights. The most important institutional aspect of rural reform is that it gives land property rights to the contracting farmers, thereby solving the problem of low incentives for agricultural production and of institutional instability through the protection and enforcement of property rights. Under the collective ownership system, farming households have replaced the production team as the decision-making entities of agricultural production and economic activities, and they possess the contracting management right, income right, and subcontracting right for their farmland during the contract period.

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In recent years, farmers have acquired land property rights as usufruct through the improvement of land property rights, which included the clear identification and consolidation of the prime position of the farming household, the stabilization of land contracting relationship (extending duration of contract from 15 to 30 years to perpetuity), and clearly putting farmers the main actors in arranging for land transfers. Meanwhile, in the granting of property rights, the land rights obtained by subcontracting farmers are a combined right to the contracted management of land, i.e., the right to subcontract and the right of management. (c) Family management is the main form of business and organization in agricultural production. Replacing the production team form of management from the collectivization period with family management was one of the important achievements of the rural system reforms. Family management has become the most important organizational and business form in agricultural production, and it was determined by the characteristics of agricultural production and agricultural labor. Agriculture demands of its producers that they take very close care of all its aspects, while agricultural labor demands a direct correlation between the effort put in and the returns. Therefore, as long as the natural risks of agriculture are not eliminated, agricultural investment still depends on agricultural labor investment, and family management is the most appropriate organizational form of agricultural management. At present, in the debate over the basic management system in rural areas, family management is the most heavily criticized—the voices denigrating family management are getting louder and louder, so we need to get more serious in responding to them. In our view, what the reform of agricultural management form needs to accomplish is not to denigrate the family-based organization but to give it new meaning and power. However, through its operation, the current system of rights to the contracted management of rural land also shows its systemic shortfalls. The inability of this system to adjust, especially to accelerating urbanization and the increasing number of people who no longer work in agriculture, has gradually become apparent. (a) The collective ownership of membership rights continues to strengthen itself. In 1998, a survey of 800 households showed that, with regard to the central government’s emphasis and implementation of the “policy on the extended 30-year contracting period,” 62% of those interviewed did not approve of the extension of the contracting period to 30 years, during which no land adjustment could be made, and the more traditional

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the region, the higher that percentage. Moreover, 81% of the respondents did not approve of “the method of not allocating land to newly added members” (Liu and Gong 1998). By 2003, when the Law on Land Contracts in Rural Areas was implemented, a survey of more than 2,000 households showed that even though the proportion of farmers who approved of the extension of the contracting period to 30 years had risen to 62.9%, another 20.6% of the farmers clearly advocated shortening the period. Those approving of the non-adjustment of land during the contracting period had risen to 51.1%, but 36.8% still thought that the land could be adjusted during that period (Zhao Yang 2007, p. 84). By 2008, a survey of 2,200 households showed that the proportion of respondents who thought that not adjusting the land at all during the 30-year contracting period was unreasonable was as high as 62.79%. The proportion of respondents who believed that “not increasing the land for an increase in the number of people” or “not reducing the land for a decreased number of people” were as high as 61.98% and 59.95% respectively (Tao et al. 2009). (b) There are problems in rights protections after the right to contract land gets separated from the right of management. China’s current laws clearly protect farmers’ land contract management rights. However, these rights are combined in terms of their set-up. Within the context of highspeed industrialization and urbanization, the mobility of the rural population and labor force has also accelerated, so that the trend separating rural land contracting rights and management rights is becoming increasingly obvious. Nationwide, the number of migrant workers currently who spend six months or more working away from home has reached 250 million. These people continue to have land contracting rights, but the land management rights have been controlled by the elderly and women who remain at home, and in some cases, they entrust the management of the land to neighbors and relatives at a very low price, or even for free. Field research in some locales has found that this separation between contracting rights and management rights is becoming even more obvious. In Shanghai’s Songjiang District, agricultural labor in 2011 accounted for only 2.9% of the labor force, but nearly two-thirds of its registered rural population was residing in cities, which indicates how, in suburban areas near cities, the land management rights have basically been separated away. In highly industrialized areas such as Guangdong, Zhejiang, and Jiangsu, the proportion of local rural laborers who are actually engaged in agriculture is less than 10%. This represents how, in

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developed areas, the land contracting rights have to a large extent been separated from the management rights. This trend is very obvious even in rural areas in Central China. From 2000 to 2010, the number of rural residents in Anhui decreased by 9.3 million people, while the proportion of rural-registered persons resident in cities increased. In Feidong County (肥东县), during one nearly two-year period, rural buyers accounted for 67% of housing sales. The huge changes in the distribution of the rural population and the labor force have brought about a de facto separation between farmers’ land contracting rights and their land management rights. Long-term migrant workers and farmers who have purchased houses in urban areas continue to have the right to contract land, but they no longer manage the land. This phenomenon of farmers who have land contracting rights but who do not necessarily continue to manage the land is becoming more and more common. As a consequence, the concept and content of “contractual management rights” as generally proposed in law faces difficulties when implemented in the real world. The problem is specifically manifested this way: on the one hand, protecting the contracting rights can lead to a weakening of the management rights, which is not conducive to the circulation of rural land and the moderate scale expansion of land management; on the other hand, as soon as management rights are emphasized, the policy orientation will tend to increase the circulation of rural land, which in turn will lead easily to the loss of contracting rights by members of the original rural collective organizations. At present, and in the near future, it will be a huge challenge to determine how effectively to protect the land contracting rights of the members of the original rural collective organizations, and at the same time legally protect their land management rights, in order to achieve the goals of guaranteeing farmers’ land rights in accordance with the law, promote the circulation of rural land, and modernize agriculture. (c) In the set-up of the right to contracted land, certain powers are deficient. Judging from the establishment and empowerment of the household contracting system, the policies and laws so far have focused mainly on protecting the farmers’ land contractual management rights, i.e., on strengthening and protecting farmers’ rights to use and derive income from farmland, but there has not been enough emphasis on granting farmers rights in other respects. First is the right of disposal. No matter how much the property nature of the contracted land is emphasized, under the premise of

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collective ownership, the contracting farmers still cannot buy or sell the contracted land. As the population urbanizes and increasingly pursues non-agricultural work, some of the urbanized farmers face the problem of how to dispose of their contracted land, and as more and more farmers settle in the cities, this issue becomes more and more conspicuous. The current law stipulates that when farmers settle in large or medium-sized cities, they must return the contracted land to the collective. This provision obviously deviates from the principle of protecting land as property. Therefore, if the right to dispose of the contracted land is not in place under the collective ownership of land, this can lead to a violation of farmers’ land property rights. Second are mortgage and security rights. As a property right, the land contracting right should be whole bundle of rights. However, within the set-up of the system that we have described above, wherein the combined rights of contracting and management are protected, the mortgage and security rights that are granted to holders of land contractual management rights are, in practice, fraught with greater risk. If the contractual management right is mortgaged or used as security, and the contractor uses his contracted land as security for obtaining financial support, the powers and responsibilities are equivalent, and the bank will not have any problems in operation. However, if the contractor transfers the management right to a new manager, the latter has only the management right—not the contracting right. If the latter uses this management right to get a mortgage for a loan and then cannot repay it due to some management issue, then the bank has to take possession of the land—it cannot take possession of the management right. In this way, the original contractor faces the risk of his losing his contracting right. Therefore, this design defect in the contractual management right itself has also led to a lag in empowering farmers with mortgage and security rights. Third is the right of inheritance. Not long after the implementation of the policy of “an increase in the number of people [in a household] will not entail an expansion of the land, and a decrease in the number of people will not entail a shrinking of the land” (zeng ren bu zeng di, jian ren bu jian di 增人不增地, 减人不减地), and the policy of “over a long term without change” with regard to contracting period, the land contracting system became a land system without any future end-date. The contracted land in the farmer’s hands, as property, became fixed. After the “over a long term without change” policy was implemented, one of the problems that must be faced is how to deal with the contracted land

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as the number of persons in any given household inevitably changes in the future. At present, neither law nor policy touches on the problem of how to deal with such contracted land—but the problem must be faced. Specifically, once the person holding the contract passes away, the contractor’s contract is passed to the next generation or returned to the collective. Even if it is passed on to the next generation, shall the land continue to be divided equally among the children or passed down only to the eldest son (as in Japan and some other countries), to prevent the land from getting divided into ever-smaller plots? At present, the age of contractors from the first generation of contractors in China is already close to average life expectancy, so the issue of inheritance rights for contracted land is already before us, and it requires an institutional response.

2

The House Site System: Features and Problems 2.1

Formation of the House Site System

The house site system is a very unique institutional arrangement of the Chinese land system. In countries that follow the traditional continental law system, there are provisions for territorial rights but nothing about house sites. In China, people through history have generally referred to their house sites as the “house” (zhai 宅, zhai zi 宅子, or fang zhai 房宅). These synonymous terms included both the house that a family had built and of course the land that it occupied (Chen and Jiang 2010). Since the founding of the new China, when China’s rural countryside was being put through a multitude of reforms and changes—the cooperative movement, the People’s Communes, the household contracting system— the house site system was also being put through many changes, which were basically similar to and yet different in terms of their institutional arrangements from those of the rural land contractual management rights system. All this highlights the more complex nature of the house site system and difficulties of reform to that system. (1) The era of land reform and agricultural cooperatives: private ownership of house sites. During and after the establishment of the new China, the land reform that took place was aimed at “changing feudal and semifeudal land ownership step-by-step into peasant land ownership,” and the protection of private property, including that of farmers, was explicitly proposed. After land reform was completed, the people’s government

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specially issued land ownership certificates to farmers. The first Constitution of the new China in 1954 clearly stated: “The state protects the right of farmers to own land and other means of production in accordance with law,” and, “The state protects the rights of citizens to own lawfully-earned income, savings, houses, and other means of life.” As part of the farmer’s privately owned land, the house site was naturally protected, equally and legally. Starting in 1953, China’s rural areas entered a period of socialist transformation. During the elementary commune stage, farmers’ land began to be managed in a unified manner, through shares, but it remained privately held. As for the house sites, the Model Regulations for Advanced Agricultural Producers’ Cooperatives of March 1956 stipulated that “[commune] members’ original tomb grounds and house foundation land are not to be taken into the commune. The foundation land required for the construction of new houses and tomb grounds as required shall be decided as a whole by the commune, and when necessary, the commune may apply to the township People’s Committee for assistance.” The Model Regulations were the first law with provisions concerning house sites. During this period, even though the land underwent a transformation from private ownership by farmers to collective ownership by communes, the farmers’ houses retained their private attribute. The term “house site” (zhaijidi 宅基地) did not appear directly in the laws of this period, nor did the law strictly distinguish between the land that the house occupied, the house built on it, and other attachments. Therefore, the farmer’s ownership of the house simultaneously meant his ownership of the house site—the land occupied by the house. Meanwhile, the right of farmers to buy, sell, mortgage, and lease houses was protected. (2) The People’s Commune era: house sites are collectively owned but used by the farmers, and the houses are privately owned. The Draft Amendment of the Regulations Governing Rural People’s Communes of 1962 contained but one simple sentence on house sites: “Members’ house sites are categorically not permitted to be leased out, bought, or sold.” Provisions on the rights appertaining to farmers’ houses, however, were very detailed and extremely exclusive, such as “Members’ houses are always owned by the members.” Also: A member has the right to buy, sell, or lease a house; a member leasing out or selling a house can negotiate a fair and reasonable rent or house price through an intermediary, and both parties in a sale or lease shall

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sign a contract. No unit or individual is permitted to force a member to move, and no rent or price is to be paid without the member’s agreement. No agency, group, or unit may occupy a member’s house. If the house of a member must be requisitioned due to construction or other needs, the State Council’s regulations on the requisitioning of houses should be strictly followed, compensation given, and resettlement properly sited.

These Regulations not only used the term “house site” for the first time in China’s policy documents and laws, but also created the institutional arrangement separating the house site from the house built on it. The “Notice on Several Supplementary Provisions Concerning the Member Household Issue in Various Places,” issued by the CPC Central Committee in 1963, emphasized, “A member’s house site is collectively owned by the production team and is categorically not permitted to be leased out, bought, or sold.” At the same time, it clearly stated the right of use of the house sites “belongs to the various members, longterm, and shall not be changed over the long term. The production team should protect members’ use rights and cannot requisition or reallocate [house sites] at will.” As for the attachments to house sites, “including the house, trees, sheds, pigpens, latrines, etc., we emphasize, shall permanently belong to the members, and the members have the right to buy, sell, or lease them.” It further stipulated: “After the house is sold, the right to use the house site is transferred to the new house owner, but ownership of the house site still belongs to the production team.” This “Notice” also proposed for the first time the method for obtaining a farmer’s house site: When a member needs to build a new house and does not have the house site, his household shall submit an application, and after the matter is discussed and agree upon by the general assembly of members, the unified planning, assistance and problem-solving shall be done by the production team. Whether or not the land occupied by the member’s new house is cultivated land, no land price shall be paid.

We can see that this “Notice” confirms the separation between the house and the land it sits on, and for the first time it clearly confirms the separation of house site ownership from the right of use of the house site, the means of applying for a house site, and the fact that it is to be obtained without payment.

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Also in 1963, the Supreme People’s Court issued the “Opinion on Several Issues Concerning the Thorough Implementation of Civil Policies (Revised Draft)” (关于贯彻执行民事政策几个问题的意见 [修正稿]), which clarified provisions on the rights involved in farmers’ housing transactions: For any house that is permitted to be bought or sold according to the law, after a proper legal procedure has confirmed the purchase and sale relationship of the house, the rights of the two parties shall be protected, and neither party shall regret or rescind the sale and purchase contract. An individual citizen has the right to lease out a house belonging to that individual and collect fair and reasonable rent. The right of laborers to pawn their houses shall be recognized except in cases that have already been settled in land reform, and they shall be allowed to redeem them at the expiry of term.

The Supreme Court’s finalized opinion was promulgated in 1979 when it issued the “Opinion on the Thorough Implementation of Civil Policy Laws” (关于贯彻执行民事政策法律的意见), which made specific arrangements for handling disputes over members’ use rights on house sites. This included the statement that the right to use the house site is “based on the principles that land ownership belongs to the state or the collective, and that the leasing out or sale and purchase [of the house site] is categorically not permitted.” Also: Wherever the ownership of the house site as determined during the local land reform is changed to use rights, the right to use that house site is unchanged; wherever the local house sites have been uniformly planned, the member’s use rights of the house site shall be handled based on the determination of the plan; and wherever an adjustment has been made through a legal procedure, they shall be handled based on the adjustment decision. If a change to the rights to the house site is necessary, the People’s Court shall, in accordance with the policies and laws of the Party and the state, study and properly handle it with the relevant departments. Fruit trees and bamboo planted by members on the house site are owned by the members.

By this time, the rudiments of the Chinese house site system had basically taken shape. These were, first, ownership of the house site was collectively owned by the production team, and members were prohibited

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from leasing out, buying, or selling it. Second, ownership of the house site was separated from the right to use it; the farmers possessed the rights of use for their house sites over the long term, and these were protected by law. Third, the house site was separate from any rights arrangements relating to the house on it. Fourth, farmers had exclusive ownership of their houses and could buy, sell, lease, mortgage, and pawn them. Fifth, house site use rights are transferred with the purchase, sale, and lease of the house. Sixth, an application-based system for farmers to obtain house sites free was established (Zhao Shufeng 2006). (3) The period of reform: construction of the house site rights system. After reform and opening up, China’s administration with regard to house sites was put on the right track. A series of laws and guidance documents to strengthen management of house sites was issued, a sound administrative agency was established, and relatively clear regulations were formulated, thus creating a rather unique rights system in relation to house sites. First, ownership and rights appertaining to house sites were restricted. In 1981, the State Council promulgated the “Emergency Notice on Stopping Rural Buildings from Encroaching on Cultivated Land” (关于制 止农村建房侵占耕地的紧急通知; State Council, No. 38), which set out clearly: “As for the house sites allotted to [collective] members, members only have the right of use, and they are not permitted to lease out, buy, sell, or transfer them without authorization, and they are not permitted to build houses, dig tombs, open mines, fire bricks and tiles, etc. on contracted land or private reserved plots.” In 1982, the Regulations on the Administration of Land Used for Housing Construction in Villages (村镇建房用地管理条例) reiterated: Members have no ownership of the house sites, private reserved plots, private reserved mountains, forage land, or contracted land, only the right to use them in accordance with specified use; they do not have ownership. They may not build houses, dig tombs, open mines, destroy fields, fire bricks and tiles, etc. on private reserved plots, private reserved mountains, forage land, or contracted land. The purchase, sale, leasing out, and unauthorized transfer of construction land is strictly forbidden.

The 1982 Constitution and the 1987 and 1998 versions of the Law on Land Administration all stipulate, “The house site belongs to collective ownership,” and, “To sell or lease out a house site and then apply for a house site shall not be approved.”

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Second, conditions were set on obtaining a house site. The “Notice on Further Strengthening Land Management to Effectively Protect Cultivated Land” (中共中央国务院关于进一步加强土地管理切实保护耕地的 通知; CPC Central Committee and State Council, No. 11) of 1997 proposed: Residential housing for rural residents must strictly follow the standards set by the provinces, autonomous regions, and direct-administered municipalities, and the house sites obtained according to law. Each rural household can have only one house site not exceeding the standards. Excess on house sites must revert to collective ownership according to law.

In 2004, the Ministry of Land and Resources issued the “Opinion on Strengthening Administration of Rural House sites” (关于加强农村宅基 地管理的意见; No. 234), which stipulated: [Set] strict conditions on house site applications. Resolutely implement the “one house per household” legal provisions. One rural household can only own one house site, and its area must not exceed the standards set by the province (autonomous region, municipality). All localities should, in light of local conditions, formulate uniform standards for the area of house sites and conditions on applying for house sites. An application shall not be approved if the conditions on applying for a house site are not met. If the rural residents sell, lease out, or give their original housing to other persons and then apply for a house site, the [application] shall not be approved.

Third, the relationships between the house and the land as well as the use rights for the house site were determined. In 1989, the State Bureau of Land Administration issued “Several Opinions on the Issue of Determining Land Rights” (关于确定土地权属问题的若干意见; No. 73), which stipulated that property owners enjoyed the same land use rights of other members of the collective to which the land belongs. As for the house sites of registered non-agricultural rural residents, where their ownership of the property had not changed, their right to use collective land for construction could be determined in accordance with law. For house sites obtained through inheritance of a house, heirs had the use right. If an heir already had a house site and the total area exceeded the prescribed standard, then the right to use the collective land for construction purposes could be determined temporarily according to the actual use area. If the total area of a house site obtained through transfer or purchase of a house

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plus the [purchaser’s] original house site exceeded the standard set by the local government, then the right to use the construction land of the collective’s land was determined according to the relevant regulations. For rural non-agricultural construction land and construction land apart from house sites of rural registered professional households, the right to use collective land for construction was determined separately. As for the right to use construction land as rural house sites, whenever a house site exceeded the area standards set by the local government, then, when the house was later razed, altered, or rebuilt, the use right was redetermined based on the area standard fixed by the local government, and any excess had to be returned to the collective. Fourth, the rights structure of house sites was established. After continuous improvement, by the time that the Property Rights Law was promulgated in 2007, the system of rights relating to house sites was formed. Specifically, the use rights holder of a house site enjoys the rights of occupying and using the collective-owned land in accordance with law, and has the right to use that land to build a house and ancillary facilities in accordance with law. If the house site is lost due to natural disaster, the right to use the house site is eliminated. Rural residents who have lost their house sites should be reallocated another house site. If the registered use rights of the house site have been transferred or destroyed, then a change of registration or a cancellation of registration should be processed in a timely fashion. The use rights of a house site cannot be mortgaged. The “Decision on Several Major Issues on Promoting the Reform and Development of Rural Areas” (关于推进农村改革发展若干 重大问题的决定), produced by the Third Plenary Session of the 17th CPC Central Committee, recommended: “Improve the rural house site system, make the management of house sites strict, and protect rural households’ usufructuary rights on house sites in accordance with the law.” The first central document of the CPC Central Committee (2013) proposed: “Reform and improve the rural house site system, strengthen its management, and protect rural households’ use rights on house sites in accordance with the law.” Fifth, the disposal of non-members house sites was worked out. In the 1982 Regulations on the Administration of Land Used for Housing Construction in Villages (村镇建房用地管理条例), it was stipulated: Rural [collective] members, workers and veterans who have returned to their hometowns after resigning or retiring, and overseas Chinese who have

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returned to settle in their hometowns and need a house site for building a house should submit application to the production team, and after the members’ general assembly discusses and approves it and the production team approves it, it is reported to the commune management committee for approval. If it is necessary to occupy cultivated land or orchards, it must be reported to the county-level people’s government for approval. After approval, the approval authority shall issue the certificate of use of the house site.

The 1987 version of the Law on Land Administration stipulate that whenever registered urban, non-agricultural residents need to use collective-owned land to build housing, they need to obtain the approval of the county-level people’s government, and area of the land used may not exceed the standards set by the relevant province, autonomous region, and direct-administered municipality. They must also pay the land compensation fee and resettlement fee based on the state standards of construction land expropriation. The Regulations on the Implementation of the Land Administration Law (土地管理法实施条例) of 1991 stipulated: In the case when a registered urban, non-agricultural resident needs to use collective-owned land to build housing, then after obtaining the consent of his unit or residents’ committee, he must submit an application for land use to the rural collective economic organization or to the village committee or to the village (township) collective economic organization where that land is located. Where the land to be used is owned by a rural collective, then, after the application is discussed and passed by the rural representative meeting or general assembly and has been reviewed and approved by the village (township) rural collective people’s government, it is reported to the county-level people’s government for approval. Where the land to be used is owned by a village (township) collective, then, after the application is discussed and passed by the village (township) economic organization and has been discussed and approved by the village (township) people’s government, it is reported to the county-level people’s government for approval. For staff and workers returning to their villages of original registry, and retired veterans, resigned or retired cadres, and overseas Chinese and compatriots of Hong Kong, Macao, and Taiwan returning to settle in their hometowns who need to use collective-owned land to build houses, the applications shall be handled in accordance with Article 38 of the Law of the People’s Republic of China on Land Administration and Article 25 of these Regulations.

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In 1995, when the former State Bureau of Land Administration issued the “Notice on Printing and Issuing ‘Several Provisions on the Determination of Land Ownership and Use Rights’” (关于印发确定土地所有权 和使用权的若干规定; Document No. 26), it stated that if a house site of a registered non-agricultural resident (including overseas Chinese) was rural, and the property rights to the house had not changed, then the construction land use rights of the collective land could be determined in accordance with the law. If the reconstruction of a house is not approved after its demolition, the land use rights revert to the collective. In 1999, the “Notice of the General Office of the State Council on Strengthening Land Transfer Management and Prohibiting Speculative Land Dealing” (国务院办公厅关于加强土地转让管理严禁炒卖土地的通 知; Document No. 39) stipulated: Rural people’s residences shall not be sold to urban residents, and urban residents shall not be permitted to occupy and use rural collective land to build houses. The relevant departments shall not issue land use certificates and real estate certificates for illegally built and purchased residences.

Sixth, regulations on house sites were put into place. From the Regulations on the Construction of Villages and Towns (村镇建设条例) of 1982 to the Law on Land Administration of 1998, the regulatory arrangements for the regulation of house sites and construction on them continued to take shape, until the Ministry of Land and Resources in 2004 issued the “Opinion on Strengthening Administration of Rural House Sites” and formed the current control system. Two main features of this control system include the following. The first main feature of this regulation system is that strict implementation of planning proceeds from strict controls on the scale of construction land in villages and towns. The planning and administration for rural house sites are strengthened. Any occupation and use of agricultural land by rural house sites should be included in the annual plan of governments at all levels. In the annual plan indicators on the use of agricultural land that the provinces (autonomous regions and municipalities) issue to counties (districts and cities), planning indicators for the occupation and use of agricultural land by rural house sites may be added. The latter planning indicators should be linked to newly increased arable land area in rural construction land consolidation. After the county (city) land and resources management department inspects and confirms the

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newly increased arable land area, an equivalent amount of agricultural land within the annual planning indicators should be preferentially allocated for conversion into land indicated for rural housing construction. The regulation system’s second main feature is the improved house site approval system and standardized approval process. Counties (cities) may, based on the planning quotas on the use of agricultural land for house sites that the provinces (autonomous regions and municipalities) issue to counties (districts and cities) and on the actual need for rural villagers’ housing construction, apply once per year at the beginning of the year to the province (autonomous region, municipality) or districted city and autonomous prefecture to handle the examination and approval procedures for the conversion of agricultural land, and after approval, the county (city) shall, in accordance with law, approve the provision of house sites by household and clan. As for rural residents’ use of vacant land, old house sites, and unused land within their villages for residential construction, they must apply to the village (township), level by level; the county (city) approves these in batches, and then the villages (towns) distribute the house sites by household and clan (Gao and Liu 2007). 2.2

The Main Features of the Rural House Site System

First, the collective has ownership of the house site. The rights of house sites are clearly more complex and difficult to understand that those relating to agricultural contracted land. Whereas the collective’s ownership of the house site shows up when the collective is a contracting party, its ownership of the house site is manifested more powerfully in other respects—mainly in that obtaining the use rights to a farming household’s house site must pass approval by the village committee. When the farming household is no longer using the house site, the collective can take it back. When any improvement or quota trading is done on the house site, the main body concerned is also the village committee. Therefore, in the relationship between the ownership and the use of a house site, the collective organization is not just something on the level of legal significance but has actual administrative and controlling power. Second, farmers have the use rights on house sites. By contrast, the farmer’s rights to use the house site are in fact concealed under collective ownership. As long as the farmer does not change ownership of the house, the house site’s existence is always ignored, and the farmer himself does not pay attention to it. As for the actual effectiveness of the rights,

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the Property Rights Law lists the house site with usufructuary rights, and central policy documents have repeatedly emphasized protecting the farmers’ usufructuary rights on their house sites. However, the Property Rights Law also describes the empowerments of the usufructuary right as “the right to tenure, use and revenue,” but a house site as a usufruct, in law, is empowered only with “the right to tenure and use”—it does not include “the right to revenue” on the property. In this way, the property attributes of the house site are greatly reduced, so that basically it has only a residential function. Third, farmers have ownership of their houses. Since the CPC came to power, there has never been a change on the issue of farmers’ property right of housing. There has always been the insistence that rural houses are owned by the farmers, and their right to buy, sell, lease out, mortgage, pawn, and transfer their houses has been fully protected. Moreover, the government or collective organizations have always been prevented from infringing on property rights as they relate to farmer’s houses. Therefore, in rural areas, farmers have formed the deeply-ingrained idea that their houses are their homes, and that no matter what happens, they do not worry that their houses will be lost or pulled away from beneath them. Fourth, the free obtaining of the house site based on the membership. Since communization, it has always been the case that house sites are acquired based on a farmer’s membership status in the collective economic organization. In other words, only members of the collective economic organization are eligible to apply for and obtain house sites, and non-members cannot. Since only the rights of occupation and use are granted in house sites, there is no way for non-members to obtain them through transactions and transfers involving the house sites. Because of the “one house per household” (yihu yizhai 一户一宅) rule, a farmer cannot reapply for and obtain a house site after he transfers the house on it. This effectively blocks farmers from transferring the house site use rights to non-members. Meanwhile, as long as farmer is a member of the collective organization, he can obtain a house site free of charge. That is to say, under the current house site system, the house site is not a commodity, let alone a form of capital. 2.3

Problems in the Operation of the House Site System

First, a large number of house sites have entered the market. Even though the law does not extend the rights of leasing out, transferring, and trading

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house sites, in actuality, putting farmers’ house sites on the market has become a general trend. Specifically, the trend appears in different ways in different regions. In the vast coastal regions, farmers have built multistory houses on their house sites and then rent out the apartments, thus helping to house the large number of migrant workers who have left the farm to satisfy the labor demands of rapid industrialization. In the mixed urban–rural areas of large, medium, and small cities and towns, after the government has expropriated farmers’ arable land, leaving them with the house sites, the farmers use the house sites to build housing that they rent out, thereby solving migrant workers’ housing needs in the context of rapid urbanization. In the vast agricultural regions, some farmers who have left the farm for the city and found stable jobs and residences there privately transfer or lease out their house sites to other farmers who need house sites for building a house. The current situation of so many house sites entering the market in different kinds of regions not only solves the problem that local people face in increasing income from their property during the industrialization and urbanization process, but it also solves the housing issue for all the people entering the cities. It also lowers the costs of urbanization. However, this spontaneous entry of house sites into the market is also in direct conflict with current laws. Second, farmers’ free acquisition of house sites and the one house per household rule are difficult to implement. Free house sites are considered a kind of welfare that the government gives to farmers, and they are a reflection of confidence in the system. However, as the coastal regions and mixed urban–rural areas undergo urbanization, there has been a substantial increase in the differential of income received for different grades of land, and as the supply of urban construction land tightens, the free acquisition of house sites runs counter to the capitalization of land. In these regions, house sites have not been freely distributed since the mid to late 1990s. Also, the one house per household rule is hard to manage in an urbanizing area. As the value of house sites in these areas increases, farmers have made full use of them, adding more and more house units to the property, sometimes breaking outside of the areas of the original sites and sometimes breaking the rules that various provinces and cities have set for the floor space of houses on house sites. Finally, in the traditional agricultural areas, free acquisition of house sites does not make use of protected cultivated land. In these areas, house sites are still freely distributed, but in recent years, as income from outside work increases, farmers return one after the other to their villages to build ever larger

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houses. If the original house site is not large enough, they occupy and make use of their contracted land for the purpose. As a result, the amount of cultivated land in these agricultural areas, especially in the plains, is rapidly decreasing. Third, disorderly expansion of house sites is not conducive to the healthy development of cities. Because the way the house sites are being used today is in serious conflict with the law, the government is basically absent from the actual management of the use of house sites; planning and regulations on use cannot be implemented. In the absence of governmental regulatory control, the expansion of farmers’ house sites and the construction on them are becoming more disorderly, even spreading like vines. This has caused chaotic private construction in “urban villages” (cheng zhong cun 城中村), which are completely unplanned and lack basic infrastructure, public services, and governance organizations. Besides presenting a serious public security problem, they have formed a complete second skin over the city, which increases the cost of urban management and the difficulty of future renewal.

3 3.1

The Rural Collective Construction Land System: Features and Problems

Formation of the Rural Collective Construction Land System

In the early days of reform and opening up, the bulk of construction land was found in rural villages. On the one hand, as production responsibility was assigned to farming households (bao chan dao hu 包产到户), farmers’ incomes increased, so the first wave of farmers’ housing construction emerged in the villages. On the other hand, after 1984, the rural surplus labor force became hugely prominent, so national policy vigorously encouraged farmers to develop village and township enterprises (xiang zhen qi ye 乡镇企业), and structural reforms were implemented to improve farmers’ incomes and non-agricultural employment opportunities. For five consecutive years from 1981 to 1985, the growth of rural house sites and construction land for commune- and brigade-run enterprises (she dui qiye 社队企业) exceeded that of land designated for state construction; their growth was the leading cause of arable land being occupied. At first, if farmers needed a house site, all they had to do was to submit a request to the production team leader or party branch secretary, and once approved, they could obtain a house site for free. Production

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team enterprises could be set up merely by making an adjustment in members’ contracted land. Commune- and brigade-run enterprises only needed to have an adjustment made on the production team’s land or absorb some of the production team’s labor and pay a small amount of compensation for above-ground things such as foliage, and the production team’s land could be obtained. In 1981, the State Council issued the “Urgent Notice of the State Council on Prohibiting the Building of Houses in Rural Areas on Farmland” (关于制止农村建房侵占耕地的紧 急通知; No. 57 [1981], State Council), and in 1982, the Regulations on the Administration of Land Used for Housing Construction in Villages (村镇建房用地管理条例) for formulated and promulgated. However, the Regulations did not at all contain this situation. On the other hand, the Third Plenary Session of the 11th Central Committee (1978) considered the development of commune- and brigade-run enterprises (which, after the People’s Communes were dissolved, became village and township enterprises) as an important move for revitalizing the rural economy. In the Suzhou area, during the three years from 1978 to 1980, the amount of cultivated land decreased by 210,000 mu, the state occupying 8.7%, commune- and brigade-led enterprises 34.7%, and farmers’ house sites 25.2%. In 1978, an estimated 2.355 million mu of land was occupied by village and township enterprises nationwide, and by 1985, the figure was estimated to be about 8.445 million mu. In 1978–1979, construction in rural areas amounted to approximately 400 million square meters; in 1980, it was about 500 million square meters, and from 1981 to 1985, the average annual amount of new rural residential building exceeded 600 square meters. In 1978–1980, the amount of land occupied by rural housing construction in Jiangsu province was 3,600 hectares. According to 1985 statistics from the Ministry of Construction, housing construction by farmers nationwide occupied 60,300 hectares of cultivated land. In 1985, there were 1.979 million hectares of collective and township construction land nationwide. As for the occupation of cultivated land by village and township enterprises and houses built by farmers, this amounted to 77,000 hectares in 1982, 136,000 hectares in 1984, and 189,000 hectares in 1985. In 1982, rural collectives and individuals occupied 1.155 million mu of cultivated land nationwide for the purpose of residential construction; this figure reached 1.29 million mu in 1983, 2.04 million mu in 1984, and 2.835 million mu in 1985.

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Responding to the severity of the problem of cultivated land being heavily occupied, the State in 1987 promulgated the Law on Land Administration, which regulated collective construction land. Even so, the two channels for land acquisition—village and township enterprises’ construction land and farmers’ land for residential construction—have always remained open. As a result, collective construction land accounted for about half of all the land used for construction during the subsequent period. Let us take a look at the amount of land used each year for collective construction. In 1988, there was 690,000 mu of collective construction land; in 1989, 512,000 mu; in 1990, 576,000 mu; in 1991, 713,000 mu; in 1992, 935,000 mu; and in 1994, 713,000 mu. As for the area occupied by rural houses, in 1988 it was 821,000 mu; in 1989, 630,000 mu; in 1990, 555,000 mu; in 1991, 491,000 mu; in 1992, 462,000 mu; and in 1994, 431,000 mu (Liu Shouying 2009). The promulgation and implementation of the new Law on Land Administration in 1998 marked a turning point in the marketization of China’s collective construction land. This law stipulated that in order for agricultural land to be converted into construction land, there had to be land expropriation; if land was needed for construction, state-owned land had to be used. Only one opening was left for rural collective construction land: For the establishment of an enterprise using the land for construction determined by the overall planning for rural (township) land utilization by a rural collective economic organization or joint establishment of an enterprise with other units and individuals in the form of equity participation of land use right and joint operations …

In fact, however, the channel by which agricultural land could legally be converted and brought into the collective construction land market was getting narrower and narrower. The reasons for this is, first, that the law recognized that the farmers’ collectives had land on which they were running their own businesses or jointly operating enterprises, but after the 1998 reform of township enterprises, farmers’ collectives no longer met the requirements for using land to operate their businesses under the law. Second, following the implementation of land-use scale controls and the approval management through the land-use quotas in 1997, the provincial governments naturally used the scarce quotas of land for

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the provincial capitals and other central cities, so that most county-level economic development seldom used quotas of land. The first outcome of this situation was that the amount of collective construction land was greatly reduced. From 1998 to 2007, the amount of legal collective construction land truly used for construction was not at all comparable to that of the previous period. In many counties and cities, the construction land indicators that could be allotted to them amounted only to around 300–500 mu. This was not enough for county governments to use for attracting business investment, let alone for distribution to farmers’ collectives, which would use it for non-agricultural construction projects. The second outcome was that illegal land use proliferated. Since the construction land indicators could not be obtained, localities that wanted to develop their economy had little choice but to risk violating the law and just use the land first. Most of the collective construction land was also used for farmers’ housing construction. Currently, the amount of rural residential land in China covers more than 170,000 square kilometers, and because there are no construction land indicators, let alone any approval, much of this construction land is illegal. 3.2

The Growth Effects of Collective Construction Land

First, the huge amount of collective construction land can provide space for the next round of growth. At present, in cities and their surrounding areas throughout China, the amount of collective construction land occupied by old villages, old factories, and old properties is huge. The experience of some pilot zones has informed us that the activation of this part of the land stock could break through the bottlenecks restricting China’s economic development and free up new space for industrial development and urbanization. These lands are close to densely populated and intensively industrialized areas, and the potential for differential land benefit is significant. However, due to restrictions on the transfer and mortgage of collective construction land, the value of this land is not fully manifest, which at the same time causes much of these land resources to be wasted. Based on Guangdong’s experience with the “Renovation of the Three Olds,”2 about 40% of the original collective construction land can

2 This refers to “old cities and towns, old factories, and old villages.”

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be rebuilt and redeveloped. If we use this percentage as a basis for estimation, then if the properties on all of the more than 3 million mu of Guangdong Province’s “Three Old” types of land can be rebuilt, the amount of land that could be saved would exceed one million mu. Meanwhile, the amount of new construction land in Guangdong Province by 2020 will be somewhat more than 2.6 million mu. Thus, the more than one million mu of land saved would be equivalent to 40% of the amount of Guangdong’s new construction land in the next ten years. Second, it increases land use intensity and doubles the benefit on land. Because of the lack of legal guarantees on usage of collective construction land in comparison with state-owned construction land, its main contractors are farmers acting on their own initiative, so the development that takes place on it is, to a corresponding degree, disorderly, fragmented, and sporadic. Its industries are relatively low-end, and the low effectiveness of the land management is very noticeable. An improved collective construction land system would, on the one hand, stimulate rural residents’ enthusiasm and, on the other hand, concentrate previously scattered land parcels for unified development, thus achieving a substantial jump in the output per unit area of land. For example, in Nanhai District (南海区) of Foshan (佛山), Guangdong, the factories or trade distribution centers built in the early stage of rural industrialization in the 1990s occupied large areas, but the plot ratios were very low—generally only 0.3—and the land utilization rate clearly tended to be low. In recent years, land use intensity there has increased significantly by demolishing or renovating old buildings, linking the plots of different collective economic units, implementing unified planning, and introducing new projects. As land use intensity has increased, collective rental income has also increased. One such project was the rebuilding of the lumber market in Fengchi Village (凤池村), Dali Town (大沥镇), in Nanhai District. Since its transformation, the average monthly rent for a shop has risen from 12 yuan/m2 to over 40 yuan/m2 . Third, it accelerates urban renewal and promotes industrial transformation. Since the reform and opening up, as the industrial structure has been continuously upgraded, the economic form of collective construction land in cities and their vicinities has undergone earth-shaking change, while the collective economy has also transformed from “every agricultural enterprise is stable” to “every industry thrives” and again to “every business prospers.” The implementation of urban renewal and industrial upgrading projects on collective land is entirely in line with the requirements of

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moving to the next economic growth stage, improving the quality of urbanization, and adjusting the industrial structure; it contributes to urbanization and the coordinated development of industry. On the one hand, during the process of redeveloping on collective construction land, it may be possible to further uncover urban resource potential, enrich the social life of urban communities, readjust and optimize urban functional layout, achieve a more ideal integration of buildings and people, industries, culture, and environment, attract more people of talent, and provide a good environment for giving full play to the urban agglomerating effect, by changing building density, plot ratios, improving support facilities, and increasing green space. Pilot zones in Guangdong’s Pearl River delta and the Beijing mixed urban–rural fringe have completely changed their local environments from their past low, shabby, chaotic condition, effectively beautifying them through uniform planning of their existing store of collective construction land. On the other hand, it should be possible to eliminate backward production capacity and free up space with which to introduce highergrade projects or enterprises, in line with local conditions, and to optimize and upgrade local industrial structure. For example, Zhenggezhuang (郑各庄), near Beijing, has established an industrial chain on its collective construction land, one led by construction but also integrating cultural tourism, sci-tech industry, education and scientific research, cultural creative industry, and real estate development. In recent years, new industries such as healthcare, geriatric care, headquarters economy, and industrial incubators have been added, thus completing an industrial transformation. Gaobeidian City, Hebei Province (河北省高碑店市), meanwhile, used collective construction land and house sites to introduce a commercial street for classical furniture, traditional cultural residences, leisure tourism, and other industries attracting tourists. In the future it also plans to establish a Chinese medicine park and a street that promotes and sells international brand name goods, and to promote the continual upgrading of the industrial structure. In the Pearl River Delta region, through the “Renovation of the Three Olds” (san jiu gai zao 三旧改造), industry has been upgraded, a huge space for urban service industries has been created, and urban structure has been optimized. Fourth, it expands investment channels and optimizes investment models. Urban renewal and industrial upgrading through the development of collective construction land are concrete manifestations of improved

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urbanization quality. In urban renewal, there are many investment opportunities in both the public infrastructure and social areas. From 2008 to the end of September 2010, Guangdong Province invested nearly 176.6 billion yuan in the “Renovation of the Three Olds,” a figure that accounted for 5.03% of Guangdong’s fixed asset investment in the same period. In the first three quarters of 2010, the percentage increased to 6.01%, showing an upward trend. This investment positively contributed to Guangdong’s response to the impact of the international financial crisis and to the expansion of domestic demand. If Guangdong’s more than 3 million mu of land could be used for the “Renovation of the Three Olds,” one million mu could be freed up for redevelopment. Based on a rough estimate of investment density of 3 million yuan per mu, we can project a total investment scale of 3 trillion yuan, which is 1.6 times the scale of Guangdong’s urban fixed assets investment in 2012. Urban renewal on collective construction land will greatly optimize existing investment models, effectively alleviate the debt risks faced by city governments, and promote the balanced and sustainable development of cities. Since the original urban infrastructure investment was basically government-led, many local governments currently carry a heavy debt load. Moreover, under the original construction model, city governments often chose to expand the cities outward in order to balance costs and benefits and to reduce the cost of land expropriation and demolition. Furthermore, since they were constrained by the dual urban and rural systems, they often placed some of the large-scale infrastructure projects in the city centers, since the mixed urban–rural areas on the outskirts were more difficult to deal with, and this led to uneven urban development. For example, in Beijing, much of the infrastructure does not cover the mixed urban–rural areas. Currently, these areas are basically built and maintained by rural collectives and individuals, and the government only grants them a small amount of subsidy. If it were possible to use the stock of “live” collective construction land and permit the land to be collateralized, the rural collectives in these mixed urban–rural areas would have more resources or use more flexible means of increasing investment in some areas of infrastructure. The diversification of infrastructure investment entities could also alleviate the financial pressure (from being sole investors) on city governments and reduce the governments’ expenditures. Meanwhile, the diversification would help complete the upgrading of urban public facilities in line with local conditions.

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Fifth, it increases farmers’ incomes and expands consumer demand. Industrialization and urbanization on collective construction land actually created a benefit distribution mechanism that differs from the current government-led land expropriation and urbanization model. The differential land-derived income created by the direct entry of rural collective construction land into non-agricultural use would be retained in the village, and because the farmers collectively retain collective ownership of the land, they would be able to enjoy the differential land-derived income for a very long time. For example, after farmers’ collective land in Nanhai District, Foshan, Guangdong, was incorporated into the city, their rental income on the collective land increased from 2.26 billion yuan in 2008 to 3.02 billion yuan in 2012; the two-level dividends of the village group increased from 1.68 billion yuan in 2008 to 2.67 billion yuan in 2012, so that the per capita income of the two levels of members increased from 2,347 yuan in 2008 to 3,516 yuan in 2013. Currently there is a total of 759,000 shareholders, which accounts for 99.4% of the rural residents, so the per capita net income of rural residents in Nanhai District increased from 11,158 yuan in 2008 to 16,673 yuan in 2012. Meanwhile the urban-to-rural income ratio narrowed from 2.33:1 in 2008 to 2.18:1 in 2012 (Liu Shimian et al. 2013). 3.3

Institutional Dilemmas in the Use of the Collective Construction Land System

First, the use of rural collective construction land exists in a state of extrajudiciality. Based on the result of the second land survey, the construction land area of Nanhai District is 797,500 mu, of which 565,500 mu is rural collective, accounting for 70.91% of the total construction land in the district. The total area of rural house sites, meanwhile, is over 170,000 mu, close to 22% of the total. In Beijing’s urban–rural fringe areas, there are 77 subdistrict villages and towns and 1,673 villages (communities), and more than 3 million mu of land are collective private-use plots. In Shenzhen City, there are 917.77 square kilometers of existing construction land, of which approximately 390 square kilometers belong to the economic organizations of the original rural collectives, and within these, only 95 square kilometers are being used legally. In Guangzhou City, 494.1 square kilometers are being used by “old cities and towns, old

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factories, and old villages,” and of this, 356.7 square kilometers are classified as collective construction land, accounting for 72.2% of the total “land used by the Three Olds” (sanjiu yongdi 三旧用地). Second, the lack of the collateralized financing function has greatly limited the output level of collective construction land and farmers’ assetderived income. The current Law on Land Administration does not allow collateralization and financing on collective construction land, which limits the possibility of its capitalization. Because all investment projects on this land must be paid by own funds, without financial leveraging, this greatly raises the threshold for any industry that enters this collective land. In addition, the lack of mortgage financing for this land greatly reduces its market valuation and prevents any real improvements in its utilization efficiency. If we look at the situation in Nanhai District again, land development intensity is already close to 50%, and 71% of all construction land is collective. If mortgage financing were permitted for collective construction land, then, even if we calculate its mortgage value as half that of state-owned construction land, the financing scale of the entire Nanhai District would increase by 120%, the transfer price of collective construction land would double or triple at least, and production per unit of GDP would increase by a factor of 3 to 5 times. However, at present only a small portion of the land use rights on collective construction land can be easily mortgaged, and the financial institutions engaged in that mortgage business are mainly local ones, like rural credit cooperatives and rural commercial banks. In the survey, the leaders of farmers’ and collective organizations reflected that once mortgage financing is allowed for collective land, it would be possible to obtain formal financial support, and the industrialization and urbanization of that land could take a big step up. The face of these areas would fundamentally change. Farmers’ collective asset equity could also be securitized, so that individual wealth would multiply and greatly increase farmer incomes. Third, non-inclusion of construction land in urban–rural master planning has curbed its overall economic benefits. The current laws on land and urban planning stipulate that a village can be included in urban planning only after collective land has first been expropriated and converted into state-owned land, and only then can the various urban infrastructure facilities be extended to the village. As a result, there is no formal planning and preparation for the industries and factories on collective construction land. Shoddy private construction of housing in villages is widespread, and the fragmentation of the land has greatly reduced the scale effect of the

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land’s use. Meanwhile, the various plans that the villages independently design are not recognized by the government. As a result, the municipal infrastructure costs are paid mainly by the village collective, which adds to the financial pressure on its organization. In Beijing’s urban–rural fringe, due to the lack of planning, the residents of many villages have blindly expanded the area of their house sites and the height of their structures. They even occupy public land areas such as transportation routes, and as a result, the villages’ layout is chaotic. One can say that because of the lack of land use planning (including industrial planning) in the collective construction-use areas of these villages, that land space that would otherwise have been available for replanning has disappeared, so that the future development space for these villages has been greatly reduced. Fourth, the extensive use of collective construction land makes it difficult to upgrade the industrial structure. Even though the transfer and circulation of use rights to collective construction land began a long time ago, there are still no specific legal provisions on the registration of property rights, division and transfer of land, payment of taxes and fees, and so on. To circumvent legal and policy risks, the collective organizations can only adapt to situations—they privately lease out the construction land, or they build factories that they lease out. This has resulted in the inefficient use of the land, used only for low-end industries, and scattered in its layout. It becomes difficult to achieve any scale, or build any superior-grade industrial park or industrial belt. This extensive utilization mode of collective construction land, first of all, brings low economic benefits. Generally, a lease contract for a factory runs between 10 and 20 years, so the collective organizations can only obtain relatively fixed annual rents (even if there are increases, they are not high). Secondly, extensive utilization makes it difficult to upgrade the industrial structure. If an attempt is made to cultivate or introduce a higher-level industry (like a scientific or technical innovative industry) to collective construction land, the greatest change will be the need for the collective organization to bear the risks of screening the industry, as well as handling operations and management, but this would be very difficult for villagers, who are so used to holding fixed dividends, to accept in the short-term. In addition, if the original lease contract period is too long, and a new industrial tenant must be brought in to replace the original one before the end of the contracted lease period, the collective organization

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needs to pay a large sum for liquidation damages. This also affects people’s willingness to upgrade the industries on their land. Fifth, lagging reform of the governance structure of collective organizations has hindered efficient distribution of collective construction land. Collective economic property rights are naturally ambiguous, so that even after the collective land, the factories on it, and other assets are converted into equity, and the “assets become capital, and farmers become shareholders,” the contradictions within the collective organization are still very prominent. This is especially apparent in the economically developed regions. Returning to Nanhai District again as an example, the present shareholders, wanting to protect their existing rights and interests, opposed the distribution of equity to more than ten controversial groups, such as “women who marry out” (chujianü 出嫁女) and retired servicemen, which led to a standoff between people representing different group interests in the village. In the long run, the collective economic organization governance structure that “divides only dividends, not debts” (zhi fen hong, bu fen zhai 只分红、不分债) is not conducive to industrial adjustment and upgrading on collective construction land, and it basically stymies any improvement to land use efficiency. For example, several economic unions ( jingji lianheshe 经济联合社) in Nanhai District owe more than 5 billion yuan in historical debt, but the shareholders consider only their immediate interests and still demand the yearly dividends from the collective. They have never considered revitalizing collective construction land or optimizing the industrial structure in order to increase the collective’s revenue, nor have they considered debt-sharing. In 2005, Zhou Village (Zhou cun 洲村) in Nanhai District established a new type of jointequity cooperative (gu fen he zuo she 股份合作社). Through the villagers’ shareholding, another company was set up to rent 200 mu of the rural collective economic organization’s land. At that time, 2,020 of the 2,420 people in the village participated in the cooperative, and the annual income from rent was more than 15 million yuan. Subtracting 3 million yuan of rental income, the profit was approximately 12 million yuan. But so far, the cooperative has not expanded the land that it rents out. One of the reasons is that the 400 villagers who did not originally become shareholders also wanted dividends, because all of this land was collective. Clearly, reform of the governance structure of collective economic organizations is lagging behind, and it greatly affects the flexibility and utility of collective construction land.

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References Chen Xiaojun 陈小君 and Jiang Xingsan 蒋省三. 2010. “Zhaijidi shiyong quan zhidu: guifan jiexi, shijian tiaozhan ji lifa huiying 宅基地使用权制度: 规范解 析、实践挑战及其立法回应 [The House Site Use Rights System: Normative Analysis, Practical Challenges, and Legislative Responses],” Guanli shijie 管 理世界 (2010.10): 1–12. Du Runsheng 杜润生. 2008. Du Runsheng wenji 《杜润生文集》[Collected Writings of Du Runji]. 3 vols. Taiyuan: Shanxi jingji chubanshe. Gao Shengping 高圣平 and Liu Shouying 刘守英. 2007. “Zhaijidi shiyongquan chushi qude zhidu yanjiu 宅基地使用权初始取得制度研究 [Study on the System for the Initial Acquisition of the Use Rights to House Sites],” Zhongguo tudi kexue 21, no. 2 (2007): 31–37. Liu Shimian 刘世锦, Liu Shouying 刘守英, Xu Wei 许伟, and Shao Ting 邵挺. 2009. “Guangdong sheng Foshan shi Nanhai qu jiti jianshe yongdi rushi diaocha 广东省佛山市南海区集体建设用地入市调查 [Survey on the Incorporation of Collective Construction Land into the City in Nanhai District, Foshan City, Guangdong Province].” Dongfang zaobao Shanghai jingji pinglun zhoukan 东方早报 • 上海经济评论周刊 [Oriental Morning Post Shanghai Economics Journal ] (10 December 2013). Beijing: Zhongguo sheke wenxian chubanshe. Liu Shouying 刘守英. 2009. Zhongguo de eryuan diquanli zhidu yu tudi shichang canque 中国的二元土地权利制度与土地市场残缺 [China’s Dual Land Rights Systems and the Broken Land Market ]. Beijing: Zhonggo sheke wenxian chubanshe. Liu Shouying 刘守英 and Gong James Kai-sing Kung 龚启圣. 1998. “Nongmin dui tudi chanquan de yiyuan ji qi dui xin zhengce de fanying 农民对土 地产权的意愿及其对新政策的反应 [Farmers’ Intentions on Land Property Rights and Their Response to the New Policies].” Zhongguo nongcun guancha (1998.2): 20–27. Tao Ran 陶然 et al. 2009. “Erlun chengbao hou de Zhongguo nongcun tudi xingzhengxing tiaozheng—dianxing shishi, nongmin fanying yu zhengce hanyi” 二轮承包后的中国农村土地行政性调整——典型事实、农民反应与政 策含义 [Administrative Adjustment of China’s Rural Land After the Second Round of Contracting: Typical Facts, Farmers’ Reactions, and Policy Implications]. Zhongguo nongcun jingji (2009.10): 12–20. Zhao Shufeng 赵树枫. 2006. “Shilun nongcun zhaijidi zhidu gaige 试论农村宅 基地制度改革 [On the Reform of the Rural Homestead system].” Nongcun gongzuo tongxun (2006.10): 34–36.

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Zhao Yang 赵阳. 2007. Gongyou yu siyong: Zhongguo nongdi chanquan zhidu de jingjixue fenxi 共有与私用: 中国农地产权制度的经济学分析 [Public Ownership and Private Use: An Economic Analysis of China’s System of Rural Land Property Rights ]. Beijing: Sanlian shudian. Zhou Qiren 周其仁. 2013. Gaige de luoji 改革的逻辑 [The Logic of Reform]. Beijing: Zhongxin chubanshe.

CHAPTER 9

The Circulation and Market Development of Rural Land Contractual Management Rights

1 Evolution of the Policy on Circulating Rural Land Contractual Management Rights 1.1

A Chronology of the Policy

The household contract responsibility system reform began in the late 1970s and early 1980s in poor areas, and it was recognized in 1982 in Central Document No. 1, entitled “The Notice of CPC Central Committee About the Rural Area Work in 1984” (中共中央关于1984 年农村工作的通知). It was put into effect throughout the country in 1984, so that by the end of that year, 99% of the production teams and 96.6% of rural households in China had implemented the contracting of production to households. Following the reform, spontaneous land transfers among farmers appeared one after the other. For this reason, the same 1984 document clearly stipulated, “Before extension of the contract period, if the masses have requirements for land adjustment, they can follow the principle of ‘large stability, small adjustment,’ and after full consultation, a uniform adjustment can be done by the collective.” At the same time: [We should] encourage the gradual concentration of land for those who are expert in farming. During the contract period, a member who is unable to farm or who switches to other business and wants either no land or © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_9

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less land to be contracted may hand it over to the collective for uniform arrangement; the member may also, with the consent of the collective, find another party with whom to negotiate a subcontract.

Central Document No. 1 of 1986, entitled “On the Deployment of Rural Work in 1986” (关于1986年农村工作的部署) clearly stipulated: “As farmers move to non-agricultural industries, [we should] encourage the concentration of cultivated land for those who are expert in farming, and develop professional households in cultivation at moderate scale.” After the mid-1980s, township and village enterprises flourished in developed agricultural areas and in the suburbs of large cities. In these areas, a considerable proportion of rural laborers “left the land without leaving their hometowns.” Some farmers were reluctant to give up their land, but they were no longer very diligent about farming, while other farmers wanted to farm more land but could not get it. In 1987, in its document, “Further Deepening Rural Reform” (把农村改革引向深入), the Politburo of the CPC stated: In [each of] the suburban areas of Beijing, Tianjin, and Shanghai, and in the southern Jiangsu region and Pearl River Delta, one or two counties may be selected where family farms or cooperative farms of modern scale can be established in a planned way. Other forms of professional contracting may also be organized in order to explore the experience of intensive land management.

In the same year, the State Council decided to establish rural reform pilot zones and allowed such moderate-scale operations in the Suzhou-WuxiChangzhou (苏州、无锡、常州) metropolitan areas in Jiangsu, Shunyi District (顺义区) in Beijing, and Nanhai District (南海区) in Guangdong; it also approved a pilot for the two-field system in Pingdu City (平度市), Shandong. Documents from the Central Committee and State Council during this period also included other proposals on conducting moderatescale operations in the rural areas of developed areas and in the suburbs of large cities, on the basis of stabilizing and perfecting the household joint production contracting system. Beginning in the early 1990s, discussions on the shortcomings of the household contracting responsibility system and promotion of collectively managed operations of economic scale continued to heat up. In some places, collectives were reducing or even retaking land that had

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been contracted to farm households under the rubric of retaining more mobile land,1 or implementing the two-field system, or adjusting the agricultural structure. Even so, the central government’s policies on land transfer and the development of moderate-scale operations did not change. In November 1993, the central government clearly stipulated that the contracting period of cultivated land was to be extended for another 30 years, and it recommended that “an increase in the number of people [in a household] will not entail an expansion of the land, and a decrease in the number of people will not entail a shrinking of the land.” Under the premise of insisting on the collective ownership of the land and not changing its use, and if the contractee (i.e., the collective) permitted it, the lawful transfer of land use rights with compensation was permitted. In areas where a small number of secondary and tertiary industries were more developed, and where most of the labor force had transferred to non-agricultural industries and obtained stable incomes, it was thought best to be realistic, respect farmers’ wishes, make necessary adjustments to the land, and implement operations of moderate scale. The “Resolution on Several Issues Concerning the Establishment of a Social Market Economic System” (关于建立社会主义市场经济体制若干 问题的决议; Zhongfa 1993, no. 13) issued by the Third Plenary Session of the 14th Central Committee of the CPC (November 1993), proposed that under the premise of insisting on collective land ownership, the contracting period of arable land should be extended, the inheritance of contractual management rights of developmental production projects should be allowed, the compensated transfer of the right of use to land should be allowed in accordance with law. It also proposed that, in a small number of more economically developed places, based on the principle of voluntary participation by the masses, the adoption of various forms of subcontracting and equity participation should be permitted in order to develop moderate-scale operations. To prevent local governments and collective economic organizations from infringing on farmers’ contractual management rights in the name of the two-field system and scale operations, a 1995 document from the State Council emphasized that during land adjustments, it was strictly forbidden to forcibly change the land rights relationships, and that 1 Translator’s note: “Mobile land” ( jidong di 机动地) is land that a collective economic organization can set aside to allow itself some flexibility in land allotment. It can retain as much as 5 percent of the collective’s cultivated land for this purpose, as explained below.

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land already owned by a collective economic organization could not be returned to the village. It was strictly forbidden for the contractee (the collective) to take advantage of the land adjustment opportunity to retain more mobile land. In principle, none should be retained, but if it was really necessary, it could account for 5% of the total cultivated land at most. A mechanism for the transfer of rural land contractual management rights was also established. On the premise of adhering to the collective ownership of the land and not changing the agricultural use of the land, subcontracting farmers could, with the consent of the contractee (the collective), and within the terms of their contracts, could subcontract, transfer, exchange, and acquire shares in the contracted objects, in accordance with law. In response to signs that the development of moderate-scale operations had been too hasty in some locations, the central leadership made it clear that the transfer of land use rights would eventually lead to moderate-scale management of land, but this would be a long-term development process. In 1997, a central document proposed that when actions of “large stability, small adjustment” are carried out in accordance with actual needs, the “small adjustments” would be limited to individual farming households in conspicuous difficulty with their land; it would be impossible to make general adjustments for all farmers. Administrative orders, however, must not be used to stipulate rigidly that contracted land should be readjusted once every few years within an entire village. The central government did not advocate the two-field system, but specified that the villages’ reserved mobile land had to be strictly controlled. At the Central Rural Work Conference of 1997, leading comrades in the central government pointed out that the emphasis on the stability of the land contract relationship was not for the purpose of denying transfers, but to say that any transfer must be based on the farmer’s own willingness. In developing moderate-scale operations, it would be necessary to adhere to the principles of conditionality, moderation, diversity, guidance, and service. In August of that year, some places failed to extend the land contract period in time after the first-round land contract periods had expired. Some places arbitrarily changed the land contract relationship under various names or titles and forcibly reclaimed or partially reclaimed farmers’ contracted land, and other places forced the implementation of large-scale land management, against farmers’ wishes, and so on. In response, the central government put forward guiding opinions on further stabilizing and perfecting the rural land contracting relationship; it called for the

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conscientious rectification of the two-field system, explicitly mentioned that it had not advocated the implementation of the two-field system, called for the strict control and management of mobile land, and so on. In 2001, the central government issued another document, entitled “Notice on Doing Good Work on the Transfer of Farmers’ Contracted Land Use Rights” (关于做好农户承包地使用权流转工作的通知; Zhongfa [2001], no. 18), which made stricter regulations on the subject and principles of land transfer, and it clearly stated, “The subject of the transfer of the right of use on a farm household’s contracted land is the farm household.” The transfer of land use rights had to adhere to the principles of voluntariness, the rule of law, and compensation, and the document clearly specified that the two-field system was not permitted. It set a strict limit on the proportion of land that a collective could retain as mobile land. Also, to prevent business enterprises from going to villages and enclosing land, the central government stated that it did not advocate them taking over large areas of village land. The provisions of this document on land transfer were then written into the Law on Land Contracts in Rural Areas (农村土地承包法) in 2002, which clearly stipulated: “The right to land contractual management obtained through household contract may, according to law, be circulated by subcontracting, leasing, exchanging, transferring, or other means” (Article 32). The transfer of land contractual management rights should follow the principles of “consultation on an equal footing, voluntariness, and compensation, and no organizations or individuals may compel the contractor to circulate his right to land contractual management or prevent him from doing so” (Article 33). Furthermore: In the circulation of the right to land contractual management, the contractor shall be the subject. The contractor shall have the right to make his own decision, according to law, on whether to circulate the right to land contractual management and on the means by which to circulate the right. (Article 34)

In January 2005, the Ministry of Agriculture promulgated the Measures for the Administration of the Circulation of Rural Land Contracted Management Rights (农村土地承包经营权流转管理办法). This law spelled out the principles of the transfer of rural land contractual management rights and provided operational regulations on the rights of the parties, the transfer method, the transfer contract, the management of

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the transfer, and so on. Since then, the transfer of rural land contractual management rights has entered a standard and legal track. In 2008, a document from the Third Plenary Session of the Seventeenth Central Committee of the CPC, entitled “Decision on Several Major Issues Concerning Promoting Rural Reform and Development” (关于推进农村改革发展若干重大问题的决定), more systematically regulated the market in transferred land contractual management rights. It retained the earlier basis: “… allow farmers to circulate land contracted management rights in the form of subcontract, lease, exchange, assignment, or stock cooperation lawfully, voluntarily, and for compensation, and to develop various forms of moderate scale management.” It also stated: “… make more efforts to manage and serve the circulation of land contracted management rights, set up a good land contracted management right circulation market,” and, “Places with mature conditions can develop big specialized households, family farms, farmers’ professional cooperatives, etc.” It also emphasized three things that must not be done in the transfer or circulation of land contractual management rights: “The nature of the collective ownership of the land must not be changed, the use of the land must not be changed, and the farmers’ contracting rights and interests in the land must not be damaged.” 1.2 The Incremental and Regional Characteristics of the Circulation of Rural Land Contract Management Rights In the roughly three decades before 2010, due to imbalanced economic development, the development of the market for rural land contractual management rights had obvious regional and incremental characteristics. The first stage was the early reform period. After the incentive effect of the household contracting system was fully released, the surplus in the rural labor force began to appear. Some of this surplus labor force went to seek employment opportunities outside agriculture, while some large-scale expert farm households also emerged in the countryside, as the spontaneous subcontracting of farmland began to appear in rural areas across China. During this period, the circulation of farmland was characteristically spontaneous, informal, short-term, and fraught with policy uncertainty. The second phase began in the mid-1980s and ended in the early 1990s. Land transfers occurred mainly in the developed coastal areas and the suburbs of large cities. As township enterprises developed and

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expanded, most of the rural labor force in these areas turned to township enterprises to work. However, due to the continued existence of the obligation to sell foodstuffs to the state, and the village collectives still bore the burden of completing the obligation, the village collectives would concentrate farmers’ contracted land and provide a certain subsidy to the farmers for scale management. In general, more than 80% of the villages’ contracted land then went to a few dozen large households for operation, with each of these large households cultivating 50 to 100 mu of land. As for the terms of the contracts, the village collective would provide land to the large farming households free of rent; it would provide agricultural machinery or technology either for free or at a low rate, and it would also provide a certain subsidy for production materials. Large farming households, meanwhile, would have to fulfill the state obligation to deliver the state’s foodstuffs to the collective. During this stage, the characteristic of land transfers was that contracted land had become a burden for farm households, so that the village collectives’ transaction costs for land acquisition became low. The village collective organizations thus became the main entities engaged in the concentration of land and its circulation, and it became difficult for the large-scale farm management households to survive, because they depended on subsidy. The third stage began in the mid-1990s and ended shortly before the reform of rural taxes and fees in 2006. The overall scale of land transfer during this period was still not very large. A sample survey conducted by the Ministry of Agriculture showed that in 1992, there were 4.733 million contracting farm households which had subcontracted and transferred use of 774,000 hectares of farmland; this accounted respectively for 2.3% and 0.9% of the total number of contracting farm households and the total area of contracted farmland. Another sample survey of nearly 30,000 farm households conducted by the Agricultural Research Center of the Ministry of Agriculture showed that 4.09% of the farm households had subcontracted a portion of their land, only 1.99% had entirely transferred their contracted land, and 10.68% had subcontracted land for others to cultivate. During this period, the central and western grain-producing areas and areas with large numbers of agricultural laborers were completely different in character from the coastal areas and the suburbs of large cities. In the traditional agricultural areas, because of the increasingly heavy land burden, the resulting land tax burden was so high in some areas that net income from the land even became negative, resulting in a great

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decline in farmers’ enthusiasm for farming. Meanwhile, due to the large number of village and township enterprises closing down in rural areas not along the coast, the part-time job model of “leaving the land without leaving one’s hometown” became unsustainable, so a large number of rural surplus laborers went to work for businesses in the Pearl River Delta, Yangtze River Delta, or in the big cities. As a result, a large amount of land was abandoned. In some agricultural areas in central China, the land abandonment rate climbed to more than 30%. During this period, land transfer or circulation in these areas presented diversified characteristics. One kind was farmers taking initiative to transfer land contractual management rights. The contracts would then take the following form: the lessor would not charge any rent and hand over the contracted land for the lessee to use, but the lessee would either bear the land burden in full or in part; if in part, the lessor would bear the remaining land burden. Another characteristic of this time was that the village collective organizations would take back abandoned land (some would inform the contracting farmers, but most did not) and then re-contract it out to other farmers, who would then pay land rent to the village collective organization. The two-field system and land leasebacks after contracting2 ( fanzu daobao 反租倒包) were very common in these areas, but the twofield system was more common. After 1986, the two-field system became the most common form of distribution in the country. In 1992, 1.7 million village organizations, or 32.3% of the total in the country, were implementing the two-field system, an increase of 42.6% over 1990. The area covered by the two-field system amounted to 39,597,000 hectares, an increase of 7.3% from 1990. By contrast, in the coastal areas and outskirts of large cities, as a result of rapid industrialization and urbanization, local agricultural output value and agricultural employment share declined significantly. Agriculture became a sideline. Generally, farming households or village collectives leased land to outsiders to manage, and large-scale business households gradually formed that planted mainly high-value cash crops and other 2 Translator’s note: More specifically, this refers to the village committee re-collecting the land contracted out to farming households, and then contracting out the land use rights to the large farming households. Land leasebacks after contracting are discussed in detail below.

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crops that would serve the cities. After 1987, when the central government first explicitly proposed to explore more intensive land management in a planned way in the more well-developed regions, the promotion of moderate-scale land management may be divided into two stages: before 1991, when progress was slow; and after 1992, when land circulation and moderate-scale operation accelerated significantly, especially in the coastal areas. For example, by 1993, the number of land management units of scale with an average land area of 1 hectare or more in Wuxi County (无锡 县), Changshu City (常熟市), and Wu County (吴县), all in Jiangsu, had reached 2,816, covering a total operating area of 15,000 hectares, and the share of total contracted land that they accounted for had increased from 1.1% in 1988 to 22.4%. The fourth stage began after the reform of rural taxes and fees. Due to the enactment of the Law on Land Contracts in Rural Areas in 2002, farmers’ land contractual management rights now receive legal protection. After the state decided to abolish the Agricultural Tax in 2003, contracting farmers no longer needed to pay this tax, the various riders’ fees charged at the county and township levels lost their supports, and the land burdens (debts) were cancelled. With the addition of various agricultural subsidy policies, in which payments were distributed directly to farm households, farming became profitable again. As a result, farmers who had given up their land due to heavy land burdens returned to their villages to reclaim their contracted land. During this stage, the transfer or circulation of rural contracted land exhibited different characteristics in different agricultural regions. In most traditional agricultural areas, the transfer of contracted land still consisted primarily of spontaneous transfers among farmers. However, unlike the previous stage, the lessors generally received a certain amount of rent from the lessees, in addition to the grain subsidy. Another important phenomenon during this stage was that, in agricultural areas with a relatively high amount of labor outflow, as well as in the developed coastal villages and suburbs of large cities, business enterprises began entering the villages to sign contracts for large parcels ranging from a few hundred mu to thousands of mu. One way they obtained such parcels was by signing contracts directly with one farm household after another, but in most cases the village collective organizations played an important intermediary role. Some village collective organizations provided a land information platform, acted as a bridge between farmers and enterprises, and charged a certain intermediary service fee. Even more village collective organizations used their

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administrative power to concentrate the land contracted to farmers, then signed contracts with the enterprises and leased the land use rights out to them. These enterprises generally send the land rent to the village collective organization, which then distributes a part of the funds to the contracting farmers, while retaining the remainder for public use.

2 Land Circulation Since Implementation of the Law on Land Contracts in Rural Areas After 2000, the policies and institutional factors affecting China’s rural land transfers have changed significantly, especially due to the reform of agricultural taxes and the implementation of the Law on Land Contracts in Rural Areas, so that several new trends in China’s rural land transfers have emerged since then. Because there are no official statistics on land transfer or circulation nationwide, we can only search for and conduct preliminary analyses on information about rural land transfer in major newspapers and magazines from 2000 to 2006. 2.1

Regional Characteristics of Land Circulation

First, the ratio of rural land transfer in the country is approximately 10%. This ratio is higher than the 4–5% figure appearing in official statistics. Second, the regional differences in rural land circulation are widening, with high circulation in the east and low circulation in the west. If we examine several individual locations in the east, we find that the proportion of land transfer in Ningbo and Suzhou reached 27% and 23%, respectively, while in Fujian, locales where land transfer was low was 12%, while the high was 23%; most were above 15%. For individual locations in the central region, the proportion of land transfer was much lower, mostly in the range of 7% to 8%. In the western region, it was even lower, generally between 4 and 5%. Third, the form of land transfer varies greatly among regions and individual cases. In Suzhou and Ningbo in the east, land leasebacks after contracting ( fanzu daobao) are the main form. Eighty-six percent of land transfers in Suzhou is of this form, while it is 49.1% in Ningbo. In Beijing, 82% of land transfers are leases and land leasebacks after contracting. The proportion of land leasebacks after contracting is also very high in

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Tainjin’s Beichen District (北辰区). In addition, land shareholding also appeared in eastern locales such as Suzhou, Ningbo, Beijing, Guangdong, Fujian, Liaoning, and so on. In the center and west, subcontracting and leasing between farmers are still the mainstays, but various forms of transfer frequently appear in the center. 2.2

Several Forms and Institutional Characteristics of Land Circulation

2.2.1 Land Subcontracting In land subcontracting, the contractor (farm household) transfers part or all of its land use rights during the contract period to a third party for agricultural operations, under certain conditions; the rights and obligations between the original contractor and the contractee (collective) remain unchanged. However, before the reform of rural taxes and fees, the net income of land had declined, even becoming negative, due to the increasing burden from various taxes and fees and the apportionment of expenses attached to contracted land. In this kind of situation, the farmers who “went out” to work would either transfer their land to other people or relatives in their own villages for cultivation without asking for any compensation, or they would even pay the others to take it, or they would simply set aside their farmwork and abandon the land. Then the village committee would collect and transfer the land of these absent farmers by: (1) inviting large households in the village to cultivate the land (see Case 1 below); (2) inviting people from other villages to contract the land (see Case 2); or (3) transferring the land to enterprises for their operations (Case 3). After the tax and fee reforms, the income from farming the land rose, and the implementation of the Law on Land Contracts in Rural Areas strengthened the legal protection of farmers’ rights and interests in land contracting. Since the implementation of various policies benefiting farmers, the farmers who kept their land could get a lot of benefits. As a result, in the traditional farming areas, farmers rekindled their enthusiasm for farming. Some of the farmers who had gone away to work packed up their bedding and returned home, intending to resume their old occupations, so the phenomena of “demanding a field to cultivate” (yao tian zhong 要田种) and even “snatching a field to cultivate” (qiang tian zhong 抢田种) appeared. However, the contracted farmland had already been

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transferred to other farm households by the village committees. Now that the expected income from farming had increased, no one was willing to take the initiative to hand over their land. As a result, the issue of land management rights, which in the past were ignored and hidden behind the scenes, went to the front of the stage, becoming a “powder keg” in the work of village affairs and resulting in a large number of disputes. ∗ ∗ ∗ Case 1: A Land Dispute in Bailuo Town, Jianli County, Hubei Province The population of L Village in Bailuo Town (白螺镇), Jianli County (监 利县), Hubei is 1,147, divided into 224 households, living on 1619 mu of arable land, including 1169 mu of taxable area and 450 mu of mobile land, and about 500 migrant workers (approximately 100 households are outside). In 2001, a certain villager whom we shall call D in L Village contracted 1,070 mu of the land in L Village, accounting for 66% of the village’s total cultivated land. D’s own contracted land amounted to 22 mu, but the 1,070 mu came through a contract he had signed with the village committee in 2001; the contract’s date of expiry was in 2010. The other 223 households in the village had only 549 mu of farmland, or only 34% of the total—a staggering gap. Before the reform of taxes and fees, land was such a burden to farmers, due to agricultural taxes and fees, that they did not care how much or little land was contracted to them. However, following the reform, they saw the value of the land again, so the villagers of L returned to their hometown, demanding that the village collective redistribute the land. However, D thought he had contracted the large area of land in order to complete the payments of state taxes while it had been seriously abandoned. Over the intervening years, he had spent a lot of manpower and financial resources to improve the production environment and condition of the farmland. If all the farmland was returned, then how would he cover his losses? Therefore, D insisted that the contract be executed in accordance with the original contract he signed with the village committee.

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Case 2: The “Nonnative Villagers” of Jinjia Village, Fengping Town, Lianyuan City, Hunan Province Jinjia Village (金家村), in Fengping Town, Lianyuan City (涟源市枫坪 镇), Hunan, has 15 village production teams, 312 households, and 1,208 people, with per capita farmland of 0.72 mu and per capita paddy land of 0.65 mu. After 1996, many farmers in the village went out to work or do business, and this large migration of the labor force led to a large amount of the arable land being abandoned. By 1998, 15 of the 312 households had moved out entirely, and 130 mu of paddy fields were abandoned. The amount they would have had to pay in agricultural taxes had to be covered in advance by the village cadres, of whom several were paying more than 12,000 yuan per year. Faced with this situation, at the end of 1998, the village committee and village Party branch committee each convened meetings. All the members of the village self-governing committee and Party branch committee believed that it was not wrong at all for farmers to seek second and third lines of work if they were unwilling to farm, but the payment of taxes, fees, and grain quotas still had to be made, and the land could not be left abandoned, so the only solution would be to invite other people to come in and farm the land. They then decided to offer incentives for people to come and do farm work in their remote location in the Xinhua Mountains, where people were plentiful, farmland was scarce, and living conditions were poor. At the same time, it was stipulated that after these people came, the village would uniformly arrange to provide them with free housing, furniture, and farm tools. The newcomers would only be required to pay 30 yuan per mu in water fees or 40 kg of rice per mu to the original contracting householder. Other expenses, such as the agricultural tax and “three deductions and five levies ” ( santi wutong 三提五统), would be borne by the original contracting householder. The newly arrived farmers would enjoy the same treatment as local villagers with regard to children’s schooling, water release for drought relief, and so on. The decision of the two village committees was quickly implemented. Yang Anbo (阳安伯), a 38year-old farmer from Yunxi Village, Luguan Town, Xinhua County (新化 县炉观镇云溪村) was the first to bring his entire family to settle in Jinjia Village. By the end of 1999, a total of 18 households with 32 people had come to Jinjia Village and became its “nonnative villagers” ( bianwai cunmin 编 外村民). Jinjia Village’s social structure changed accordingly, so that there were three levels of villagers in the village: first there were the “honorary villagers” ( mingyu cunmin 名誉村民), or people who were “registered [locally] but not

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on the job” ( zaibian bu zaigang 在编不在岗). These people worked or ran businesses outside of the village year-round, and their original contracted land was already being farmed by others; their income levels were comparatively high, accounting for 70% of the village’s total income. Second were the “basic villagers” ( jiben cunmin 基本村民), or people who were “registered [locally] and on the job” ( zaibian you zaigang 在编又在岗), mostly the elderly, children, and older women who farmed about 60% of the village’s land but whose income accounted for 20% of the total village income. Third were the “nonnative villagers” ( bianwai cunmin), people who were “on the job but not [locally] registered” ( zaigang bu zibian 在岗不在编). They cultivated about 40% of the village’s land, and their income accounted for about 10% of the village’s total income. Case 3: Transferring Land to Enterprises for Their Operations There are eight village organizations (the old production teams ) in Yingfeng Village, Gongchang Town, Jianli County ( 监利县龚场镇迎风 村), in Hubei, with a total of 1,960 people and an area of 2,929 mu of arable land. Chen Shenghong (陈盛洪) was a boss in Yingfeng Village who was attracted by the policy at the end of December 2002. He entered into a four-year contract with the first, second, and fourth organizations for 435 mu of low-lying lake fields, at 140 yuan per mu. After the two sides signed the contract with notarization„ Chen invested more than 300,000 yuan to transform the low lake fields into fish ponds. In the first year, he lost capital due to the rather large investment, but in 2004, he broke even. He was prepared to earn back his money in two years, but at the end of 2004, the villagers began asking him for their fields again, and of course he refused to give them the land. In December 2004, the villagers became resolute and aggressive, insisting on “driving away Chen Shenghong and recovering our responsibility fields.” Chen had no choice but to withdraw, but he demanded compensation from the villagers. However, apart from the fourth farmers’ organization, which agreed to pay him 100,000 yuan, the first and second farmers’ organizations did not consent to pay any compensation, and strongly demanded that he restore the farmland to its original condition, or they would not allow him to leave. Several individuals lay down in front of Chen’s car, refusing to give way. ∗ ∗ ∗

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From Cases 1, 2, and 3, we can see that the occurrence of the land subcontracting relationship had the following characteristics: 1. When farmers with contracted land “went out” to work and abandoned farming, their original land-attached obligations went unfulfilled, which made it difficult for their village collectives to fulfill their obligations and damaged their own interests. This also became an incentive for the collectives to gather back the farmers’ land. 2. When the contracted farmers left the village, they did not sign any agreement with the village committee on transferring the contracted land and assigning an agent to fulfill their obligations. 3. When the subcontractors received the land, they would sign a land subcontracting contract with the village committee, but when the farmers who had “gone out” to work returned and asked for their land back, the resulting disputes would focus precisely on certain points. These points of dispute were as follows: 1. Did the village committee have the right to take back the contracted land of a farm household that did not fulfill the obligations on the land? 2. Did the village committee have the right to transfer its contracted land to a third party without the consent of the original contracting farmers? 3. Did the land subcontract contract signed by the village committee and the subcontractor have legal effect? The policy implications derived from Case 1 are as follows: First, should the farmers who gave up their contracted land management in L village and abandoned their land before the rural tax reform be held accountable for taxes still owed? Second, when these farmers “went out” to work elsewhere, leaving the contracted land deserted without assuming their obligations on the land, did the village committee have the right to take back that land? Third, did the village committee have the right to re-contract the recovered contracted land to someone else? And did the land transfer assignment contact signed by the village committee and the large contractor have legal effect? Fourth, when the land value increased

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after the rural tax reform, did the original contracting household have the right to continue to claim its original contracting right? If it did, then who would compensate the large contractor for its land-related investments? Based on the Law on Land Contracts in Rural Areas, the village committee in Case 1 had no right to sign a land transfer agreement with D on behalf of the other farmers. If the other farmers were to insist on filing a lawsuit with the court, D would definitely lose the lawsuit and have to return the contracted farmland. But then there would be another lawsuit, between D and the village committee, and in all likelihood the village committee would lose. When farmers who “went out” to work elsewhere returned to their hometowns demanding their fields, the direct object of their action was the village committees, and this led to a game of interests between the villagers and the village committees. The village committees believed that these migrant workers who had abandoned their fields for a long time, not paying the rural grain tax and not participating in the village’s public welfare undertakings, resulting in huge debts for the village, did not fulfill their obligations as villagers, and therefore had no right to return to their hometowns to farm. However, the policies on the secondround extension of land contracts clearly stipulated that no organization or individual can take back the contracted land of farmers on the grounds of unpaid taxes and land abandonment. Therefore, the farmers believed that the village committees violated their legal rights to contracted land and demanded that the village committees allocate the land to them according to the law—which led to a dilemma in the formulation and implementation of policy. 2.2.2 Land Leasebacks After Subcontracting Land leaseback after subcontracting refers to a land transfer and agricultural management action in which the township government or the village collective economic organization leases responsibility fields from the farmers at a certain rent, and then re-contracts it out to a large agricultural household or agricultural enterprise for large-scale operation. ∗ ∗ ∗

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Case 4: A Company Builds an Export Base with a Land Lease Agreement In 1997, the first phase of construction of a farmland protection area of nearly 1,000 hectares was carried out in Zoumadai, Hui’an County (惠 安县走马埭), Fujian Province. The village committee leased 117 hectares of land in parcels from farmers, and then signed a contract with China Green (Fujian) Agricultural Comprehensive Development Co., Ltd. (中绿[ 福建]农业综合开发有限公司), which would pay an annual rent of 12,000 to 15,000 yuan per hectare and provide 3,000 work days (with the pay for each work day not less than 12 yuan). The company managed the land and established a base for agricultural exports. Case 5: A Company Leases Village Land, Then Leases It Back to Farmers Anhui Province Runhe Cotton Industry Co., Ltd. (安徽省润禾棉业有限 公司) and various towns and villages in Lingbi County (灵璧县), Anhui Province were jointly promoting a cotton seed industrialization project through the land transfer model. The company realized a land transfer of 5,000 mu in the county’s seed production base in Gouya Village, Fengmiao Town (冯庙镇沟涯村). The approach used was that the village first convened a villagers’ representative meeting, a large villager assembly, held “one project, one discussion” ( yishi yiyi 一事一议) meetings, and so on, carrying out extensive publicity and mobilization, until they could transfer the management rights of 5,000 mu of farmers’ scattered contracted land to the Runhe Cotton company for the development of cotton hybrid seed production. Runhe Cotton then used the approach of centralized leasing and land leasebacks: it leased farmers’ land at 300 yuan per mu, and then the company and the village committee leased the land back to the farmers at 250 yuan per mu. The 50 yuan difference functioned as support funds. In principle, the leaseback targets were mainly the villagers of Gouya Village, Fengmiao Town, and other units and individuals could also participate in the leaseback. For each household, the area of such leased land could not exceed 15 mu.

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Case 6: Land Leaseback After Rental and Reconstruction by Agricultural Technology Agencies In Laobao Village, Xuanwei City (宣威市老堡村), Yunnan Province, the village committee leased back the farmers’ contracted land. The village committee was responsible only for paying each farm household 400 yuan per mu each year for renting the land, without having to fulfill its rights and obligations under the original land contract. The village committee thus gathered a contiguous area of 6.67 hectares. It then invested 1.5 million yuan in infrastructure, and built eight steel frame greenhouses and 92 bamboo frame greenhouses, designed so that water, electricity, and roads could reach every piece of land and every greenhouse. After building the infrastructure, the village committee rented it to a group of greenhouse, technology, and farming experts to develop a vegetable-growing industry. It subcontracted the 92 bamboo-frame greenhouses at 500 yuan each to six households for planting, and the eight steel-frame greenhouses were retained by the town agricultural machinery station and village committee as experimental bases for new technologies and new varieties, which they could use to guide other farmers in planting vegetables. Case 7: Several Leading Models of Land Leaseback After Subcontracting in Yongfeng County, Jiangxi “Fostering big households” ( peizhi dahu 培植大户) was one model. One or several households sign a lease agreement with the village committee, subcontracting relatively large areas of farmland and forming a larger-scale operation run by a small number of farm households . In Tantou Village, Yongfeng County (永丰县潭头村), a farmer named Guo Xunze (郭训 则) in partnership with three others leased more than 30 mu of farmland from the village at 100 yuan per mu to grow watermelons and vegetables. Another larger-scale example was found in Meixi Village (梅溪村) in the same county, where the villager Li Zuoren (李作仁) signed a three-year land lease agreement with the Tantou Village village committee for 100 mu of farmland. The village committee’s method was to first select and gather contiguous parcels to form 100 mu parcels, which it then used to sign lease agreements with individual farm households . In the first year, it would rent these large parcels out at 100 yuan per mu, and in the second and third years, 150 yuan per mu. The farm household would also bear the 40 yuan per mu agricultural tax, village township planning and village reserve fees ( cun tiliu kuan 村提留款), and water fees.

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A second model was that of the “Township Demonstration Base.” A certain township government would uniformly lease contiguous parcels of land from farmers, and then lease the larger parcel thus formed back to some of the villagers, who would then set up a township demonstration base with unified, factory-style operating methods of cultivation, planning, managing, and sales. For example, the Shaxi Town (沙溪镇) government signed a lease contract with villagers for a total of 23 mu of contiguous plots of farmland under the Chengnan Village small organization (the former production team) in Shaxi Town’s Jiangbei Village (江背村) at 180 yuan per mu per year. Then, following the model of “one person, one mu of demonstration field” ( yiren yimu shifantian 一人一亩示范田), the land was leased back to the villages and towns for unified cultivation. The town leaders bore overall responsibility for adopting a factory-like style of management, implementing uniform management, and issuing indicators for the variety of field contracted by each individual. The third was the “science and technology demonstration park” model. The township-level agricultural technology department would lease a certain area of farmland from the village collective and use agricultural technology to transform the farmland into a science and technology demonstration park, parcels of which were then subcontracted back to farmers at a certain price. For example, in Sanlong Village, Yaotian Township (瑶田乡三龙村), Yaotian Township Agricultural Technology Station (农技站) rented a 3.5 mu parcel of farmland at 150 yuan per mu, where it invested 11,000 yuan to build five high-standard lightweight framework greenhouses. After construction of the relevant facilities was completed, it was subcontracted to farmers at the price of 250 yuan per mu. The greenhouses connected with the surrounding land where vegetables and fruits were grown, thus forming a relatively concentrated rural agricultural science and technology demonstration park. At the time of this writing, more than ten varieties of vegetables and fruits, were planted inside the greenhouses. The vegetables planted in these greenhouses could get on the market earlier than those grown in ordinary greenhouses, with very conspicuous output benefits. ∗ ∗ ∗ From the above forms of land leaseback after subcontracting, we can sum up their characteristics as follows: First, farmers were no longer dealing

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with the third-party contractor; instead, the rural collective administrative organization was directly involved. Second, it was difficult for rural collective administrative organizations and even township governments to arrive at contracts based on what the farmers wanted during the process of land leasebacks of their contracted land. Third, land leasebacks after subcontracting were done mainly to implement larger-scale operation or modern agriculture. The entities that were carrying out such agricultural operations were undergoing great change, as business enterprises, agricultural science and technology units, and so on began to get involved in agriculture. Fourth, in land leasebacks, township governments or villagelevel organizations were not simply intermediaries—they played the role of land lessors. They were not only the parties to transfer use of the land in the land transfer contract, but they also obtained the land rent (that is, they collected the land rent from the new subcontractor plus the difference left after they pay out rent to the original contracting farmers for use of the land). Fifth, the agricultural operators who leased out their land contracting rights still had to re-lease land from the land leaseback party to engage in agriculture. This way, during the land leaseback after subcontracting process, the collective organization or the local government would take the land in farmers’ hands and lease it back to them. That is, the land use rights in the hands of the farmers was leased back into the hands of the collective organization, so that the combined land use rights and ownership were in the hands of the collective organization. This form of land circulation was likely to cause farmers to lose their contractual management rights to the land and result in the loss of the right to benefit from the land. In particular, if the new agricultural business entity ran into operational difficulties and was unable to pay the rent, the village or township government was also unable to pay the farmers’ rent, thereby infringing on the farmers’ contractual management rights and right to benefit from the land. 2.2.3 Land Shareholding Systems A land shareholding system (tudi gufen zhi 土地股份制) refers to an arrangement in which, during the contract period, the contractors (farmers) quantify their land contractual management rights into equity, and they form a cooperative or joint stock company limited by shares (gufen youxian gongsi 股份有限公司), which then carries out the bidding for and contracting of land, or external leasing, or direct development, and the farmers receive dividends according to their shares. This model

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is managed in the form of a share cooperative; operating profits are distributed based on shares, and equity can be inherited, transferred, or mortgaged. ∗ ∗ ∗ Case 8: The Board of Directors of Arable Land Cooperative in Yangdai Village, Chendai Town Already in 1994, Yangdai Village, Chendai Town (陈埭镇洋埭村), located in Jinjiang City (晋江市), Fujian, had formed a “Board of Directors of Arable Land Cooperative” (耕地股份合作董事会). More than 95% of the village’s arable land was managed by this board of directors, and the 248 hectares of arable land were concentrated in the hands of 42 farm households . There were 91 households operating on more than 0.67 hectares each, with an average of 2.67 hectares. There were two large households whose subcontracted lands amounted to more than 66 hectares. Each year, the cooperative provides to the state as much as 200,000 to 250,000 kg of commercial grain. Case 9: Pizhou City, Jiangsu Turns Farmers’ Contractual Management Rights on Land into Quasi-Equity in Land In Pizhou City (邳州市), Jiangsu, contractual management rights on collective land, owned by farmers as stipulated in the household contract responsibility system, were given to farmers as a special property right. Farmers can transfer the right to use the land for a fee or take shares in the right to use the land to form a joint-stock farm enterprise. This special property right was locally known as “quasi-land equity” ( zhun tudi guquan 准土地股权). There were two methods for farmers to transfer quasi-land equity. One was to determine annual income in advance according to the number of shares (usually, 666.7 square meters of land was converted into 1 share), and by the end of the year, the joint-stock organization would distribute its income according to a predetermined method. The farmers would not interfere with the operation of the joint-stock organization, and their shares functioned like preferred stock in a business enterprise. The other method was not to determine earnings in advance but wait until the end of the year to determine earnings per share based on the operating conditions of the jointstock organization at that time, and then distribute earnings according to

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the number of shares. Under the second method, farmers had the right to interfere in the operation of the joint-stock organization, especially through their right to decide the organization’s direction. Of course, the joint-stock organization is in charge of its normal operation and management. Case 10: A Land Share Cooperative in Wuzhong District, Suzhou City In Shanglin Village, Hengjing Subdistrict, Wuzhong District, Suzhou City (苏州市吴中区横泾街道上林村), each farm household used to work on its own, and the average annual net income per mu of land was only about 250 yuan. In 2006, 180 farm households in Shanglin Village made the management rights to 240 mu of their contracted land into shares. The pricing principle they used was to multiply the average output value per mu (250 yuan) in the first three years by the remaining number of years (20 years) on their land contractual management right certificate, to determine the price standard of 5,000 yuan per mu of land. After verification by an accounting firm, the Industry and Commerce Department confirmed that the registered capital of the Shanglin Village Land Cooperative was 1.2 million yuan, which was composed entirely of the land contract management rights of the members who had invested in it. At the time of writing, the land share cooperative had contracted 240 mu of land to capable farmers, the farm households could receive a guaranteed minimum of 600 yuan per mu of land income dividends each year, and the farmers who “went out” to work elsewhere had an additional 25 yuan per day for employment, all of which greatly increased the farmers’ income. In July 2006, the Shanglin Village Land Share Cooperative took the lead in completing the registration procedures and received the first land share cooperative license issued by Jiangsu Province. Case 11: The Land Share System of Yan’an City Yan’an City (延安市), Shaanxi formed a new basic rural management system. The number of shares was determined on a per capita basis, in order to solve public–private issues, and the number of shares determined the area and quality of land distributed, in order to solve the issue of one farm household having to farm scattered plots of land. Land rights were determined by the land distributed, in order to resolve lack of clarity in production rights, and the matter of rights was used to put people’s minds at ease, thereby

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resolving the problem of instability over contracting rights . A distributionof-interests system was established, making all the villagers into shareholders, and joint-shares cooperative policies to benefit all were put into effect. This work included the following reform steps: The qualification to become shareholder was determined on the basis of household registrations, and the economic status of each shareholder was quantified. All villagers with official household registration in the village could change their status from the original collective economic organization to the current shareholder status in the joint-stock cooperative economic organization within a limited household registration date. The joint-stock cooperative only set up A-type original shares and B-type commodity shares— no collective public shares. Every shareholder born in the village would have one A-type share for every two years of age; shareholders who moved into the village in a proper manner would enjoy one type A share every two years from the date of official household registration. Shareholders over the age of 70 were capped with 35 A-type shares. Finally, based on the total number of shares held by each shareholder, the cooperative would issue a “Such-andsuch Village Joint-stock Cooperative Certificate of Shares” as well as a copy of the “Such-and-such Village Joint-stock Cooperative Articles of Association.” The board of directors and the board of supervisors were elected with one vote counted for every 200 shares. On the basis of their equity, the rights and obligations of each shareholder was clarified. The “Certificate of Shares” served as proof of each farmer’s status in the jointly owned economic organization. It was not only a certificate for the shareholders’ benefits in the division of land, property, and money, but also as a legal basis for them to pay taxes and fees, and to go out and work. New households could also join the cooperative by purchasing B-type commodity shares, the price of which was set through a democratic discussion and decision. The rights of occupying and using assets and land, which are clearly identified through the shares under the names of shareholders, are protected in accordance with the law. Shareholders can also inherit and transfer shares. On the basis of equity, the rural land was allocated fairly and reasonably. First, the land was divided into upper, middle, and lower grades, and the total output value of the entire village in one year was calculated according to the output value per mu of a main crop on each of the three grades of arable land. Second, the village’s annual total output value was divided by the total number of shares in the village to obtain the share value

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of each original share. Third, each farm household could claim only one parcel of arable land of one grade, based on the household’s total share value and future production needs. Fourth, contracts were signed and certificates issued in order to stabilize contract rights in accordance with law and to ensure that over the long term, “an increase in the number of people [in a household] will not entail an expansion of the land, and a decrease in the number of people will not entail a shrinking of the land.” This land system arrangement was conducive to enlarging the scale of operation of small family farms, small forest farms, and small pastures. Case 12: The Land Share Cooperative System in Xiaoshan District, Hangzhou City Panshan Village (潘山村), which is part of Yiqiao Town, Xiaoshan District, Hangzhou City (杭州萧山区义桥镇), adhered to three principles in the implementation of its land shareholding system. First, that the household contract responsibility system would remain unchanged for 30 years. By having each farmer use his land contracting rights to purchase shares, the farmers’ contracting rights were effectively protected. Second, in line with the separation of the “three rights” of land and the premise that land ownership is collective, the method of having farmers’ contractual rights or use rights function as shares was adopted, and the annual dividend per mu of land was promised to be no less than 200 yuan. Third, adhering to the principle of voluntary action by the masses, some farmers were allowed to retain a certain percentage of the land to be managed on their own. The Panshan Village Agricultural Joint-stock Development Company (潘山村 农业股份发展公司) conducted independent auditing and was responsible for its own profits and losses. A pre-distribution was made every six months, and dividends were distributed at the end of the year. During the company’s start-up period, the village economic cooperative adopted the method of farmers’ subsidies to ensure that all get a minimum guaranteed dividend. During the period of benefits stabilization, the dividends were distributed according to net income, which also included land contract income and land operation income. Case 13: A land share cooperative system in Wenling City, Zhejiang Province

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Fourteen villages in Wenling City (温岭市) implemented the land share cooperative system, which is divided into three types according to the basis for quantification of shares and the method of dividend distribution: The first is a primitive land share cooperative system that quantifies shares based on the registered agricultural population. Yuanjing Village (远景 村), Songmen Town (松门镇), calculates the farmers’ base points based on the genders and ages of the village’s registered agricultural population and quantifies the number of shares per person based on 100 base points. The entire population of the village counts for 1,450 shares. Then the land contract area of each household is determined based on the base points, and the farmers’ land contract management rights are used as shares to form an agricultural development joint-stock cooperative company. The company can adjust the shares according to changes in base points. The village’s land assets are managed and developed by the company; 50% of the net income earned will be used for collective accumulation, and 50% will be used for shareholder dividends. The second is a simple land share cooperative system that quantifies shares based on collective land contract management rights. Munan Village ( 牧南村) in Zeguo Town (泽国镇) uses land contract management rights as the basis, with 0.1 mu equal to one share, and it converts farmers’ second-round land contract area into shares. The whole village invested 202.65 mu of land, which was converted into 2,027 shares of equity, and “Munan Village Land Joint Stock Cooperative Co.” (牧南村土地股份合作 公司) was established. The land invested in shares is managed and developed by the company; 50% of the net income from operations is used for collective accumulation, and 50% is used for shareholder dividends. The third is a comprehensive land share cooperative system that quantifies shares based on village collective property and land. Daxi Town (大溪镇), Panlangcun (潘郎村) will quantitatively convert all collective assets (fixed assets, monetary assets, land assets, and other assets) into shares after liquidation and capital verification, and form a village collective assets joint-stock cooperative company. The farmers’ contracted land is reflected in the form of currency based on its land expropriation price for that year, and this is converted into individual allocated shares based on the contracted area. Fixed assets, monetary assets, and other assets are converted into collective accumulation shares and flexible adjustment shares. After undergoing a democratic evaluation process, the company’s net assets were 6.615 million yuan, and the total share capital was 18,000 shares, of which 9,600 collective accumulation shares accounted for 53.33%. Of these, 7,600 shares, or

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42.22%, were allocated to individuals, and 800 shares, or 4.44%, were for automatic adjustment. The value of each share was 367.5 yuan. The collective assets of the whole village are operated, managed, and developed by the company. The net income from the company’s operations is withdrawn from the capital reserve fund and public welfare fund and distributed as dividends according to shares. The company’s shares are fine-tuned with the automatic adjustment shares every five years. Case 14: A land share cooperative in Xinfeng Village, Shaoxing County, Jiangsu Province Xinfeng Village (新风村), Shaoxing County (绍兴县), Jiangsu Province, established a village-level land share cooperative, which has been in operation since 2001. In terms of equity, three types of shares were set up, namely farmers’ contracting rights shares, village collective ownership shares, and cash shares. Farmers’ contracting rights shares were converted based on the farmers’ share application and the contracted area of the land contracting rights certificate (0.4 mu per person). That is, every 0.4 mu was one share, so the land in the whole village was converted into 882 shares. Village collective ownership shares were based on local land requisition methods and were twice the farmers’ contracting rights shares, for a total of 1,764 shares. Cash shares were calculated based on cash investment. According to the then-current level of farmland infrastructure and the funds that needed to be invested in additional investment, every 100 yuan was one share, and there was a total of 7,354 shares. This part was provided by the village collective and the industrial and commercial enterprises that wanted to invest in cash shares. The three types of shares together added up to exactly 10,000 shares. The land collected by the village-level agricultural land joint-stock cooperative was used for public bidding for high-efficiency agricultural development projects, and contracts were signed with major agricultural operators to carry out the construction of efficient agriculture. Case 15: A Land Share Cooperative in Xukou Town, Suzhou City After many studies and discussions, Xukou Town, Suzhou City (苏州市胥口 镇) issued the “Pilot Plan for a Land Shareholding System in Xukou Town,” “The Articles of Association of Xukou Town Land Share Cooperative,” and “Implementation Measures for a Rural Land Circulation Center in Xukou Town.” The first general meeting of the shareholders of Xukou Town Land Share Cooperative in Wuzhong District (吴中区), Suzhou City.

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“The Articles of Association of Xukou Town Land Share Cooperative” stipulated two situations for becoming a shareholder: the first was that a farmer resident in the town uses his contractual management right to land to invest in the cooperative, and the second was that the town or village collective economic organization invests in the cooperative. As for equity setting, the shares were divided into individual shares and collective shares, with each share valued at 10,000 yuan. Of these, the initial price of each mu of land that a farm household invested was set at 10,000 yuan, with proportionate valuation for parcels less than 1 mu. Individual shares could be inherited, gifted, and transferred with the approval of relevant town departments, but they could not be withdrawn for cash withdrawals. The source of capital for the cooperative was, first, the monetary capital invested by the town and village collective economic organizations, and second, the monetary capital that went into land compensation funds after the development of the farmers’ invested land. As for distribution, the cooperative practiced a two-stage distribution method—a guaranteed dividend distribution and a floating dividend distribution depending on profits. The guaranteed minimum dividend per share for individual shares was 500 yuan per year, but collective shares would not be included in dividend distribution for three years. In the first phase, 1,360 mu of farmland, farmers’ retained land, and slopeland were confirmed as shares, and land share agreements were signed with 883 farm households in nine villages. Xukou Town also took out one million yuan from its own funds as start-up capital. Since this time, the cooperative has established a land development fund and marketoriented operations, which include, specifically, construction, the purchase of commercial real estate, and deriving revenue from land-use assignment and rental. Besides entrusting securities companies, insurance companies, and other institutions to carry out capital operations in order to obtain reliable income, it has adopted other investment methods to obtain income. ∗ ∗ ∗ From the cases above, we can succinctly describe the characteristics of land shareholding cooperative systems as follows: (1) Through the land shareholding system, the contractual management rights originally given to each farm household were converted into shares (equity). (2) Land was subcontracted by the village committee to the company for large-scale agricultural production with higher added value, and the farmers received

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a guaranteed minimum income. (3) In most land shareholding systems, villages would generally invest in other collective assets besides village land, and the main source of dividends was income from the management of non-agricultural land. Therefore, the land shareholding system was only a part of the entire village-level shareholding system, and in some places, it was even just a form of converting equity to cash. 2.2.4 Land Transfer Trusts In a land transfer trust, a land transfer trust service organization accepts the entrustment of the land contractor (i.e., the farmer). Then, under the precondition that the ownership of the land and the contractual management rights to the land do not change, and according to the demand for the marketization of land management rights (use rights), it conducts certain procedures to transfer the land management rights to other individuals or units within a certain period of time, with compensation. ∗ ∗ ∗ Case 16: Land Transfer Trusts in Liuyang City, Hunan Land transfer trusts in Liuyang City (浏阳市), Hunan adopted mainly the following methods of land transfer: The first was the field-as-shares ( gutian 股田) type. That is, the land was converted into shares, and farmers became shareholders. Whether they “went out” to work or not, they could enjoy the benefits from their land and reduce risk from working elsewhere. Large farm households or agriculture-related business enterprises could obtain long-term, stable income through moderatescale operations. For example, Yatou Village, Naokou Town (淖口镇鸭头 村) and Hunan Provincial Tobacco Company jointly established Liuyang Goldleaf Agricultural Development Co., Ltd. (浏阳市金叶农业开发有限责 任公司), and 422 farm households used 5 years’ management rights on 76 hectares of contracted land to obtain shares. After the farmers became shareholders, they engaged in cultivating seedlings, operating machinery, and so on, each according to their special abilities. The second was the subcontracting type. The subcontracting fee was 200 yuan per mu or 200 kg of rice per year, for a period of one to 15 years. All of the cultivated land in Nanchong Village (南冲村), Naokou Town was transferred to 129 farm households , which engaged in the three-dimensional

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development of flue-cured tobacco. Eighty percent of the labor force transferred to non-agricultural industries, and all of the farmland was converted to fields. This motivated 3,556 farm households in surrounding villages to join their fields together in developing flue-cured tobacco—1,793 hectares in all. Third was the leasing type. In Zhentou Town (镇头镇), six villages specializing in the flower industry, including Ximan (西满) and Liangtian (良田), have emerged. They developed 1,720 hectares for growing flowers, and 80% of the land is leased by people from outside these villages. Fourth was the auction type. Idle land resources , such as barren mountains, barren ditches, barren hills, and barren beaches, are suitable for public auction and contracting. By auctioning wasteland, Dayao Town (大瑶镇) built three north–south and four east–west farmers’ streets, and the market town area was expanded to three square kilometers. Land transfer trusts became relatively mature in Liuyang City, Hunan. With the municipal level serving as the service center for land transfer trusts , all 40 of its town and township offices established land transfer trust service stations, and the transfer trust services in the 746 villages were carried out by village-level cooperative economic organizations or village committees. The land transfer trusts were tangible organizations and intangible entities, and they were non-profit. All staff worked part-time, did not charge any fees, and provided free services for farmers. Case 17: The Land Trust of Pingluo County, Ningxia On 19 May 2006, Pingluo County (平罗县), Ningxia Hui Autonomous Region launched pilot work on land credit cooperatives. In accordance with the voluntary principle and farmers’ retention of the right to contract land, local farmers deposited land in the land credit cooperatives as if it were bank deposits, and the land credit cooperatives determined the differential “rent on land deposit” based on its geographic location, fertility, appreciation potential, and other factors. This rent was then paid to farmers on a regular basis. The land credit cooperatives then took the land thus collected through “savings,” organized it, and made it available through public bidding and competition. It could be leased out to large farm households or to town or township enterprises for operation at scale, or it could be used to run businesses, build markets, engage in large-scale planting or breeding, and so on. The land rent was paid according to the quality differential and the relative length of the term of the loan. The rent that the third parties paid for the

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loaned land was higher than the “rent on land deposit” that the land credit cooperatives paid to the farmers. This difference was under the collective control of the villages and towns; part of it was used for the daily operating expenses of the land credit cooperatives, and part of it was used as collective public funding for infrastructure building or other public welfare projects in the villages and towns. Case 18: The Land Trust Center in Shaoxing The operation of the land trust in Keqiao Town, Shaoxing County 3 (绍 兴县柯桥镇), Zhejiang had three major links. First, before land transfer occurred, the supply and demand on land use rights was registered, and information was released. Feasible development projects were recommended on the basis of registration, gathering data on the quantity, location, category, and so on of transferable land, consultation with both parties on the land supply and demand sides, and the release of information on land reserves and developable land resources in a timely manner within and outside the jurisdiction through multiple channels and in multiple forms. The second link was coordination of the land transfer through an intermediary and notarization. The intermediary coordinated matters relating to the transfer that both parties put forward, and after negotiating the contract on a basis of equality and reaching complete agreement on it, the contract was notarized. At the time of this writing, Keqiao had transferred 10,840 mu of land, i.e., 53% of the town’s transferable land, from 3,548 farmers through trust services. The third link was the tracking service and dispute mediation after land transfer. The land trust center actively assisted land operators on feasibility studies of development projects, and on extending horizontal connections with regard to credit, technology, materials, etc. It assisted in mediating disputes arising from land management within the scope of laws and policies, thus safeguarding the legal rights and interests of land owners, contractors, and operators. However, during the actual operation process, there were still some “nail households” ( dingzi hu 钉子户) that were unwilling to carry out the land transfer. This kind of situation was usually dealt with by village cadres. If a farm household was really unwilling to give up their land, the cadres forced a replacement of the land by giving the household land outside of the planned land transfer area. 3 Translator’s note: Heqiao became a District (qu 区) and Shaoxing a City (shi 市) in 2013.

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∗ ∗ ∗ From the cases above, we can see first that the land transfer trust service organizations were actually intermediaries and service platforms with four functions: (1) registering supply and demand relating to land management rights and releasing information; (2) acting as an intermediary, coordinating, guiding, and authenticating the transfer; (3) providing follow-up services and mediating disputes after the transfer; (4) carrying out evaluations at the end of the transfer period, and rewarding those who increase the land’s fertility and punishing those who reduce it, in order to ensure that the re-cultivation capacity and soil fertility of the farmers’ contracted land continue to improve. Second, we can see that the purposes of the land transfer trusts were to promote the management of land at scale and to facilitate land stock management and land subcontracting and leasing. It was hoped that the authority of the government and grass-roots organizations would enable the establishment of credible arbitration institutions and various standards for land transfer. But in fact, land transfer trusts could not but affect the exercise of farmers’ land use rights and contractual management rights. Due to their obvious administrative color, they could scarcely maintain a neutral role in land transfers, so that administrative coercion was inevitable.

3

Land Circulation Status and Issues in 2007

In 2007, when we surveyed Zhejiang, Hunan, Hubei, Sichuan, Anhui, Chongqing, Heilongjiang, and Liaoning, we discovered the following: 1. Farm households’ land subcontracting and management rights were developing in a material rights direction. After the second round of contract extension in 1994, the improvement of land contract extension in 1997, and the implementation of the Law on Land Contracts in Rural Areas in 2003, the contractual relationship between farmers and land had been further stabilized and lengthened. Since the promulgation of the Law on Land Contracts in Rural Areas in 2003, local governments took a series of measures to stabilize farmers’ contractual relationship with the land, clarify farmers’ rights to land, and summarize local practices. The measures included: (1) stipulating that the contractee (i.e., the collective) shall not take back or adjust the contracted land at will during the term of the farm household’s contract,

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except for the circumstances permitted by the Law on Land Contracts in Rural Areas; (2) improving and standardizing land contracts, resigning contracts with those who had not yet signed them, and, for incomplete contracts, using the remedy of signing supplementary contracts to ensure that the contract is fully assigned to the household; (3) issuing certificates of rural land contractual management rights. By 2007, the proportion of households with rural land contractual management rights certificates in each province and city was 92% in Sichuan, 95% in Chongqing, 86% in Hunan, 95% in Hubei, 98% in Heilongjiang, 98% in Liaoning, 93.5% in Zhejiang 93.5%, and 99.6% in Jixi County (绩溪县), Anhui. 2. Most rural land transfers were still spontaneous, but local governments and collective economic organizations tended increasingly to intervene, and the quantity and scale of land contracted by owners and enterprises was increasing. Among the surveyed provinces and cities, Zhejiang Province had the highest proportion—reaching 19.8%— of total farmland area for which the contractual management rights had been transferred. Next were Chongqing (10.84%), Sichuan (10%), Hubei (10%), Heilongjiang (8.9%), Hunan (6%), and Liaoning (2%). In the main, farm households took the initiative to transfer the land contractual management rights; land transferred by farm households in the form of subcontracting, leasing, swapping, and transferring accounted for more than 80%. In the years before 2007, there was a stronger tendency for local governments or collective economic organizations to intervene actively in land transfers. Zhejiang Province established a land transfer trust center, and similar land transfer trust (custodial) centers were established at the county and township levels, while the village-level was specifically responsible for providing land transfer trust services. There were 254 townships and 4,344 villages province-wide that established such land transfer service organizations. In 2006, 72,500 mu of land in total was transferred in Shaoxing County, and of this amount, 49,200 mu were transferred through land transfer trusts. In Sichuan Province, Chengdu, Mianyang (绵阳), Suining (遂宁), Nanchong (南充), Neijiang (内江), and other places established various forms of intermediary organizations or rural land transfer service centers, the main function of which were to concentrate farmers’ land, select business owners, negotiate contracts and prices, and attract investment as a whole. Chongqing was also actively

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developing intermediary organizations for land transfer services, and within that city, the area of land transferred through the village community collective organizations in Jiulongpo District (龙坡区) amounted to 16,229 mu, accounting for 88%. In the same period, Hubei Province made “structural adjustments” to force farmers to make the transfers. After being corrected during the second round of contract extension, the province switched to a shareholding system. In this form of land transfer, the farmers’ shareholding ratio has increased by 71.4%. Due to the collective organizations and local governments’ active intervention, land leasing also tended to develop toward business owners and enterprises. Through land transfers, Zhejiang formed 2.921 million mu of land parcels of scale, i.e., having an area of more than 10 mu, accounting for 74.3% of its total transferred land area province-wide. Of this land, 1.702 million mu consisted of parcels of 10–50 mu, 867,000 mu of parcels of 50–200 mu, and 350,000 mu of land with a scale of more than 200 mu. There were 652 large farm households in Shaoxing with 49,100 mu in all, which accounted for 67.72% of the total land circulation area; these households operated on an average of 75.43 mu, and 63 of them operated on more than 100 mu. In Zigong City (自贡 市), Sichuan, some of the townships took competitive bids on subcontracting land that farmers were about to transfer, or they concentrated part of the land to attract agricultural investment, or they invested farmers’ land as shares in cooperation with business owners. In the same province, Fushun County (富顺县) also had business owners leasing land to engage in large-scale operations. In 2007, the county’s leased area reached 12,400 mu, which accounted for 12.5% of the total area in circulation and 14.4% of the farm households that had transferred land. Business owners in Chongqing’s Jiulongpo District generally rented large areas of land. For example, the construction of a sports and recreation center by Chongqing Tengxiang Industrial Co., Ltd. (重庆腾翔实业有限 公司) involved the leasing of more than 4,000 mu from two towns. In Chongqing’s Zhong County (忠县), land concentrated by the land circulation center was leased out in various arrangements: rental by agricultural or other companies, contracted out by large farm households, etc. At that time, 194,000 mu of land, or 24.3% of the county’s arable land, was in circulation. In Hunan, more and more large farm households, industrial and commercial enterprises, and administrative institutions appeared, renting combined tracts of land from farmers for centralized, large-scale operations.

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3. Factors affecting the market-oriented circulation of rural land still existed. Even though the Law on Land Contracts in Rural Areas had implemented real protections for farmers’ land contractual management rights, we found from our field investigation that, within village communities, farmers still had deeply-rooted concepts about membership rights under collective ownership. They believed that since the land is collectively owned, each member of the village community should enjoy contractual management rights on the land. This was bringing about an increase in land disputes and was affecting not only the stability of rural land contracting relationships but also the market-oriented circulation of land contractual management rights. The first factor, then, was that deep-rooted collective membership rights became a dynamic mechanism in administrative adjustments on land, hindering the market-oriented circulation of land contractual management rights. First, the migrant workers who had abandoned their farms demanded to reclaim their land contractual management rights. After the late 1990s, a large number of rural laborers from the primarily traditional agricultural areas “went out” to work, due to the heavy burdens on agriculture and negative land income at the time, so some of these migrant workers entrusted the management of their contracted land to relatives or neighbors—or they simply abandoned farming and had their land taken back by the village organization. After the abolition of agricultural taxes and fees and the bestowal of various agricultural subsidies, paid directly to the household, the benefits of managing farmland improved, so they returned to their villages to reclaim their original contracted land. Xiangfan City ( 襄樊市), Hubei, had 15,249 households in this situation in 2007. After most of them did not obtain the second-round contracting right, they demanded the collective organizations to allocate land to them. Second, persons who had settled in the smaller cities and towns also returned to their villages, demanding their contracted land. In the years before 2007, the smaller cities and towns in various regions successfully carried out a reform of the household registration system, so that farmers could settle in them by purchasing houses or investing in these places. Some farmers were thus drawn to settle in them, and to give up their original contracted land. After the profitability of the land was improved, they too returned to their villages to claim back their original contracted land or contractual management rights.

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Third, households with increasing members demanded that adjustments be made to their contracted land. The Law on Land Contracts in Rural Areas stipulated that no adjustment could be made to a farm household’s contracted land due to changing numbers of members within the contracting period. However, within the village community, growing households still demanded the adjustment, which created conflict with shrinking households. Fourth, land expropriation was causing disputes over adjustments of contracted land and the distribution of interests. In some places where land had been expropriated, some villages would distribute the land compensation funds among members of the village community, while at the same time redistributing the land to the whole village; other villages would give the land compensation funds directly to the landexpropriated households and no longer carry out land adjustment. In the former situation, due to the conflict with relevant laws, the households whose land had not been expropriated would file petitions with higher levels of government (shangfang 上访). The latter situation would lead to uneven land occupation among the farmers, which would cause the land-expropriated households to request land from the village committee, which in turn would touch off disputes. Fifth, there was the issue of married women in urban and suburban villages. In urban and suburban villages, where the income from land transfer was considerable, women who got married to someone from outside the village would continue to live in their parents’ homes after marriage. Although their parents’ households were still in line with national policy in terms of land allocation, the township regulations in urban and suburban villages did not give these women the contractual management rights to land or the rights to receive other social welfare benefits. This problem is still rather difficult to resolve. The second factor that hindered the market-oriented circulation of land was that the collective organization would sometimes intervene in the transfer, which led to infringements on farmers’ land contractual management rights. The pro-active intervention of collective economic organizations improved the efficiency of land circulation and provided a vehicle for encouraging large-scale land management. However, there were also cases in which the transfer of rural land did not respect the farmers’ wishes. For example, some village collective organizations or village cadres directly

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signed land contractual management rights transfer contracts with business owners, or they would sign the transfer contracts on behalf of the villagers by means of a majority of the villagers’ representatives. Some collective economic organizations also took back the farmers’ contracted land, and then the village committee or organization would rent it out on the farmers’ behalf, as occurred, for example, in Santai County (三台县), Sichuan, where 2,855 mu of land were circulated by contracts signed by the collectives. The “Notice on Doing Good Work on the Transfer of Farmers’ Contracted Land Use Rights,” issued in 2001,4 clearly stated chief subject of land circulation was the farm household, that the transfer of land contractual management rights had to be based on the farmers’ own willingness, and that no organization or individual could force farmers to transfer land or hinder them from doing so in accordance with law. Article 33 of the Law on Land Contracts in Rural Areas also clearly specified: The right to land contractual management shall be circulated in adherence to the … principles [of] consultation on an equal footing, voluntariness and compensation, and no organizations or individuals may compel the contractor to circulate his right to land contractual management or prevent him from doing so.

However, in the years before 2007, in developed areas and in some rural inland areas, collective economic organizations and even township governments, in order to promote large-scale agricultural operations, were forcing or semi-forcing farmers to leave their land. This kind of situation is fundamentally different from that of the mid-to-late 1990s, when village committees were re-contracting out farmland after the farmers had abandoned their farms. We urged the central government to issue documents to stop it, and to emphasize especially that the village committees and organizations should not be concentrating land and managing its operation with companies under the rubric of conducting experiments in urban and rural planning.

4 Translator’s note: That is, Zhongfa 中发 (2001), no. 18, mentioned earlier in this chapter.

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4 Several Policy Issues in Land Circulation and Scale Management As the market for contractual management rights on rural land developed, widespread criticism of the too-small scale of rural land management was always a constant. Criticism of the household contractual management system had appeared in phases, but the rate of transfer of rural contracted land had always been considered too slow. As for the transfer of contractual management rights on land, we thought that clearer definitions and clarifications had to be made at the policy level in order to prevent confusion. In particular, it was necessary to prevent local governments and grassroots organizations from misinterpreting central policies in order to take the opportunity to infringe on farmers’ contractual management rights on land and weaken their usufructuary rights on their contracted land. To this end, we raised the following policy recommendations: 1. Make long-term implementation of farmers’ contractual management rights on land the institutional premise to ensure land circulation. The Third Plenary Session of the Seventeenth Central Committee of the CPC (October 2008) pointed out that keeping the rural land contractual relationship unchanged for a long time was of great political and economic significance, because this would help to restrict local governments and grass-roots organizations from using the term of contract and issuance of contracts as ploys for making moves on farmers’ contracted land, and it would help to stabilize farmers’ expectations vis-à-vis the land. The longevity of the land contract relationship is the premise for land transfer, and we recommend that this longevity has to be ensured as soon as possible in the system: First, the timing of membership rights should be clarified. Since the contracting relationship is long-term, the farmers who are members within the collective economic organization would discuss the timing of membership rights and suggest that the agriculture ministry would introduce measures for defining the membership rights to rural collective economic organizations. Second, the subject and boundaries of collective land ownership should be clarified, and certificates of rights should be issued to protect collective land ownership. Considering that formerly 90% of rural land had been owned by small production teams, the boundaries of ownership and the exercise of power had always been based on the team. We therefore suggested that the boundaries of collective ownership should be the natural village (ziran cun 自然村), and that a pilot program should be

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carried out to issue certificates taking the natural village as a unit and specifying its four borders (sizhi 四至), its area, its ownership status, and its adult population. Third, the rights to rural land should be confirmed and certified using plots of land (rather than farm households) as the unit. 2. Improve the rights and functions of farmers’ contractual management rights on land, and effectively protect the primary status of contracting farmers in land transfers. First, during the process of carrying out land circulation, insist that the farm household is the primary entity in land circulation. Central policy documents clearly emphasize the primary position of the contracting farm households in the transfer of contractual management rights. The insistence on the farmers’ primary position as the premise of land transfer is because the Law on Land Contracts in Rural Areas had already invested contracting farm households with long term, guaranteed land use rights, and the right to transfer land was the most important right in this bundle of rights. Only by insisting on the primary status of the farm household in land transfer can a stable and orderly market for circulating land contracting rights be formed; only then can the rights and interests of land contractors be protected, and their investment expectations and contractual relationships be stabilized. Second, a contract must be signed between the farm household and the land subcontractor. Since land contractual management rights belong to the farm household, the Third Plenary Session of the Seventeenth Central Committee of the CPC proposed that these rights and their functions should be improved, that farmers’ rights to occupy, use, and benefit from the contracted land should be guaranteed in accordance with the law, and that the two most important property rights are the right of exclusive use and the right of transfer of the used subject. Hence the exclusive right of transfer, which has been invested in farmers, is the most important thing that strengthens farmers’ rights of contractual management on land. Furthermore, the most important manifestation of exclusivity in land transfer is that the land transfer must be signed directly by the contracting farmer and the land contractor, and the village committee, even the township government, must not replace the contracting farmer and sign a contract with another land contractor in order to make the land transfer more convenient and efficient. Also, the village committee should not be able to sign a land leaseback contract with a contracting farmer and then turn around and contract the land out to another agricultural operator.

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Third, the land rent from land transfer should go to the farm households. Local governments have the responsibility to protect the long-term land rent income of farm households that have transferred their operating right to land. Since land contractual management rights belong to the contracting farm households, and the Law on Land Contracts in Rural Areas stipulates the principle of compensated land transfer, then it should be clear that the contracting farm households have the right to collect rent, that the land rent can only be decided by the farm households and the lessees through negotiation, and that the land rent can only belong to the households renting out the land. The contracting farm households have the right not only to collect the full rent on the transferred land, but also, after future land price increases, to obtain a certain percentage of the differential land rent based on a contract period and land price increase. In view of the weak position of small farm households in negotiation and contract execution, local governments have the responsibility to protect them in fairly and reasonably obtaining long-term land rent. 3. Define the role of collective economic organizations. An important institutional reason for collective economic organizations concentrating land and renting it out, instead of the farm households renting it out, is that the rights of collective economic organizations in the collective ownership of land are not clearly and rigorously defined. Even though the Law on Land Contracts in Rural Areas stipulates that collective economic organizations cannot take back farmers’ land, that is often difficult to stop them from doing so in actual practice. It should be clarified in law that collective economic organizations can only play the role of an intermediary service in land transfer: they may not collect land for the purpose of subleasing it, nor may they directly sign land transfer contracts in lieu of the farm households, nor may they withhold the land rent belonging to contracting the farm households. 4. Properly handle the entry of large-scale operations and companies into agriculture. Many people think that the household contract responsibility system has hindered land transfer and large-scale operation, and in fact, as early as 1984, central policies were already encouraging farm households to transfer their contracted land. An important reason why the total land transfer area has not expanded as expected is that the contracted farm households are still not able to completely get rid of their land at the current stage.5 The main reason is that we lack the institutional 5 Translator’s note: It should be remembered that “at the current stage” refers to the late 2000s or “aughties” decade.

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conditions for the farm households to leave the land. For example, even if they were to enter the city, the village collective cannot dispose of the contracted land, and we have not set up any system that would let them settle permanently in the city. Since farmers cannot take the initiative to cut their relationship with the land once and for all, they can only transfer it in the form of short-term rentals, which undoubtedly forms a high system cost for large-scale land management. It should be admitted that some highly industrialized and urbanized areas—suburbs of large cities and the coast—already have the conditions for large-scale operations, and that large-scale operators or agricultural enterprises could obtain rich returns by engaging in high-value crop production and processing. Therefore, policies to promote land transfer and large-scale management can be introduced in these areas. However, due to the weak positions of small farmers, we still need to adopt a cautious attitude toward promoting large-scale, especially corporate, agricultural operations. The government cannot be keen only to form alliances with capital while ignoring the rights and interests of small farmers; farmers must not be stripped of their rights of contractual management of land, or have those rights violated. In the relationship between small farmers and companies or large-scale households, local governments have the responsibility to protect the small farmers. 5. Establish a market for transferred land contractual management rights and promote the standardized transfer of land contractual management rights. First, carry out a pilot project on a market for transferred rural land contractual management rights. On a trial basis, with districts, counties, or towns as units, establish a rural contracted land circulation and trading platform (or trading agency) and formulate trading rules. Second, establish a third-party land evaluation agency with land evaluation experience, capabilities, and independent qualifications. Third, allow organizations other than farm households to engage in various forms of agricultural industry, including cooperatives, agricultural product marketing households, and agricultural enterprises. However, running non-agricultural operations on farmland, engaging in the disguised hoarding of land, or doing land speculation on farmland must be punished according to the law.

CHAPTER 10

Changes in China’s Rural Land Ownership and Management Methods

1

Status and Changes of Rural Land Ownership

The characteristics of the land property structure after the reform of China’s rural land system can be summarized by the following three points: First, collective ownership, i.e., the ownership structure described by the slogan, “Three-level Ownership, with the [Production] Team as the Basis” (sanji suoyou, dui weijichu), was maintained without change. Second, property rights were returned to farmers, i.e., farmers have the right to use, benefit from (earn profit from), and subcontract rural land. Third, a system of ownership by village members was implemented, so that each member within the production team’s boundaries has equal land property rights. Land holdings are adjusted as the population increases or decreases. If land is expropriated, compensation for the land is divided equally, and the land is re-divided. Dividends from the rent from land developed for non-agricultural purposes are divided among members. Under this basic framework, the property rights on rural land have been continuously improved in policy and in law. First, the land contracting period was extended from 15 to 30 years, and then the relationship between farmers and their contracted land became “over a long term without change” (changjiu bu bian), so that farmers could form stable expectations in their relationship with the land. Second, the structure of farmers’ contracts changed. In the beginning of the reform period, there was the contract arrangement known as, “Pay enough to the state, © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_10

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leave enough for the collective, and keep the remainder for yourself.” Then the structure became a correspondence between the contractor (the farmer) and the contracted land, and during the term of the contract, “An increase in the number of people [in a household] will not entail an expansion of the land, and a decrease in the number of people will not entail a shrinking of the land.” Finally, long-term and guaranteed land use rights were put forward, in order to clarify the ownership of farmers’ interest in the land and to realize the power of land property rights. On these bases, property rights are legally protected through the Law on Land Contracts in Rural Areas and the Property Rights Law. At the implementation level, there are several noteworthy features in the evolution of rural land property rights. 1.1

Change and Elevation in the Ownership of Collective Land

Although rural land property rights were delegated to farmers in China’s rural system reform, the “three-level ownership, with the [production] team as the basis” structure has been retained. As villages in developed areas are being swept up in the tide of accelerating industrialization and urbanization, their labor force—indeed, the rural population as a whole—have continued to leave traditional villages. This has brought about changes in the village governance structure. One change has been the increasing frequency of village consolidation. Since the reform, the dual impetus of economic and administrative forces has added to the momentum of merging villages and their organizations (the old production teams). First, the number of administrative villages has dropped sharply. According to the China Statistical Yearbook through the years, the number of administrative villages throughout the country in 1985 was 941,000, but by 1994, the number had decreased to 802,000. By 2004, it had been reduced to 653,000, and by 2014, it was down to 584,000.1 In less than 30 years, the number of administrative villages nation-wide has decreased by 357,000, a decrease of 37.9%. Second, the number of farmers’ production teams (organizations) has been greatly reduced. According to relevant statistics, in 1997, there were 5.358 million such teams, but these decreased to 5.079 million in 2004, and further to 4.972 million in 2013, so in a span of 16 years, they had 1 The 2014 figure is taken from Nongye nongcun bu nongcun hezuo jingji zhidaosi 2015.

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decreased by 386,000, or 7.2%. Demolishing villages and merging the teams has been done mostly out of consideration of the costs of rural governance in a changing environment. However, given China’s current collective land ownership system, demolishing villages and merging teams also mean a change in the boundaries of land ownership. Because there are differences in population and scale among villages and teams, and the amounts of land they have vary, their corresponding rights and interests are also different, and this has given rise to most of the disputes that arise in these mergers. The second change was elevation on the tier of collective land owners. Due to the ambiguity of “three-level ownership, with the [production] team as the basis,” changes in village governance structure have in fact intensified this elevation of collective land ownership. At the beginning of the reform, when contracted production to households was implemented, the land distribution units in most villages were at the production team level (that is, at the level of natural villages), with the exception of a few areas where land ownership was with administrative villages. However, according to statistics compiled by the Department of Rural Economy and Management in the Ministry of Agriculture (see Table 1), in 2013, of the 1.413 billion mu of collectively-owned farmland nationwide, the area owned by villages had reached 581 million mu, or more than 40% of the total farmland area; farmland owned by production teams amounted to 728 million mu, accounting for 51.52%, and farmland owned by township and town collective economic organizations was still 104 million mu, accounting for 7.36%. Judging from the more recent trends, the proportion of village-owned farmland is still rising rapidly, from 37.79% in 2010 to 41.12% in 2013, an increase of 3.33 percentage points, while farmland owned by township and town collective economic organizations shows a downward trend, from 11.35% in 2010 to 7.36% in 2013, a decrease of 3.99 percentage points. From Table 2, we can see that, regionally, the East has the highest proportion of village-owned land. In 2013, nearly half of the land was owned by villages, which exceeded the proportion owned by production teams, while in the Center and West, the proportions owned by villages were below 40%, and more than half of the farmland was still owned by production teams. Judging from the changing trends in farmland ownership, the elevation in the level of land ownership in the East has been the fastest, followed by the Center; it is slowest in the West. Between 2011 and 2013, village ownership of farmland grew fastest in

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Table 1

Status and change of farmland ownership, 2010–2013

Year Village-owned Production team-owned Owned by town or township collective economic organizations Total

Area (million mu) Percentage Area (million mu) Percentage Area (million mu) Percentage

2010

2011

2012

2013

510 37.79% 687 50.86% 153 11.35%

521 37.86% 695 50.51% 160 11.63%

534 38.45% 702 50.51% 153 11.04%

581 41.12% 728 51.52% 104 7.36%

1350

1376

1390

1413

the East, from 42.80% to 49.50% of the farmland, an increase of 6.7 percentage points. Production team-owned farmland in the East grew from 42.01% to 43.39%, an increase of 1.38 percentage points, while farmland owned by town and township collective economic organizations decreased 8.08 percentage points from 15.19% to 7.11%. In the Center, village-owned farmland increased 2.85 percentage points from 35.80% to 38.65%, production team-owned farmland increased 0.56 percentage points from 53.54% to 54.10%, and farmland owned by town and township collective economic organizations decreased 3.41 percentage points from 10.66% to 7.25%. In the West, village-owned farmland increased 1.19 percentage points from 36.31% to 37.50%, production team-owned farmland increased 1.12 percentage points from 53.67% to 54.79%, and farmland owned by town and township collective economic organizations decreased by 2.3 percentage points from 10.01% to 7.71%. Obviously, the villager teams (the original production teams), which were originally the main owners of collective land, lost more and more of their ownership of the land during the reform of village governance structure. During our grassroots-level investigation, when we asked some local cadres about this, they all thought it just a matter of course, because the villager teams no longer assumed any function; the production function had been replaced by the farm households, and the provision of public goods and administrative affairs were chiefly the village committee’s responsibility. The exercise of the rights of land ownership, such as land contracting and the issuance of certificates, naturally went to the village committee level, so the villager teams came to be regarded as dispensable as landowning units.

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Table 2 Status and changes of farmland ownership in the three major regions in 2011 and 2013 Year

2011

Region

East

Center

West

East

Center

West

Farmland area (million mu) Village-owned Area (million mu) Percentage Production Area (million team-owned mu) Percentage Owned by Area (million town or mu) township Percentage economic collective organizations

368 157

546 196

462 168

368 182

553 214

492 184

42.80% 154

35.80% 292

36.31% 248

49.50% 160

38.65% 299

37.50% 269

42.01% 56

53.54% 58

53.67% 46

43.39% 26

54.10% 40

54.79% 38

15.19%

10.66%

10.01%

7.11%

7.25%

7.71%

1.2

2013

The Continuous Self-reinforcement of Members’ Rights in Collective Ownership

In 1998, just as the central government was emphasizing and implementing the policy of extending the contract period to 30 years, 62% of farm households interviewed on their responses to the policy did not approve of not having land adjustment within a 30-year period, and the more traditional the area was, the higher the disapproval rate. Among the farm households interviewed (800 households in eight counties), 81% said they did not accept that the practice of adjusting land allotments for new population would be discontinued (Liu Shouying and Gong Qishang 1998). By 2003, when the Law on Land Contracts in Rural Areas was implemented, the proportion of farmers who agreed to the extension of the contract period to 30 years had risen to 62.9%, but 20.6% of the farm households clearly advocated shortening the contract period. The proportion of farm households in favor of no longer having land adjustments during the contract period rose to 51.1%, but 36.8% still believed that adjustments could still be made during the contract

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period.2 By 2008, the proportion of respondents who thought it unreasonable to make no land adjustments at all within the 30-year contract period was as high as 62.79%, and the proportion of respondents who thought, “An increase in the number of people [in a household] will not entail an expansion of the land,” and “a decrease in the number of people [in a household] will not entail a shrinking of the land,” was unreasonable was as high as 61.98% and 59.95%, respectively.3 Five surveys conducted by Renmin University of China and the American Development Institute in 17 provinces showed that, from 2001 to 2010, the proportion of farmers who supported “An increase in the number of people [in a household] will not entail an expansion of the land, and a decrease in the number of people [in a household] will not entail a shrinking of the land,” had dropped from 42.0% to 38.2%, while those who opposed it had also dropped from 42% to 28.6%; the proportion of farmers with a neutral attitude toward the policy, however, climbed from 15.9% to 33.2% (Feng Lei et al. 2013). 1.3

Guarantee and Loss of Contractual Management Rights to Land

According to statistics compiled by the Department of Rural Economy and Management in the Ministry of Agriculture (see Table 3), in 2013, the total area of collectively owned agricultural land nationwide was 6.302 billion mu. This included 1.413 billion mu of arable land (1.327 billion mu under household contracting), 121 million mu of garden land (61 million mu under household contracting), 1.944 billion mu of forest land (998 million mu under household contracting), 2.371 billion mu of grassland (1.728 billion mu under household contracting); 75 million mu of aquaculture area (29 million mu under household contracting); and 379 million mu of other types. The total area under household contracting was 4.132 billion mu, which accounted for 65.74% of the total agricultural land. From 2010 to 2013, the proportion of land under household contract increased by 5.17 percentage points, mainly because the proportion of forest land and grassland under household contract

2 2114 farm households in 12 counties across 6 provinces were interviewed; see Zhao Yang (2007). 3 2200 farm households in 30 counties across 6 provinces were interviewed; see Tao Ran et al. (2009).

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Table 3 Agricultural land area and area under household contracting, 2010– 2013 (Unit: million mu) Year Arable land Garden land Forest land Grassland Aquaculture area Other

Total area Under household Total area Under household Total area Under household Total area Under household Total area Under household

contracting contracting contracting contracting contracting

2010

2011

2012

2013

1350 1273 116 58 1791 862 2170 1350 81 29 389

1376 1277 121 59 1843 910 2289 1571 79 29 352

1392 131 121 61 1876 955 2381 1702 76 29 353

1413 1327 121 61 1944 998 2371 1728 75 29 379

increased, while the proportion of arable land under household contracts decreased slightly, by 0.39 percentage points. However, under the influence of rapid structural changes and related policies, the number of farmers who have lost the rights to contract and manage rural land is increasing. First, land expropriation has led to the loss of farmers’ contractual management rights. From 1987 to 2001, research data from the research group of the Development Research Center of the State Council showed that non-agricultural construction in China occupied 33.946 million mu of arable land, of which more than 70% had been obtained through land expropriation, and about 34 million farmers, with an average of 2.429 million per year, lost their contracted land completely or in part. If we calculate using the datum that the average size of a farmer’s land is 1.46 mu,4 then by 2013, farmers will have lost 3.232 million mu of contracted land due to land expropriation. In 2013, as many as 2.214 million rural people lost their arable land in whole or in part due to land expropriation. Since the average number of land-expropriated people per year from

4 This is calculated based on the 1.413 billion mu of arable land owned by rural collectives and a rural population of 969 million. The result of this calculation tends to be low. According to data provided by the Department of Rural Economy and Management of the Ministry of Agriculture, in 2013, the expropriation of collectively owned land involved a total of 2.127 million farm households, or 7.616 million persons.

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2002 to 2013 was 2.231 million,5 that means that the cumulative number reached 25.531 million people in 11 years. Based on this estimate, from 1987 to 2013, China expropriated more than 71 million mu of farmers’ land (calculated using the average 1.46 mu per farmer figure from 2002–2013), and more than 59 million farmers lost their land contractual management rights or had them reduced. According to the “Outline of the Comprehensive Plan for National Land Utilization (2006–2020)” (全国土地利用总体规划纲要 [2006–2020年]), in the next 20 years from 2013, the state will be occupying more than 30 million mu of arable land, so the number of farmers who lose their land contractual management rights will also increase significantly. The second reason is that the implementation of “An increase in the number of people [in a household] will not entail an expansion of the land, and a decrease in the number of people [in a household] will not entail a shrinking of the land” has led to an increase in the landless population. According to a survey on the results of this policy over 25 years in Meitan County (湄潭县), Guizhou, from 1987 to 2010, the population in the county increased by 120,000—but none of these people were allotted land, so that by 2010, landless people accounted for as much as 25% of the population. This policy has now become a national policy. If China’s population increases by approximately 113 million from 1998 to 2013, and if 71.3% have rural household registrations (calculated according to the rural population of 970 million, out of the national population of 1.36 billion), then about 80.6 million rural people will have become landless. The third reason is that the family planning policy has also created a landless population of the “overborn” (chaosheng renkou 超生人口). This overborn population, people born outside the planning policy, were not able to obtain an allotment of land, because the family planning policy had been violated, so they became landless farmers. According to data from the sixth national census, China has approximately 13 million people without household registration, and the vast majority of these people are the “overborn.” By this estimate, the landless population resulting from the implementation of the family planning policy would also be about 13 million, but some of these people were allotted land after fines were paid or through other measures, so the actual number of landless people as a result of the family planning policy should be slightly smaller. 5 The 2.321 million figure is the average calculated based on the figures of 2.429 million persons in 2001 and 2.214 million persons in 2013.

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The fourth reason is that the contracting rights and management rights of the migrant population are separated. According to results of a sample survey by the National Bureau of Statistics, the total number of migrant workers in China in 2014 reached 274 million, of which the total number of migrant workers outside of their hometowns reached 168 million.6 The disposal of the land rights of the migrant population is related not only to whether the existing rural residents can properly expand their scale of operation, but also to whether the migrant population can cover part of their urban settlement costs by disposing of their rural land rights. 1.4

The Confirmation and Implementation of Land Rights

At the end of 2001, the Ministry of Land and Resources issued the “Notice on Accelerating the Registration and Issuing of Certificates of Collective Land Ownership” and “Technical Regulations on the Investigation of Collective Land Ownership,”7 which enabled the confirmation of rural land rights to continue. In 2008, the “Decision of the Central Committee of the CPC on Several Major Issues Concerning the Promotion of Rural Reform and Development” (中共中央关于推进农村改革发 展若干重大问题的决定) proposed doing a good job on the confirmation, registration, and certification of rights in rural areas in order to improve the rural land management system. Central document no. 1 of 2010 pointed out, “The scope of the pilot registration of rural land contractual management rights will be expanded, and the necessary work funds will be ensured.” It also demanded, “… strive to use three years to confirm the ownership certification of rural collective land to every farmers’ collective economic organization that has ownership.” Central document no. 1 of 2015 re-emphasized, “For resource assets such as land, the key is to pay close attention to the confirmation, registration, and certification of land contractual management rights, and to the expansion of the scope of the pilot project in entire provinces, and generally confirming these rights to each [rural] household.” In addition, after the central party documents 6 See “2014 quanguo nongmingong jiance diaocha baogao” 2014 年全国农民工监测 调查报告 (2014 National Monitoring and Investigation Report on Migrant Workers), http://www.gov.cn/xinwen/2015-04/29/content_2854930.htm [since deleted]. 7 “Guanyu yifa jiakuai jiti tudi suoyouquan dengji fazheng gongzuo de tongzhi” (关 于依法加快集体土地所有权登记发证工作的通知) and “Jiti tudi suoyouquan diaocha jishu guiding” (集体土地所有权调查技术规定; both Guotu zifa 2001, no. 359).

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are issued each year, the Ministry of Land and Resources, the Ministry of Agriculture, and other departments issue corresponding documents; various relevant ministries and commissions, as well as some provinces (autonomous regions and municipalities) establish work leading groups, and the implementation or basic implementation of the funds amounts to more than 2 billion yuan. Thus the work of confirming rural land rights has been accelerated. Since the “Decision of the Central Committee of the CPC on Several Major Issues Concerning the Promotion of Rural Reform and Development” was released in 2008, positive progress has been made in the confirmation, registration, and certification of rural collective land rights in China. According to Ministry of Land and Resources statistics, as of October 2012, the coverage rate of the confirmation and certification of rural collective land rights has reached 86%. In some places, such as Guangxi, Tianjin, Hainan, Anhui, and other provinces and cities, the coverage rate has already surpassed 95%. In recent years, in accordance with the central government’s requirements on confirming collective land rights, the degree of protection for land contractual management rights has been improved. According to Ministry of Agriculture statistics, as of 2013, the 223 million households that had signed household contracts accounted for 96.96% of the 230 million households contracted to operate. Land contractual management rights certificates have been issued to 207 million households. If one contract corresponds to one rights certificate, then approximately 90% of the farm households have obtained the certificate. By February 2015, land contractual management rights had been confirmed in 1,988 counties nationwide, accounting for about two-thirds of the country’s 2,856 counties and involving 13,000 townships, 195,000 villages, and 330 million mu of contracted farmland.8

8 See the official report, “Zhongguo yi you 1988 ge xian kaizhan tudi chengbao jingying quan quequan dengji shidian” 中国已有 1988 个县开展土地承包经营权确权登记 试点 (1988 Counties in China Have Carried out Pilot Registration of Land Contractual Management Rights), http://politics.people.com.cn/n/2015/0227/c70731-26606414. html [since deleted].

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2 The Progress of Land Transfer and Scale Management Too small a land scale and too high a degree of fragmentation have always been considered the salient issues hindering agricultural modernization. Poor land circulation and an unsound system are also considered important factors hindering the large-scale management of land. In fact, the central government’s policy on land transfer has always been to encourage the voluntary, legal, and compensated transfer of land at the household level. In recent years, as the non-agriculturalization process of the rural population and labor force has sped up, rural land circulation has also accelerated, and some new features have appeared. 2.1

Features of Land Transfer

(a) The pace of land transfer is accelerating. From the early 1980s to the early 1990s, the proportion of land being transferred nationwide was very small. According to survey data from the Ministry of Agriculture’s fixed rural observation points, from 1984 to 1992, 93.8% of farm households did not transfer any of their arable land, and only 1.99% of them had transferred a part of their arable land. By 2003, the proportion of land being transferred had increased. A sample survey of 20,842 farm households in China’s eastern, central, and western regions from the Ministry of Agriculture’s fixed rural observation points showed that the transferred land area nationwide accounted for only 9.1% of the total cultivated land area, and that transferred land in the Center, East, and West accounted for 9%, 11.6%, and 3.86% of their respective regions. Since 2010, the area of land being transferred has been growing rapidly (see Table 4). By the end of 2014, the area of transferred household contracted farmland reached 403 million mu, 2.16 times that of 2010. The area of land transferred accounted for 30.32% of all household contracted arable land, an increase of 15.65 percentage points from 2010. As for different regions (see Table 5), the central region has the highest land transfer rate and the fastest growth rate; this is followed by the eastern region, and the rates are lowest in the western region. By the end of 2013, the land transfer rate in the East had reached 26.06%, the Center was 30.64%, and the West was 19.53%; these represented increases from 2011 of 7.5%, 10.44%, and 5.28%, respectively. The provinces and

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Table 4

Changes of land transfer rate, 2010–2014

Year

2010

2011

2012

2013

2014

Area of household-contracted transferred land (million mu) Area of transferred land (million mu) Land transfer rate

1273

1277

1310

1327

1329

187 14.67%

228 17.85%

278 21.25%

341 25.70%

403 30.32%

Table 5

Changes of regional land transfer rate in 2011 and 2013

Year

2011

Region

East

Center

West

East

2013 Center

West

Area of household-contracted transferred land (million mu) Area of transferred land (million mu) Land transfer rate

355

515

408

359

525

443

66

104

58

94

161

86

18.56%

20.20%

14.25%

26.06%

30.64%

19.53%

cities with the highest land transfer rates were Shanghai at 65.81%, Jiangsu 56.96%, Beijing 48.79%, and Zhejiang 45.32%. (b) Subcontracting and leasing are still the main forms of land transfer. According to the relevant policies and regulations of the Ministry of Agriculture, transfers of cultivated land include mainly subcontracting, leasing, share cooperatives, exchanges, transfer (of assignment), and other forms. In 2014, these five types of transfer, by percentages, were 46.53%, 33.17%, 6.68%, 5.94%, 2.97%, and 4.70% respectively (see Table 6). The land transferred in the forms of subcontracting and leasing accounted for 79.7% of the total area of cultivated land in circulation, and the area of cultivated land transferred in these two forms increased by 95.83% and 173.47% respectively compared with 2010. When we examine different regions (see Table 7), subcontracting and leasing are still the two most important forms of land transfer, whether in the East, Center, or West. In 2013, the cultivated land transferred in these two forms accounted for 75.69%, 79.46%, and 79.93% of all the transferred cultivated land in the East, Center, and West, respectively, but the proportion of subcontracting in the Center was high, exceeding 60% of the land transfer area in 2011 and still accounting for more than half

10

Table 6

CHANGES IN CHINA’S RURAL LAND OWNERSHIP …

267

Changes in the forms of land circulation, 2010–2014

Year Subcontracting Transfer Exchange Leasing Share cooperative Other forms

Area (million Percentage Area (million Percentage Area (million Percentage Area (million Percentage Area (million Percentage Area (million Percentage

mu) mu) mu) mu) mu) mu)

2010

2011

2012

2013

2014

96 51.61% 9 4.84% 10 5.38% 49 26.34% 11 5.91% 11 5.91%

116 50.88% 10 4.39% 15 6.58% 62 27.19% 13 5.70% 12 5.26%

137 49.28% 11 3.96% 18 6.47% 80 28.78% 17 6.12% 15 5.40%

160 46.92% 11 3.23% 21 6.16% 108 31.67% 24 7.04% 17 4.99%

188 46.53% 12 2.97% 24 5.94% 134 33.17% 27 6.68% 19 4.70%

in 2013. Cultivated land that was subcontracted in the East and West, meanwhile, accounted for less than 40% of the land transfer area in those regions. Correspondingly, the proportion of cultivated land transferred in the form of leasing in the Center was significantly lower than that in the East and West, but this proportion increased from 2011 to 2013. It is noteworthy that the proportion of transfer through share cooperatives in the East was relatively high, exceeding 10% of the land transfer area and reaching 11.26% in 2013, while it was only 6.11% and 3.81% in the Center and West. (c) The proportion of circulating cultivated land used for growing grain is basically stable, but there are large regional differences. From 2010 to 2014, the area of farmers’ contracted land that was transferred used for growing grain crops increased from 103 million mu to 229 million mu, and the proportion used to grow grain crops increased from 55.06% to 56.82% (see Table 8). The degree of land being switched to non-grain crops varied from province to province. In 2013, transferred land in Jilin and Heilongjiang was still being used mainly to grow grain crops—as much as 91.23% and 86.98%, respectively. As for major grain-producing regions where the area of land transferred and still used for grain production was higher than the national average, Inner Mongolia was at 74.03%, Jiangxi 65.30%, Anhui 69.21%, and Henan 65.08%. Where the transferred land area was most conspicuously being used for non-grain production

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Table 7

Changes in forms of land circulation by region, 2011 and 2013

Year

2011

Region

East

Center

West

East

Center

West

26

66

25

37

88

34

38.99% 2

63.29% 4

42.82% 4

39.77% 3

54.80% 4

39.81% 4

3.48% 3

3.62% 8

6.93% 4

2.80% 4

2.54% 12

5.11% 5

5.03% 22

7.48% 19

6.06% 21

4.63% 34

7.16% 40

6.05% 35

33.25% 8

18.33% 3

35.70% 2

35.92% 11

24.66% 10

40.12% 3

11.67% 5

2.99% 4

3.31% 3

11.26% 5

6.11% 8

3.81% 4

7.58%

4.28%

5.18%

5.62%

4.73%

5.09%

Subcontracting

Transfer

Exchange

Leasing

Share cooperative Other forms

Table 8 2014

Area (million mu) Percentage Area (million mu) Percentage Area (million mu) Percentage Area (million mu) Percentage Area (million mu) Percentage Area (million mu) Percentage

2013

Area and proportion of land transferred for cultivation of grain, 2010–

Year

2010

2011

2012

2013

2014

Area used for grain crops (million mu) Percentage used for grain crops

103 55.06%

125 54.82%

156 56.12%

193 56.60%

229 56.82%

was in Beijing, at 88.83%, Guizhou 76.99%, Hainan 76.31%, Guangdong 74.67%, and Yunnan 73.76%. The proportion of cultivated land transferred for grain crop cultivation varies greatly in different regions (see Table 9). Cultivated land transferred in the Center is mainly used for the cultivation of grain and accounts for more than 70% of the area of transferred land, while the conversion of transferred land for purposes of growing non-grain crops in the East and West is more serious, accounting for approximately 40% of the transferred area.

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Table 9 Proportion of cultivated land by region used for grain cultivation, 2011 and 2013 Year

2011

2013

Region

East

Center

West

East

Center

West

Area (million mu) Percentage

24 36.82%

74 71.20%

27 45.60%

38 40.29%

117 72.62%

38 44.11%

(d) The rate of signing land transfer contracts has increased. Due to the increased amount of land being circulated with entities other than farm households, farm households are paying even more attention to the signing of contracts during the land transfer. By the end of 2014, more than 58.33 million farm households nationwide, or 25.34% of the total, had transferred out their contracted farmland; this was an increase of 10.82 percentage points from 2010. Approximately 42 million circulation contracts were signed, involving an area of 269 million mu of cultivated land, representing increases of 108.10% and 154.49% from 2010, respectively. Signed circulation contracts accounted for 66.75% of the total circulation area, an increase of 10.14 percentage points from 2010. 2.2

Changes in the Scale of Farmers’ Operations

As land circulation has accelerated, the scale of farmers’ land operations has also been expanding. As of the end of 2013, 226 million farm households were operating on farmland of less than 10 mu, accounting for 85.96% of the total number of farm households with household contracts, while farm households operating on more than 10 mu of farmland accounted for 14.04%. Among the entities operating on an expanded scale, the two groups operating with 10–30 mu and with 30–50 mu had the highest percentages, as much as 10.28% and 2.55%, respectively. By 2014, the vast majority (98.71%) of farm households were still operating on less than 50 mu, which was relatively commensurate with the relationship between people and the land, technical conditions, and farmers’ management capabilities in rural areas (see Table 10). Even though the proportion of the several other large-scale business categories is not high, they still include a significant number of farm households. In 2014, there were 2.354 million households operating on

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Table 10 Scale of farmland managed by farmers, 2010–2014 Year 200 mu

Households (1000s) Percentage Households (1000s) Percentage Households (1000s) Percentage Households (1000s) Percentage Households (1000s) Percentage Households (1000s) Percentage

2010

2011

2012

2013

2014

223,906

226,593

225,312

226,664

85.80% 28,249

85.94% 28,193

86.11% 27,420

85.96% 2,7118

262,105 (1000s) (98.71%)

10.82% 6,090

10.69% 6,114

10.48% 6,036

10.28% 6,736

2.33% 2,011

2.32% 1,971

2.31% 2,049

2.55% 2,258

2,354

0.77% 488

0.75% 532

0.78% 569

0.86% 629

0.89% 750

0.19% 233

0.20% 257

0.22% 257

0.24% 289

0.28% 310

0.09%

0.10%

0.10%

0.11%

0.12%

50 to 100 mu of farmland, 750,000 households operating on 100 to 200 mu, and 310,000 operating on more than 200 mu. In a country like China, where the farms have been under small-scale management for a very long time, the impact of the emergence of so many farmers operating at moderate scale on future agricultural efficiency and income distribution deserves attention. If we examine the various regions (see Table 11), in 2013, in the East and West 10% to 15% of households had an operating scale of more than 10 mu, while in the Center it was close to 20%. Regardless of region, however, most households were concentrated in the 10 to 30 mu range, accounting respectively for 8.94%, 14.53%, and 8.75% of the households. 2.3

Changes in the Main Entities of Rural Land Management

In recent years, with the rapid growth of rural land in circulation, the main entities in rural land management have undergone tremendous changes. As far as land transfer is concerned, farmers are still the main entities in land transfer (see Table 12), but the main entities in contracting are

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Table 11 Changes in the operating scale of farm households in the East, Center, and West, 2011 and 2013 Year

2011

Region

East

Center

West

East

Center

West

89,112

68,965

68,516

95,651

70,261

60,752

89.30% 8,922

80.81% 12,400

87.25% 6,871

89.91% 9,001

80.69% 11,860

86.49% 6,258

8.94% 1,416

14.53% 2,465

8.75% 2,233

8.46% 1,225

13.62% 3,274

8.91% 2,238

1.42% 218

2.89% 1,089

2.84% 664

1.15% 341

3.76% 1,168

3.19% 748

0.22% 61

1.28% 272

0.85% 199

0.32% 104

1.34% 337

1.06% 187

0.06% 62

0.32% 147

0.25% 48

0.10% 60

0.39% 172

0.27% 56

0.06%

0.17%

0.06%

0.06%

0.20%

0.08%

200 mu

Households (1000s) Percentage Households (1000s) Percentage Households (1000s) Percentage Households (1000s) Percentage Households (1000s) Percentage Households (1000s) Percentage

2013

becoming more diversified. In 2014, 58.31% of all the farmland being transferred went to farm households, so these were still the main entities contracting for land. However, there was also a large number of land transfers to other entities, which, in order, were farmers’ professional cooperatives (21.84%), business enterprises (9.68%), and other entities (10.17%). It is worth noting that, in comparison with 2010, the proportion of land being transferred to farmers dropped by 11.04 percentage points, the proportion of land going to farmers’ professional cooperatives increased by 10.01 percentage points, the proportion going to business enterprises increased by 1.62 percentage points, and the proportion going to other entities dropped by 0.58 percentage points. Examining regional differences, we see that the proportion of farmland transferred to farm households in the East is lower than that in the Center and West, and that the proportion of farmland transferred to business enterprises in the East is higher than in the West (see Table 13). From 2011 to 2013, the proportion of farmland transferred to farm households in the Center and West also decreased rapidly, while the proportion

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Table 12 Entities receiving transfers of farmland, 2010–2014 Year Farm households Farmers’ professional cooperatives Business enterprises Other entities

2010

2011

2012

2013

2014

Area (million mu) Percentage Area (million mu) Percentage

129 69.35% 22 11.83%

154 67.54% 31 13.60%

180 64.75% 44 15.83%

206 60.41% 69 20.23%

235 58.31% 88 21.84%

Area (million mu) Percentage Area (million mu) Percentage

15 8.06% 20 10.75%

19 8.33% 24 10.53%

25 8.99% 29 10.43%

32 9.38% 34 9.97%

39 9.68% 41 10.17%

Table 13 Entities receiving transfers of farmland by regions, 2011 and 2013 Year Region Farm households Farmers’ professional cooperatives Business enterprises Other entities

2011

Area (million mu) Percentage Area (million mu) Percentage Area (million mu) Percentage Area (million mu) Percentage

2013

East 37

Center 80

West 37

East 51

Center 105

West 50

56.61% 11

76.51% 14

64.23% 5

54.31% 20

64.98% 37

58.01% 13

17.38% 6

13.12% 5

9.41% 7

21.34% 10

22.81% 10

14.75% 12

9.86% 11

5.09% 5

12.55% 8

10.39% 13

6.27% 10

14.32% 11

16.16%

5.28%

13.81%

13.96%

5.93%

12.92%

transferred to farmers’ professional cooperatives and business enterprises increased. Among these transfers, the proportion of farmland going to farmers’ professional cooperatives in the Center and West increased by 9.69% and 5.34% respectively. As for the overall pattern of the management of cultivated land, a distinctive phenomenon has been the transformation from a single kind of entity—the farm household—to multiple entities, such as farmers’ professional cooperatives and business enterprises. Although farm households still occupy a dominant position, their operating areas and proportion of farmland managed have declined in recent years (see Table 14). From

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2010 to 2014, the area managed by households dropped 54 million mu from 1.215 billion mu to 1.161 billion mu, and the proportion of farmland under farm household management dropped from 95.44% to 87.36%, a decrease of 8.08 percentage points. Meanwhile, the area and proportion of farmland managed by farmers’ professional cooperatives were increasing rapidly. The area of farmland managed by the professional cooperatives increased from 22 million mu in 2010 to 88 million mu in 2014—four times the original amount—so that this area, as a proportion of all farmland, increased from 1.73% to 6.62%, an increase of 4.89 percentage points. During the same period, the area of farmland managed by business enterprises and other entities also doubled. The area of farmland managed by business enterprises increased from 15 million mu in 2010 to 32 million mu in 2014, and its proportion increased 1.75 percentage points from 1.18% to 2.93%. The area of farmland managed by other entities increased from 20 million mu to 41 million mu, and the proportion increased from 1.57% to 3.09%, and increase of 1.52 percentage points. As for regional differences (see Table 15), in 2013, the proportion of farmland managed by farm households was lowest in the East and highest in the West, with the Center in the middle. The proportion of farm household-managed farmland decreased in all three regions, while the proportion of farmland managed by farmers’ professional cooperatives, business enterprises, and other entities tended upward. From 2011 to 2013, the proportion of farmland managed by farm households in the East dropped 3.81 percentage points from 91.83% to 88.02%; the Table 14 Area and proportion of farmland managed by different entities, 2010–2014 Year Farm households Farmers’ professional cooperatives Business enterprises Other entities

2010

2011

2012

2013

2014

Area (million mu) Percentage Area (million mu) Percentage

1,215 95.44% 22 1.73%

1,203 94.21% 31 2.43%

1,212 92.52% 44 3.36%

1,192 89.83% 69 5.20%

1,161 87.36% 88 6.62%

Area (million mu) Percentage Area (million mu) Percentage

15 1.18% 20 1.57%

19 1.49% 24 1.88%

25 1.91% 29 2.21%

32 2.41% 34 2.56%

39 2.93% 41 3.09%

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Table 15 Scale and proportion of management entities by regions, 2011 and 2013 Year

2011

Region

East

Center

West

East

Center

West

326

491

387

316

469

407

91.83% 11

95.34% 14

94.85% 5

88.02% 20

89.33% 37

91.87% 13

3.10% 6

2.72% 5

1.23% 7

5.57% 10

7.05% 10

2.93% 12

1.69% 11

0.97% 5

1.72% 8

2.79% 13

1.90% 10

2.71% 11

3.10%

0.97%

1.96%

3.62%

1.90%

2.48%

Farm households Farmers’ professional cooperatives Business enterprises Other entities

Area (million mu) Percentage Area (million mu) Percentage Area (million mu) Percentage Area (million mu) Percentage

2013

proportion managed by farmers’ professional cooperatives increased 2.47 percentage points from 3.10% to 5.57%; the proportion managed by business enterprises increased 1.1 percentage points from 1.69% to 2.79%; and the proportion managed by other entities increased 0.52 percentage points from 3.10% to 3.62%. In the Center, the proportion of farmland managed by farm households decreased 6.01 percentage points from 95.34% to 89.33%; the proportion managed by farmers’ professional cooperatives increased 4.33 percentage points from 2.72% to 7.05%; the proportion managed by business enterprises and other entities both rose from 0.97% to 1.90%, an increase of 0.93 percentage points. In the West, the proportion of farmland managed by farm households decreased 2.98 percentage points from 94.85% to 91.87%; the proportion managed by farmers’ professional cooperatives increased 1.7 percentage points from 1.23% to 2.93%; the proportion managed by business enterprises increased 0.99 percentage points from 1.72% to 2.71%; and the proportion managed by other entities increased 0.52 percentage points from 1.96% to 2.48%.

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Problems Existing in Land Circulation and Scale Management

The first problem is that the transfer of land is not standardized. The land transfer market has not yet been established, most land transfer is carried out spontaneously among farmers, and a large proportion of land transfer is still carried out by oral agreement—the process of transfer is not standardized. The evaluation of circulating land price lacks reasonable and scientific standards, so it is difficult for the price of land in circulation to truly reflect the land value. Some farm households make only an oral agreement on land transfer, without signing any written contract. In some transfer contracts, many of the parties that are transferring land out are villages or village land cooperatives, but the farmers who have the managing rights to the land have no written consignment, which makes the status of both parties unclear. Irregularities in land transfers result in a large number of disputes every year. According to Table 16, there were 91,700 land transfer disputes in 2014, an increase of 42.39% from 2010. In 2014, there were 72,500 land transfer disputes between farm households, an increase 51.67% from 2010, accounting for 79.06% of all such land transfer disputes, an increase of 4.9 percentage points from 2010. There were 10,200 disputes between farm households and villager teams, an increase of 2% from 2010, accounting for 11.12% of transfer disputes, but a decrease of 4.34 percentage points from 2010. There were 8,900 disputes between farm households and other entities, an increase of 32.84% from 2010, accounting for 9.71% of land transfer disputes, but a decrease of 0.69 percentage points from 2010. Table 16 Land transfer disputes, 2010–2014 Year Between farm households Between farm households and villager teams Between farm households and other entities Total land transfer

2010

2011

2012

2013

2014

Number (cases) Percentage Number (cases) Percentage

47,800 74.16% 10,000 15.46%

50,300 74.30% 9,600 14.18%

53,500 74.35% 10,200 14.13%

56,100 75.50% 10,200 13.73%

72,500 79.06% 10,200 11.12%

Number (cases) Percentage

6,700 10.40%

7,800 11.52%

8,300 11.51%

8,000 10.77%

8,900 9.71%

disputes (cases)

64,400

67,700

72,000

74,300

91,700

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The second problem is the conversion to non-grain crops ( feilianghua 非粮化) of some land after the transfer. In recent years, with the expansion and acceleration of the transfer of land contractual management rights, as well as the diversification of land transfer recipients and interest relationships, the conversion to non-grain crops has gradually emerged in the land transfer process, more conspicuously in the developed eastern provinces. In today’s agriculture, grain crop production yields lower economic benefits, and the entities to which land management rights have been transferred must bear the cost of rent on the transferred land. Therefore, they opt for production and operation projects that yield higher economic benefits. Therefore, the conversion to non-grain crops has become a basic motivation for land transfer, and a trend. The third problem is that bigger is not better in land management scale. An investigation in Hunan Province has shown that the large-scale grain-growing farm households must deal with a few special difficulties in addition to the troubles caused by rising prices in the means of production faced by ordinary farm households. The first has been the rapid rise in land rents. From 2010 to 2011, the rent in grain per mu in Songzi Community, Zhujiang County (珠江县松子社区) increased from 400 to 600 catties; in Lingling District (零陵区), the rent rose from 176 to 233 yuan; in Caojia Town, Xinhua County (新化县曹家镇) it rose from 160 to 500 yuan; and in Lanxi Town, Heshan District (赫山区兰溪镇) it rose from 200 to 580 yuan. In 2009, Huang Aijun (黄爱军), a major grain grower in Shenshuigang Township, Taoyuan County (桃源县深水港乡), leased more than 100 mu of paddy fields in Changhu Village (长湖村) at a rent of 145 yuan per mu. After that, the rent increased every year, to 177 yuan in 2010 and 240 yuan in 2011. The second has been the high cost of hiring laborers and the difficulty of finding them. Among 50 large households planting 100–120 mu in five counties and districts, average employment expenditure in 2010 reached 37,180 yuan, but in 2011, the average employment expenditure for the early rice alone was as high as 20,129 yuan. Peng Manzhen (彭满珍), a large grain grower in Zhuzhou County (株洲县), rents 3,380 mu to grow rice and employs more than 30 long-term workers with a monthly salary of 1,400 yuan; during busy season, he hires more than 60 temporary workers at 120 yuan per day. In recent years, it has been very common for large grain growers to encounter difficulty finding workers during busy farming seasons. Large grain growers in five counties and districts missed the late rice planting season on at least 5,000 mu of rice due to lack of workers. Rising wages

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are also a problem for big grain farmers. In 2010, it was around 80 yuan per day, but in 2011 and 2012, the wage increased to 100 yuan and 120 yuan, respectively. The “degree” of scale operation is very important. A survey in Hunan shows that a household with two laborers operating at a 30–100 mu is more appropriate, because at that scale finding temporary workers is basically unnecessary, and it is also possible to do intensive farming, so that land productivity and utilization rate are greater than what can be accomplished by big households with more than 100 mu. Our calculations, based on a National Bureau of Statistics survey of farm households, showed that under China’s current agricultural production conditions, excessive expansion of the scale of agricultural operations is not conducive to improving agricultural yields. The survey divided farmers into large-scale and small-scale households based on the area of land they sowed; farm households with sown areas greater than the median of 7.96 mu were deemed large-scale households. The results showed that the land productivity of large-scale households was 714.17 yuan per mu, which was much lower than the 2614.42 yuan per mu of small-scale households (see Table 17). There are at least three reasons for the lower land productivity of large-scale households. First, the land area of large-scale households is about five times that of small-scale households, while the labor input is only about 1.5 times that of large-scale households. The labor input of large-scale households per unit of land is significantly lower than that of small-scale households, and the person-to-land ratio in large-scale households is even lower. Second, the original value of agricultural machinery in large-scale households is about four times that of small-scale households, which does not fully compensate for the labor input. This shows that when the degree of agricultural mechanization is not high enough, an excessively large operating area dilutes the labor input per unit of land. Third, with regard to planting structure, large-scale households Table 17 Land productivity of farm households of different scale Scale

Average value (yuan/mu)

Standard deviation

Frequency

Small-scale households Large-scale households Entire sample

2,614.42 714.17 1,590.42

40,578.05 589.11 27,574.58

171,697 200,648 372,345

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are mainly grain-producing households, so the proportion of their land used for grain cultivation is higher. In fact, 78% of the sown area is used for growing grain. Small-scale households, meanwhile, have a high proportion of land for growing cash crops with a higher added value.

References Feng Lei 丰雷, Jiang Yan 蒋妍, and Ye Jianping 叶剑平. 2013. 诱致性制度变 迁还是强制性制度变迁?——中国农村土地调整的制度演进及地区差异研究 [“Induced Institutional Change or Mandatory Institutional Change? The Institutional Evolution and Regional Differences of China’s Rural Land Adjustment]. Jingji yanjiu (2013.6): 4–18. Gong Qisheng 龚启圣and Liu Shouying 刘守英. 1992. “Nongmin dui tudi chanquan de yiyuan ji qi dui xin zhengce de fanying” 农民对土地产权的意愿 及其对新政策的反应 [Farmers’ Wishes on Land Property Rights and Their Responses to New Policies], Zhongguo nongcun guancha (1998.2): 20–27. Nongye nongcun bu nongcun jingji tizhi yu jingying guanli si 农业农村部 农村经济体制与经营管理司 [Department of Rural Economy and Management, Ministry of Agriculture and Rural Affairs. 2015. “2014 nian cunji jiti jingji zuzhi shouzhi qingkuang” 2014年村级集体经济组织收支情况 [Revenue and Expenditures of Village-level Collective Economic Organizations in 2014]. http://www.hzjjs.moa.gov.cn/gzdt/201904/t20190418_ 6182236.htm. Accessed on 16 March 2023. Tao Ran 陶然 et al. 2009. “Erlun chengbao hou de Zhongguo nongcun tudi xingzhengxing tiaozheng—dianxing shishi, nongmin fanying yu zhengce hanyi” 二轮承包后的中国农村土地行政性调整——典型事实、农民反应与政 策含义 [Administrative Adjustment of China’s Rural Land After the Second Round of Contracting: Typical Facts, Farmers’ Reactions, and Policy Implications]. Zhongguo nongcun jingji (2009.10): 12–20. Zhao Yang 赵阳. 2007. Gongyou yu siyou: Zhongguo nongdi chanquan zhidu de jingjixue fenxi 共有与私用:中国农地产权制度的经济学分析 [Public and Private Ownership: An Economic Analysis of China’s Rural Land Property System]. Beijing: Beijing sanlian shudian.

CHAPTER 11

The Historic Origins of China’s Land Administration System

Land is the most important resource for human survival and development. More than 2,000 years ago, Mencius 孟子 (372–289 BCE) said, “The feudal lords have three treasures: land, people, and governance.” The Great Learning (大学) states: “Once [the ruler] has people, he has land; once he has land, he has wealth; once he has wealth, he has resources for expenditure.” More than 300 years ago, William Petty (1623–1687), called the father of British political economy, also famously asserted that “land is the mother of wealth.” A country’s land system is its most fundamental system and the basis for the formation of production relations and all economic relations. A good land system has the dual functions of promoting stability and promoting development. By maintaining fairness in land possession and distribution, political stability and social harmony are realized. By protecting land property rights, economic development is promoted. Since the beginnings of human society, in every country, the establishment and improvement of a land system that is compatible with the development of productive forces has become an important part of political and economic institutional changes, and such a land system promotes the evolution and development of society.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_11

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1 1.1

Historical Evolution of China’s Land Administration System Basic Context of the Historical Evolution

China’s land system, compared with those of other countries, is unique for its long history. When our ancestors were still living in primitive clan communes, they knew how to use land to grow grain and meet the needs for food and clothing. As their civilization developed and the state emerged, the system of public clan ownership evolved into a system of state ownership, as expressed in the poem “The Northern Hills” in the “Minor Odes” section of the Book of Songs (诗经·小雅·北山): “Under the wide sky, / Everywhere is the king’s land. / Within the land’s seaboundaries, / All are the king’s subjects.” This was the essential feature of the land system during the Zhou dynasty. During the Western Zhou era, China had a “well-field” land system ( jing tian zhi 井田制), wherein the land belonged to the Son of Heaven, and the various feudal lords and officials had fiefs. This is what was meant by “Everywhere is the king’s land.” During the Warring States period, when Shang Yang 商鞅 (c. 390– 338 BCE) changed the law, abolished the well-field system, loosened field boundary restrictions, and permitted private ownership of land and the free buying and selling of land, China became the first country in the world to have a private land system. From the Qin and Han dynasties to the middle of the Tang dynasty, China had two parallel land systems, the equal-field ( jun tian 均田) system of the state and the land occupation (zhan tian 占田) system of aristocrats, i.e., state ownership and private ownership of land. During the middle of the Western Han dynasty, the court adopted a proposal by Dong Zhongshu 董仲舒 (179–104 BCE) and limited the number of acres that aristocrats or nobles could own, depending on their rank, in order to prevent them from annexing land. During the Northern Wei and early Tang dynasties, the equal-field system was promoted. Farming households would divide 100 mu (亩) of land depending on how any male laborers they had, ensuring a more even distribution of land. After the “dual tax laws” of the mid-Tang were implemented, China’s land system entered a new stage. The dynasties after this no longer implemented the equal-field system, state ownership of land went into decline, and private ownership of land became dominant. By the Song dynasty, China had entered an era of complete private land ownership. After the reforms of the “Single Whip Law” (yi tiao

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bian fa 一条鞭法; in 1580) and the fusion of the poll tax and the field tax (tan ding ru mu 摊丁入亩; in 1723–1724), the taxation system had become purely a land-based tax, and the state could only rely on the taxation system to adjust the relationship between farmers and landlords and between the state and landlords. The land market was highly developed, and tenancy relationships steadily developed, thus laying the foundation for the development of modern capitalist factors (Fang 2000). After the revolution of 1911, well-intentioned people used the land issue as the key for launching China’s modernization, but the results did not meet expectations. In the late nineteenth and early twentieth centuries, Sun Yat-sen, the leader of the Chinese democratic revolution, proposed the “Three Principles of the People” (sanmin zhuyi 三民主义) as an outline for building the nation. At the core of one of those principles, the people’s livelihood (minsheng zhuyi 民生主义), was the idea that “land is to be state-owned, and farmers are to have their fields and fair and equal land rights” (Sun 2012). After the Kuomintang established the National Government in 1927, it also promulgated the Land Act (土 地法) and the Enforcement Regulations of the Land Act (土地法施行法) and began carrying out land reform. However, as the representative of the interests of the big landlords and the big bourgeoisie, it did not carry out the thorough reform of the land system in order to safeguard its own interests. By 1949, when it was defeated and withdrew to Taiwan, the Kuomintang had never managed to achieve “fair and equal land rights,” and in fact the land issue had become more severe (Jin 1991). From the very beginning, the Communist Party of China (CPC) had regarded solving the farmers’ land problem as a central issue of the Chinese revolution. After the failure of the Nationalist Revolution (1911), the CPC established rural revolution bases where it carried out an agrarian revolutionary movement, the main purpose of which was to eliminate land ownership by feudal landlords. During this agrarian revolution period, the idea of “relying on poor peasants, uniting with middle peasants, restricting rich peasants, protecting small- and medium-sized industrial and commercial workers, eliminating the landlord class, and changing feudal and semi-feudal land ownership into peasant land ownership” was advocated. During the War of Resistance Against Japan, there was the proposal to have “landlords reduce rents and interest rates, and farmers pay rent and interest,” in order to consolidate the national anti-Japanese united front. During the War of Liberation, when the Outline Land Law of China (中国土地法大纲) went into force, land owned by landlords was

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confiscated, the land system of feudal exploitation was abolished, and the policy of every farmer has his land was put into effect (Zhongguo shehui kexueyuan jingji yanjiusuo xiandai jingjishi zu 1988). The success of the CPC on the land issue became the magic weapon in its gain of political power. It was just as Chairman Mao Zedong said as he answered questions from the American journalist Edgar Snow in Yanan in 1936: “Whoever wins over the peasants will win over China, and whoever solves the land issue will win over the peasants.” 1.2

Changes in the Land Administration System Since the Founding of the New China

Since the People’s Republic of China (PRC) was established in October 1949, the CPC has always considered land issues important for stability and development, especially land legislation and system construction. In the past sixty-plus years, China’s land administration system has evolved in a manner consistent with the changes in the country’s economic and social development. It has been continuously improved through exploration and practice, constantly developed through reform and innovation, and gradually, it has formed a modern land administration framework that takes into account China’s national conditions and the achievements of civilization elsewhere in the world. Its development may be divided into the following periods: (1) The period of national economic recovery from 1949 to 1952. During this period, China promulgated important laws of a constitutional nature such as the Common Program of the Chinese People’s Political Consultative Conference (中国人民政治协商会议共同纲领; 1949) and the Land Reform Law (土地改革法; 1950). At the heart of the land administration system was the need to solve the problem of land ownership. Through the implementation of these two laws, the state-owned land of the old China continued to be accepted, while the land owned by bureaucrats and members of the compradore and bourgeoisie classes was confiscated. In only three years, the largest land reform in modern history, in terms of the number of people affected, was completed: private ownership of landlords was abolished, and farmers’ land ownership was established. More than 300 million farmers who had no or little land obtained more than 700 million acres of land and other means of production, which greatly mobilized farmers’ enthusiasm for production. Rural

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productive forces and farmers’ living standards improved significantly (Zhongguo shehui kexueyuan jingji yanjiusuo xiandai jingjishi zu 1988). (2) The period of socialist transformation and exploration from 1953 to 1977 . During this period, China promulgated the first Constitution of the People’s Republic of China (中华人民共和国宪法; 1954), formulated the Draft Model Charter of Agricultural Production Cooperatives (农业生产合作社示范章程草案; 1955), Model Regulations for Advanced Agricultural Producers’ Cooperatives (高级农业生产合作社示 范章程; 1956), and the Draft Amendment of the Regulations Governing Rural People’s Communes (农村人民公社工作条例修正草案; 1962; also called the “Sixty Articles on People’s Communes”), and came out with the Regulations on the Requisition of Land by the State for Construction (国家建设征用土地办法; promulgated 1953, amended 1958). The focus of the land administration system was to establish rural collective land ownership as well as a national system for the requisition of land for construction purposes. In the countryside, the 1954 Constitution clarified that the state, in accordance with the law, protects farmers’ ownership of land and other means of production. Soon afterward, through the agricultural cooperative movement, proceeding from farmers’ mutual aid organizations to the elementary communes (chuji she 初级社), and finally to the advanced communes (gaoji she 高级社), the socialist transformation of rural areas was basically completed, and the transformation from rural private land ownership to public land ownership was realized. In 1958, the People’s Commune Movement, summed up in the slogan “One Big, Two Public, and Three Leveling (yi da, er gong, san la ping 一 大、二公、三拉平),”1 was launched in order to make advances in the areas of land ownership system, rural production, and rural lifestyle. However, after three years of natural disasters, there was a return to the rural collective ownership system characterized by the slogan “Three-level Ownership, with the [Production] Team as Basis (san ji suo you, dui wei ji chu 三级所有、队为基础),”2 and the “Sixty Articles on People’s Communes” provided the legal basis for its establishment (Zhonghua 1 Translator’s note: The slogan meant that each commune was to be large in scale (size, membership, production), that everything was to be publicly owned by the commune, and that differences both within and among communes were to be eliminated. 2 Translator’s note: That is, the means of production (including land) were owned on three levels, and the production team was taken as the basic accounting unit.

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renmin gongheguo guojia weiyuanhui bangongting 1981). At the same time, China launched economic reconstruction on a large scale, and as industrialization was promoted throughout the country, the issue of state land expropriation for construction use became prominent. The Regulations on the Requisition of Land by the State for Construction, which was promulgated by the State Council, clarified the purposes of the state’s requisition of farmers’ land and the principles of compensation and resettlement. For the first time, the statement, “For the needs of the public interest, the state may, in accordance with law, engage in the acquisition, expropriation, or nationalization of urban and rural land,” was written into the Constitution. (3) The period of reform and opening up from 1978 to the present. During this period, China amended the Constitution three times, promulgated its first Law on Land Administration (it was later thoroughly revised), and put out a series of laws and regulations such as the Provisional Regulations on the Assignment and Transfer of the Right to Use of State-owned Land in Cities and Towns (中华人民共和国城镇国有土地使 用权出让和转让暂行条例) and the Law on Urban Real Estate Administration (中国人民共和国城市房地产管理法). It enacted the Property Rights Law (中华人民共和国物权法), the Law on Land Contracts in Rural Areas (中华人民共和国土地承包法), and so on. China’s land administration was thus put on an institutionalized and legalized track, focused on the formation and gradual improvement of China’s modern land administration system. Between 1978 and 1986, China formed several major land administration systems. In rural areas, the people’s commune system of “political and social unity” (zheng she heyi 政社合一) was abolished, and in its place the household contracting management system under the collective ownership system was implemented. The 1982 revised Constitution for the first time clarified the legal framework for the coexistence of the two ownership systems, wherein “urban land is state-owned and rural land is under the collective ownership of the farmers.” The first Law on Land Administration, promulgated in 1986, further clarified the basic framework of land ownership: Land in urban areas belongs to the whole country and is owned by the state. Land in rural areas and suburban areas of cities belongs to collective ownership except where law stipulates that it belongs to the state; house

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sites, private reserved plots, and private reserved mountains3 belong to collective ownership.

It stipulated methods for land users to obtain and use state-owned and rural construction land, and it clarified the principles of centralized, uniform administration of land nationwide and the use of land use master plans for the administration of construction land. From 1987 to 1997, the focus of the land administration system was establishing a system for the paid sale of state-owned land-use rights in urban areas that was compatible with the socialist market economy. For a long time during the planned economy period, China had implemented a system in which state-owned land was used “for free, for an indefinite period, and with no transfer permitted.” Successful trial runs of the sale of state-owned land-use rights in cities such as Shenzhen provided an opportunity for promoting the system of paid use of urban state-owned land. In 1988, the Constitution and Law on Land Administration were amended to remove stipulations against the leasing out of land, and it was clarified that “land-use rights may be transferred in accordance with the provisions of the law.” Following the reforms of the land contracting and use systems under the collective ownership system in rural areas, a system separating ownership and use rights was also implemented for China’s urban stateowned land. The Provisional Regulations on the Assignment and Transfer of the Right to Use of State-owned Land and the revised Law on Urban Real Estate Administration and Law on Land Administration, promulgated in 1990 and 1994 respectively, marked the formal establishment of the market trading system for the sale, transfer, lease, and mortgage of urban state-owned land-use rights in China (Huang Xiaohu 2006). The reform of the system of paid use of state-owned land in cities and towns has played an important role in realizing the rights of landowners, demonstrating the value of state-owned land assets, and promoting urban construction. Since 1998, China’s land administration system has entered a period of further improvement. The 1998 revision of the Law on Land Administration has led to major reforms in methods of land administration and use.

3 Translator’s note: Private reserved plots (zi liu di 自留地) and private reserved mountains (zi liu shan 自留山) are lands set aside for farmers to grow their own crops and other private purposes, but they are still under collective ownership.

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Based on China’s basic national condition of high population density relative to land, and drawing from the experiences of land administration in advanced countries, the basic framework for a modern land administration system was defined—a system which aims to protect cultivated land, uses regulations on use as the means, and places overall land use planning in front. It established a basic system for protecting cultivated land, a system for offsetting cultivated land used for construction purposes (in order to keep the amount of cultivated land unchanged or not reduced), and a system for approving applications to convert farmland to construction land used for construction—all for strictly controlling such land conversions and effectively protecting cultivated land. Coming into the 2000s, the CPC Central Committee successively issued relevant documents on new situations or problems arising in land administration, such as: “Notice on Further Strengthening Land Administration to Effectively Protect Cultivated Land” 关于进一步加强土地管理切实保护 耕地的通知 (CPC Central Committee and State Council [中发], 1997, No. 11); “Decision on Deepening Reform on Strict Land Administration” 关于深化改革严格土地管理的决定 (CPC Central Committee and State Council, 2004, No. 28); “Notice on Issues Pertaining to the Strengthening of Land Control” 关于加强土地调控有关问题的通知 (State Council Decree [国发], 2006, No. 31); “Notice on Issues Pertaining to the Establishment of a National Land Monitoring System” 关于建立国家土地督察制度有关问题的 通知 (State Council General Office [国办发], 2006, No. 50); “Notice on Promoting Economical and Intensive Use of Land” 关 于促进节约集约用地的通知 (State Council Decree, 2008, No. 3); “Notice on Strict Implementation of Laws and Policies on Rural Collective Construction Land Use” 关于严格执行有关农村集体建 设用地法律和政策的通知 (State Council General Office, 2007, No. 71). These strengthened strict management according to law, initiated the inclusion of land in macroeconomic regulation and control, established a national land monitoring system, and proposed the implementation of “the two most stringent” land systems (i.e., the strictest systems for

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protecting arable land and ensuring most economical and intensive use of land), and thus enabled China’s land administration system to improve steadily. During this period, historic progress was made also in the establishment of China’s land rights laws. The Law on Land Contracts in Rural Areas, promulgated in 2002, marked the realization of legal protection for rural land rights. The Property Rights Law of 2007 marked the official establishment of China’s system for the protection of property, primarily real estate such as land, so that land rights protections were put on a legal track. In short, after more than 60 years of hard work, China has established a complete legal system for land consisting of laws and regulations in the areas of constitution, property rights law, civil law, land administration law, forestry and grassland law, environmental protection law, and so on. The framework and basis for a modern land administration system that befits Chinese socialism in the initial stage and the socialist market economy with Chinese characteristics has been formed. The various basic established systems are being constantly enriched and perfected through practice, and innovations are made in the forms in which they are implemented.

2 The Main Features of China’s Modern Land Administration System 2.1

A Land Rights System Based on the Socialist Public Ownership of Land, the Coexistence of Two Ownership Systems, and the Separation of Ownership and Use Rights

The land system is an important part of any country’s basic economic system, and its institutional characteristics are regulated by a state’s basic system. For example, in the United States, which is a country that has private ownership and a federal system, 58% of the land is privately owned, while a large proportion of the forests, grasslands, protected areas, and marshes are owned by the federal and state governments (31% and 10% respectively). City governments own approximately 1% of the land (Kong 2002). By contrast, according to China’s Constitution, the socialist system is China’s fundamental system, and socialist public ownership of the means of production is the foundation of China’s socialist economic

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system. Insisting on “maintaining the dominant role of public ownership while allowing for different economic activities in diverse forms of ownership” is the country’s basic economic system at the initial stage of socialism. As an important component of the country’s basic economic system, the structure of China’s land system is manifested in the following ways: (1) It implements the socialist public ownership of land. No organization or individual may misappropriate, buy, sell, or otherwise illegally transfer land. (2) State ownership of land coexists with collective ownership of land. Mineral deposits, waterways, forests, mountains, grasslands, wastelands, beaches, and tidal flats, and other natural resources are state-owned, and urban land is also state-owned. The land in rural areas and city suburbs is collectively owned, except where law stipulates that it is state-owned. Rural residential land (house sites), private reserved land, and private reserved mountains are collectively owned; where law stipulates that they are collectively owned, forests, mountains, grasslands, wastelands, beaches, and tidal flats belong to collective ownership. (3) Land ownership is separate from land use rights. A rural land contract management system has been adopted for rural land (which refers to cultivated land, forests, grasslands, and other land used for agriculture by farmers’ collectives in accordance with law, whether collectively owned or state-owned), and this gives farmers long-term and guaranteed land use rights. For state-owned land, a system of paid use has been implemented; under the premise of state ownership, land use rights are sold to land users for a specified period of time. (4) Land property rights are respected and protected. The land rights system is at the core of the land system. The legal protection of land rights can enhance the long-term expectations of rights holders to use land, and it promotes economic development and the optimal distribution of resources. For a long time, due to the constraints of the planned economy system and traditional ideology, China did not adequately protect property rights. During the planned economy period, it did not even recognize individual property rights, which affected the healthy development of the social economy. After reform and opening up, as institutional reforms deepened and the scale of market allocation of resources increased, the function of property rights in economic development kept growing, and people became increasingly aware of their rights. The improvement of the socialist market economic system also called for rights guarantees and

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protections. China made great progress in its land rights legislation. Now a legal system that regulates land rights by the Constitution, the General Principles of the Civil Law《民法通则》 ( ), the Property Rights Law, the Law on Land Contracts in Rural Areas, and the Law on Land Administration has been established. Provided that the ownership of the land remains unchanged, the strengthened and guaranteed usufruct (such as the right to contract and management land, use right of house site, and use right for construction land) protect the rights of land users. 2.2

Protecting Cultivated Land: The Primary Goal of China’s Land Administration System

In the establishment of land management objectives, China follows a different course from the Western countries. The allocation of land resources in Western market economy countries mainly follows the principle of efficiency in the process of economic development, industrialization and urbanization, and the government’s intervention in land use is weak. In the 1970s, with the rise of ecological protectionism, countries around the world began to protect rural land, especially cultivated land and other natural resources. Due to its high population density relative to land, shortage of high-quality arable land, and mismatch between water and soil resources, China attaches primary importance to food security and protecting arable land for its economic development, during the present stage of accelerated industrialization and urbanization. The Law on Land Administration of 1998 clarified that the goal of land administration is to “strengthen land administration, safeguard the socialist public ownership of land, protect and develop land resources and the rational use of land, effectively protect cultivated land, and promote the sustainable development of the social economy.” It proposed that the “very cherished and rational use of land and effective protection of cultivated land are the basic national policies of our country.” The world’s strictest system for protecting cultivated land is now being implemented through the arrangements of an entire series of systems, such as providing special protection to permanent basic cropland, offsetting cultivated land used for other purposes, intensifying efforts to develop, improve, and reclaim rural land, and responsibility system for protecting cultivated land. In 2008, a red-line target of no less than 1.8 billion mu (equivalent to 124 million hectares) in the country before 2020 was proposed.

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2.3

Establishing a Land Administration System with Land Use Regulations as the Core

Land use regulation is a kind of land use regulation system adopted by countries with relatively complete land use systems. Japan, the United States, Canada, and other countries call it “zoning control;” in Sweden, it is called “land use regulation,” in the United Kingdom the “land planning permit system,” and in France and South Korea the “construction and development permit system” (Liu Xinwei 2010). In the perspective of these countries, land use regulation has achieved good results in the rational use of land resources, especially in the protection of cultivated land. During the planned economy period and the beginning of the reform and opening-up period, land administration in China depended mainly on ownership regulation, and the state would either transfer ownership without compensation or requisition farmland with very low compensation and convert it to state-owned land. When the Law on Land Administration was amended in 1998, China brought in Western regulation systems of proven effectiveness and wrote them into law. China’s land use regulation system is thus a system in which land use master plans are prepared, and these demarcate zones of specific land use and determine land use restrictions. Landowners and land users then use the land in strict accordance with these plans. China’s land administration system with land use regulations includes four main parts. First, the state prepares the overall plan of land use to stipulate land use, and divide land into farmland, land used for construction, and unused land. Second, the law stipulates the status, function, and approval procedures of the overall plan of land use. Third, the state strictly limits the conversion of agricultural land into construction land used for construction, controls the total amount of construction land used for construction, and implements special protections for cultivated land. Fourth, the law clearly stipulates the approval authority for the conversion of agricultural land into construction land used for construction and appropriately centralizes the approval authority for land expropriation. 2.4

Implementing a Mainly Centralized and Uniform Land Administration System

Generally speaking, the world’s land administration systems have evolved through a process away from divided, decentralized, multi-department

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administration to centralized administration, and the same is true of China’s land administration system. Before 1986, China’s land administration was dispersed among many administrative authorities, subject to multi-department administration. After the market economy was implemented, the drawbacks of the “integration of departments and regions at different levels, taking regions as the core” land administration system became increasingly obvious, and they resulted in a loss of control of land and a sharp decline in cultivated land. In 1986, due to its special national conditions and scarce resources, China established a unified national urban and rural land administration system. Article 5 of the Law on Land Administration (1986) states: The land administration department of the State Council4 shall be in charge of the unified administration of national land. The land administration departments of local people’s governments at or above the county level shall be in charge of the unified administration of land within their respective administrative areas. Township-level people’s governments shall be responsible for land management within their respective administrative areas.

After 1998, the unified administration of land across the country was extended to include minerals and marine resources. In 2006, the State Land Supervision System (国家土地督察制度) was established. By now, China has formed a relatively centralized, top-down supervisory, unified land management model. However, at present, agricultural land, forest land, and grassland are still separately managed by relevant departments in accordance with relevant laws.

3

Important Lessons from History

From the evolution of China’s land system through history, we find the following lessons.

4 Translator’s note: over time, this has meant the State Administration of National Land (1986–1998), the Ministry of Land and Resources (1998–2018), and since 2018, the Ministry of Natural Resources.

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3.1

Land Issues Are Related to National Politics and Social Stability

Land issues have always been closely related to China’s order and the people’s well-being; they have intimately connected with social stability and the succession of dynasties. The land system, with the distribution of land at its core, often plays a vital role in a country’s political and social stability. Judging from historical records, rulers throughout history were all concerned about small farmers’ land issues. They saw that as long as the peasants had food, society would be stable. For more than 2,000 years, through the development of China’s feudal society, the state has attached great importance to the use of land policies for maintaining political stability. During the Warring States Era, the state of Qin adopted the ideas of Shang Yang 商鞅 (390–338 BCE) and promoted the land allotment system (shou tian zhi 授田制), which featured the “opening of field boundaries” (kai qianmo 开阡陌), enabled the rapid development of agricultural production, and laid the foundation for Qin’s rise and the unification of the six remaining states. In the early days of the Tang dynasty, the government vigorously promoted the equal-field system in order to restore agricultural productivity, which had been severely damaged by tyranny and warfare since the end of the Sui dynasty, and this brought economic recovery and prosperity. In a short span of more than 100 years, from the Sui through the early Tang, there were several periods of peace and prosperity (rare in Chinese history), such as the Kaihuang period (581–600) under the Sui Emperor Yang, the Zhenguan period (627–649) under the Tang Emperor Taizong, and the Kaiyuan period (713–741) under the Tang Emperor Xuanzong, and in each case it was because the feudal government in those periods came out with land policies that suppressed land consolidation, reduced taxes, and allowed for rest and recuperation. In China’s history, there were many other periods in which the neglect of land issues or faulty land policies had disastrous results. During the mid- to late periods of most Chinese dynasties through the ages, there were rather large peasant uprisings, and nearly all of these peasant armies were made up of landless peasants. Furthermore, most of them had been displaced precisely because of land issues. When land consolidation caused an increase in the number of displaced people (who lived below the line of viability), then a one-time event (like a mutiny, an external disaster, natural disaster, etc.) would be enough to cause these displaced people

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to join a rebellion. These rebellions would then function like “the last straw,” breaking the back of the dynasty (Liang 1962). Again, after the founding of the New China, we have had land issue successes and failures from which we can learn. The land reforms that took place in the early days of the PRC and the reforms of the late 1970s, when the rural land contract responsibility system was put in place, released pent-up agricultural productivity, but the people’s commune movement of the late 1950s caused the destruction of agricultural productivity to a considerable extent (Du 2008). In short, land issues are related to a country’s political and social stability. Because the land system plays an important role in promoting or restricting social stability and development, one must attach a high degree of importance to it. 3.2

Dealing with the Distribution of Land Interests Is a Major Concern for Social Stability and Development

Land issues are extremely complicated, but one of their major components is the problem of the distribution of land benefits. It was one of the major factors in the cycle of dynastic replacement and succession mentioned above. From the historical point of view, the distribution of land benefits consisted of two kinds of distribution: (1) the distribution of land itself, i.e., land rights; and (2) the distribution of agricultural produce from the land, i.e., land rent. Basically, on the one hand, the rule of the state depended on support from powerful landlords, though there were also some conflicts between landlords’ interests and those of the state. On the other hand, the expenditures of the state and the landlords depended on payments in tax and rent from the peasants, so that political instability could also be caused when peasants’ interests exceeded what they could bear in rent. Historically, privileges of powerful or noble landlords were stipulated by law. However, the wealthy would generally conceal a large amount of their real estate and peasant population and keep them private, which resulted in reductions in state tax revenue and loss of state interests. Not only that, landlords would often use their strong positions to deprive peasants of their interests; they would consolidate their land holdings and pass the burden on to the peasants. When the peasants were no longer able to bear the costs, they become displaced people, which in turn increased the burden on the state to maintain order.

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Therefore, all of the more capable rulers in Chinese history were good at handling the distribution of land interests. While they suppressed powerful landlords and kept them under control, they would ease conditions for the peasants and thereby achieve a balance of interests. When the Cao-Wei dynasty (220–266) implemented its famous tuntian (屯 田) system, the advice given to the dynastic founder Cao Cao 曹操 (c. 155–220) was that he “should follow their [the peasants’] desires (宜 顺其意).”5 When the court of the Northern Wei dynasty (386–534) was discussing the equal field system, the advice given was, “Follow the people’s desires (因民之欲).”6 One of the most ancient and most exquisite statements of political philosophy preserved in Chinese literature asserts: “The people are the roots of the country. If the roots are secure, the country is at peace (民惟邦本, 本固邦宁),”7 and it is this spirit that runs through the land system and its laws (Fang 2000). For more than 60 years in the New China, the government has also had experiences and lessons with dealing with the interest relations of the state and farmers, and these are worth summing up. In the traditional planned economy period, the cost differential between the unified purchase and sale system and the discounted prices for agricultural products provided for the country’s industrialization, but it also led to tension between the state and farmers as well as poverty among the farmers. After 2000, the government abolished the “royal and imperial grain tax” (皇粮国税) that had existed for thousands of years, and the resulting increase in farmers’ incomes has promoted the stability of rural society. As industrialization and urbanization accelerate, the increases in land value-added income will bring new issues in the distribution of land interests, which must be given serious consideration. 5 Translator’s note: Under the tuntian system, landless peasants, refugees, and soldiers were assigned to plots of land which they were to farm, while farming implements were provided by the government at a low price. In exchange, the peasant was to give over half of his harvest to the government. It was very successful due to the large quantity of abandoned farmland from the previous decades of civil war. The statement on following the peasants’ desires was part of Yuan Huan’s 袁涣 ( fl. 190–210) advice to Cao Cao; see Chen Shou 陈寿, San guo zhi 三国志 [History of the Three Kingdoms ] (Beijing: Zhong Hua Book Company, 1960), 11.334. 6 Translator’s note: The advice was given by Li Zhong 李冲 in 486; see Wei Shou 魏收, Wei shu 魏书 [History of the Northern Wei] (Beijing: Zhonghua shuju, 1974), 53.1180. 7 Translator’s note: This ancient statement comes from “Wu zi zhi ge” 五子之歌 [Songs of the Five Sons] in Shang shu 尚书 [The Book of Documents ].

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The Land Administration System Plays an Important Supporting Role in Economic Development

The Chinese nation is a long-standing, independent agricultural civilization. In the agricultural civilization period, China was among the few most advanced and developed countries in the world, and closely related to the development of this agricultural civilization was China’s land administration system. China was the first country in the world to carry out land registration, institute property rights protections, and implement land administration laws. Before 2000 BCE, under the Xia dynasty, land surveys were already carried in each of the Nine Regions ( jiu zhou 九州). Some inscriptions on bronze vessels from the Western Zhou period (1047–772 BCE) had numerical counts of fields, and during and after the middle of the Spring and Autumn era (771–476 BCE), the states of Lu 鲁, Chu 楚, and Zheng 郑 successively conducted field and land surveys for the purpose of taxation. Starting in the Warring States period (475–221 BCE), private ownership of land was determined by law. Beginning in the Qin (221–206 BCE) and Han dynasties (206 BCE–220 CE), the small-scale peasant economy, with each household the basic unit, was recognized by law, and this gradually became dominant. After the mid-Tang and especially after the Song dynasty, private land ownership increasingly flourished, and the cadaster gradually gained a status parallel with household registration. After the “Single Whip Law” (yi tiao bian fa 一条鞭法) went into effect in 1580, in the Ming dynasty, the “fish-scale atlases” (yulin tuce 鱼鳞 图册) became the main basis for corvée labor recruitment and cadaster management (Liang 1962). Through the imperial dynasties, the direct purposes of compiling household registers and cadaster were conscription and taxation, and the cadaster had an additional role in protecting land property rights. Given the historical conditions of those times, this family-based, clearly established ownership land system was conducive for maintaining farmers’ enthusiasm and for the optimal distribution of resources. It stood in stark contrast to the dominant economy of Western feudal society. The period from the Song dynasty to the middle of the Qing dynasty was the peak of China’s agricultural economic development; China’s economic aggregate and living standards were always at the world’s forefront. The implementation of the rural household contract responsibility system in the early 1980s opened the curtain on China’s reform and opening up, legally

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established the family-based management system as China’s basic management system, and protected farmers’ land property rights according to law, and this has played a fundamental role in promoting China’s rural economic development and social stability. 3.4

Too Many People, Too Little Land: The Perennial Constraint on China’s Land Administration System and Economic Development

Despite China’s vast land area, the relative lack of useful land and excessively rapid population growth led to a low amount of arable land per capita, so that there always existed a dilemma between the number of people and the availability of land. The pre-Qin thinker Hanfeizi 韩非子 (279–233 BCE) discovered the fact: Today if a man has five sons, it is not thought too many, and if those sons each have five sons and the grandfather has not yet died, then there are twenty-five grandsons. For this reason, the people are multitudinous but goods and money are scarce; the work becomes arduous but supplies little of sustenance.8

China’s agricultural civilization has for more than 2,000 years stimulated population growth. During the Spring and Autumn and Warring States eras, the population already exceeded 20 million, and by the Western Han dynasty (206 BCE–9 CE), the population reached 60 million. Starting from the middle of the Tang dynasty, though cycles of population increase and decrease occurred due to major disturbances or dynastic changes, the overall trend was that China’s per capita arable land area declined due to population growth. In the Northern Song dynasty, the population exceeded 100 million; in the Ming, it reached 140 million; and in the Qing, it broke the 400 million mark. After 1741, the sixth year of the Qianlong Emperor’s reign in the Qing, China’s population continued to grow at high speed, doubling every 25–45 years. The population pressure on the land began to get much more serious starting

8 Translator’s note: The ancient statement comes from “Wu Du” 五蠹 [Five Beetles] in Hanfeizi jijie 韩非子集解 [Hanfeizi, with Collected Commentary] (Beijing: Zhong Hua Book Company, 1998), 19.443.

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in the early years of the Republic of China era. Because the population in all the core areas of the major river basins has basically reached the saturation point since the Ming and Qing dynasties, the continued population increase has led either to migration to marginal areas or to increasingly labor-intensive farming in the core areas, with diminishing marginal returns. The migration to marginal areas led to an excess of wasteland, due to overexploitation of resources, and ecological problems. For example, during the Northern Song dynasty, excessive land reclamation, excavations in mountainous terrain in order to create new farmland, and extending fields into lakes to create new farmland led to two major breaches of the Yellow River. The river’s course changed, which had serious consequences. Meanwhile, the increasingly labor-intensive farming in core areas meant that on one after another family farm, more and more labor had to invested just to meet survival needs, until the marginal remuneration fell to nearly zero. This caused widespread poverty among farmers (Perkins 1981). In addition, due to the long-term implementation through Chinese history of the policy of encouraging agriculture and constraining commerce, China also lost the opportunity to resolve population pressure through modern industrial civilization. In the traditional agrarian perspective, there was no way of solving the problem of the peasants—they could only be caught in a vicious circle between too many people and too little land. Thus, in early modern times, China lagged further and further behind the industrializing nations. During the period of collectivization, as the population was tied to the land, China’s agricultural involution became even more serious, and farmers fell into poverty (Huang Zongzhi 2010). Since reform and opening up, with the acceleration of industrialization and urbanization, more and more farm laborers are leaving the farms, and fertility rates are changing, too, so that China is encountering a rare opportunity to resolve the problem of stalled modernization due to population pressure. However, accelerated industrialization and urbanization and the movement of large numbers of people away from the farms have also brought about dilemmas relating to resources, and these have become prominent problems facing China as it achieves the goal of building a moderately prosperous society in all respects.

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References Du Runsheng 杜润生. 2008. Du Runsheng wenji 杜润生文集 [Collected Writings of Du Runji]. 3 vols. Taiyuan: Shanxi jingji chubanshe. Fang Xing 方行. 2000. “Zhongguo fengjian jingji fazhan jieduan shulüe” 中国 封建经济发展阶段述略 [The Stages of China’s Feudalist Economic Development in Brief]. Zhongguo jingjishi yanjiu (2000.4): 14–26. Gan Zangchun 甘藏春. n.d. “Woguo tudi guanli tizhi gaige de mubiao, yuanze he neirong” 我国土地管理体制改革的目标、原则和内容 [The Objectives, Principles, and Content of the Reforms to Our Country’s Land Management Systems]. Internal report. Huang Xiaohu 黄小虎, ed. 2006. Xin shiqi Zhongguo tudi guanli yanjiu 新时期 中国土地管理研究 [Study on Chinese Land Administration in the New Era]. Beijing: Dangdai Zhongguo chubanshe. Huang Zongzhi 黄宗智. 2010. Zhongguo de yinxing nongye geming 中国的隐性 农业革命 [China’s Hidden Agricultural Revolution]. Beijing: Falü chubanshe. Jin Dequn 金德群, ed. 1991. Zhongguo guomindang tudi zhengce yanjiu 中国 国民党土地政策研究 [Study of Kuomintang Land Policy]. Beijing: Haiyang chubanshe. Kong Qingshan 孔庆山. 2002. Meiguo zaoqi tudi zhidu yanjiu: 1785–1862 美 国早期土地制度研究: 1785–1862 [Study on Early American Land Systems: 1785–1862]. Guangzhou: Zhongshan daxue chubanshe. Liang Fangzhong 梁方仲. 1962. Zhongguo lidai hukou, tiandi, tianfu tongji 中国历代户口、田地、田赋统计 [Statistics on Household Registrations, Farmland, and Field Tax Through Chinese History]. Shanghai: Shanghai renmin chubanshe. Liu Xinwei 刘新卫. 2010. Zhuyao guojia guihua he yongtu guanzhi zhidu 主要国家规划和用途管制制度 [Planning and Use Control Systems in Major Countries ]. Beijing: Zhongguo tudi chubanshe, 2010. Perkins, Dwight H. [Pojinsi 珀金斯]. 1981. Zhongguo nongye fazhan, 1368–1968 中国农业发展, 1368–1968 [Agricultural Development in China, 1368–1968]. Shanghai: Shanghai yiwen chubanshe. Sun Wen 孙文. 2012. Sanmin zhuyi 三民主义 [Three Principles of the People]. Beijing: Jiuzhou chubanshe. Zhongguo shehui kexueyuan jingji yanjiusuo xiandai jingjishi zu 中国社会科学 院经济研究所现代经济史组 [Modern Economic History Division, Institute of Economics, Chinese Academy of Social Sciences], ed. 1988. Zhongguo tudi gaige shiliao xuanbian 中国土地改革史料选编 [Selected Historical Materials on China’s Land Reform]. Beijing: Guofang daxue chubanshe. Zhonghua renmin gongheguo guojia weiyuanhui bangongting 中华人民共和国 国家农业委员会办公厅 [General Office of the State Agricultural Commission of the People’s Republic of China], ed. 1981. Nongye jitihua zhongyao

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PART IV

Analysis of the Rural Land Conversion System

CHAPTER 12

China’s Dual Land Rights System and Incomplete Land Market

China implements a land system in which urban and rural areas are divided, and the government monopolizes the primary market for urban land. This unique dual land system has contributed significantly to rapid industrialization and urbanization since the late 1990s, but it has also brought about various problems, such as the imperfect development of the land market, infringements on farmers’ land property rights, and the aggravation of land interest conflicts. This chapter will review the formation of this dual land system framework and its main features.

1 The Contribution of Land System Reform to China’s Economic Growth Since the reform and opening up, China’s economy has maintained continuous high-speed growth, known as the “China miracle.” Which factors created the “China miracle”? Theorists can analyze the issue from different angles and come up with various hypotheses and tests, but in our view, the land system reform has contributed to and played an important role in every major change in the national economic structure. It is the engine of China’s high-speed economic growth. From the end of the 1970s to the mid-1980s, the rural land system reform, characterized by the contracting of agricultural production to households, started in poverty-stricken areas. It was actively created by © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_12

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farmers and the grassroots, and it was supported by leaders from local and central governments who advocated the reform. In only a few short years it spread throughout the country. Under the premise that collective ownership would be maintained, the farm household replaced the production team as the basic unit of agricultural production and income distribution. A contract structure, summed up through the slogan, “Pay enough to the state, leave enough for the collective, and keep the remainder for yourself,” which allowed the farmers to have the right to claim the surplus, completely changed the traditional collective ownership form, in which low incentives and distributional egalitarianism dampened farmers’ initiative. The reform brought about extraordinary growth of agricultural production, substantial increases in farmers’ income, changes in the fate of farmers, and fundamental changes in agricultural economic and social structure. The reform of the rural land system was the prelude to China’s overall reform, opened the gateway to China’s economic growth, and triggered profound changes in China’s economic, social, and political structure. From the mid-1980s to the late 1990s, in the face of the weakening of the household contracting system and the release of a massive amount of surplus labor from agriculture, central policy encouraged farmers to use collective land to establish township enterprises. From 1985 to 1997, the annual use of collective construction land exceeded that of stateowned construction land. Farmers took the initiative to bring collective land into the non-agricultural land market, thereby creating a conspicuous economic miracle—township enterprises were suddenly springing up and bringing China’s industrialization process into the fast track. Rural industrialization became the main force for the growth of the national economy during this period, and it fundamentally changed the development pattern in which the national economy had been dominated by the state-owned economy, and industrialization had been led primarily by the state. In addition, with the implementation of an export-oriented strategy, China’s economy was fully integrated into the global economy. The developed coastal areas (especially the Pearl River Delta and the Yangtze River Delta) have become the leading actors in China’s rapid economic growth. A large amount of collective construction land in these areas entered the market, which supported China’s becoming the “world’s factory.” After the promulgation of the Law on Land Administration in 1998, and with the state’s policy of controlling land use and strictly protecting cultivated land, the Pearl River Delta and Yangtze River Delta were able to become

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the “world’s factories,” precisely because they had benefited by putting nearly half their stock of collective construction land into the market.

2 The Formation and Strengthening of China’s Dual Land System Since Reform 2.1

China’s Rural Land Property Rights and Market Development: Toward Real Rights

2.1.1 The Evolution of Rural Land Policy and Law The evolution of China’s rural land policy since the implementation of the household contract responsibility system in the early 1980s was given the most accurate summary in four phrases in Central Committee Document no. 1 of 2007: “Adhere to the basic rural management system, stabilize the land contract relationship, standardize the transfer of land contractual management rights, and speed up the reform of the land expropriation system.” First, this meant emphasizing and strengthening the entity status of the farm household. Central Committee Document no. 1 of 1982 had clearly affirmed that the contracting of production to households (baochan daohu) and contracting of wide-ranging output quotas to households (baogan daohu) “are different from the small private economy before the cooperative transformation [of agriculture] contracting of production to households, but are integral parts of the socialist agricultural economy.” Article 8 of The Constitution of the People’s Republic of China stipulates that rural collective economic organizations implement a two-tier management system combining unified management with independent management1 (tongfen jiehe 统分结合) based on household contractual operation, and that this would serve as the basic management system in rural areas. The no. 1 documents from the Central Committee in subsequent years repeatedly made this point clear. Since 2000, the Central Committee policy documents have clearly confirmed the rights extended to farm households and the protections of the property rights of farm households. For example, when the no. 1 Central Committee document of 2000 emphasized the strengthening of contracted management of land, the key point was to establish and improve various management systems 1 Translator’s note: The phrase tongfen jiehe 统分结合 is sometimes rendered as “combined centralized management and decentralized management.”

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of the contracts, establish contract files, and issue certificates of land contractual management rights to farm households as soon as possible. The no. 1 Central Committee document of 2002 made an even more explicit formulation: contractual management rights to all of the area and parcels of contracted land were to be delegated to households, management rights contracts with 30-year terms were to be signed with the households, and land contractual management rights certificates were to be issued to the households. In accordance with the principles of legality, voluntariness, and compensation, the guidance and management of rural land circulation were to be strengthened, and the village organizations were strictly forbidden from forcibly taking back farmers’ contracted land for the purpose of land concentration. The Law on Land Contracts in Rural Areas, passed in 2002 and implemented in 2003, established farmers’ land rights in the form of law; Article 1 of the law states that it is enacted “for the purposes of stabilizing and improving the two-tier management system that combines unified management with independent management on the basis of household contractual management, grant farmers long-term and guaranteed land use rights.” The Third Plenary Session of the Seventeenth Central Committee of the CPC (2008) proposed improving the powers and functions of land contractual management rights and more fully protecting farmers’ rights to land possession, use, and income. Second, the land contract period was extended in order to stabilize farmers’ expectations for the land. “Notice of the Central Committee of the CPC on Rural Work in 1984”2 stated that the land contracted to farmers would remain unchanged for 15 years. In 1993, “Several Policy Measures of the Central Committee of the CPC and State Council on Current Agricultural and Rural Economic Development”3 proposed extending the contract period to 30 years, which stabilized farmers’ expectations for the land. Article 20 of the Law on Land Contracts in Rural Areas, passed in 2002, clearly stipulates: “The term of contract for arable land is 30 years. The term of contract for grassland ranges from 30 to 50 years. The term of contract for forest land ranges from 30 to 2 “Zhonggong zhongyang guanyu yi jiu ba si nian nongcun gongzuo de tongzhi” (中 共中央关于一九八四年农村工作的通知; Zhongfa 1984, no. 1). 3 “Zhonggong zhongyang, guowuyuan guanyu dangqian nongye he nongcun jingji fazhan de ruogan zhengce cuoshi” (中共中央、国务院关于当前农业和农村经济发展的若 干政策措施; Zhongfa 1993, no. 11).

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70 years.” Another important passage (Article 26) from this law stipulates, “During the term of contract, the party giving out the contract may not take back the contracted land.” In law, this clarifies that the 30-year contract period means not only that the household responsibility system will remain unchanged for 30 years, but also that the land parcels contracted by farmers remain unchanged during the contract period. When the Third Plenary Session of the Seventeenth Central Committee of the CPC (2008) proposed, “The existing land contracting relationships should be stable and unchanged for a long time,” it had changed “over a long period” (changqi 长期) to “for a long time” (changjiu 长 久), meaning that the land contracting system would change from a land system with a time limit to a land system without a time limit. Third, the basic norms for the circulation of farmland contractual management rights were formulated. “Notice of the Central Committee of the CPC on Rural Work in 1984” clearly specified that farm households could voluntarily subcontract their contracted land. In 2001, “Notice of the Central Committee of the CPC on Doing a Good Job in the Circulation of Farm Households’ Contracted Land Use Rights”4 made clear provisions on the entities and principles of land circulation. First, this document reiterated that “the circulation of farm households’ contracted land use rights should be carried out on the premise of a long-term, stable household contract management system,” and it proposed, “The circulation of farm households’ contracted land use rights must adhere to the principles of legality, voluntariness, and compensation.” It also emphasized: The circulation of land shall be carried out in accordance with relevant laws and regulations and the policies of the central government. During the contract period, the village collective economic organization has no right to unilaterally rescind the land contract, nor can it force farm households to give up their contract rights or change their contracts by means of having the minority obey the majority. It is not allowed to take back farm households’ contracted land in order to take bids on the contracts; it is not allowed to take back farm households’ contracted land in order to defray debts; and it is not allowed to use the circulation of land to change land ownership and agricultural use. The term of circulation shall not exceed 4 “Zhonggong zhongyang guanyu zuohao nonghu chengbaodi shiyongquan liuzhuan gongzuo de tongzhi” (中共中央关于做好农户承包地使用权流转工作的通知; Zhongfa 2001, no. 18).

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the remaining contract period of the farm household’s contracted land. The main entity of land transfer is the farm household, and the transfer of land use rights must be based on the farm household’s willingness. During the contract period, farm households have the right to use, derive income from, and transfer the contracted land, and they have the right to decide independently whether or not the contracted land is to be transferred, as well as the form of transfer. This is a concrete manifestation of farmers’ long-term and guaranteed land use rights. No organization or individual may force farm households to transfer land, nor hinder them from lawfully transferring land. “Land leasebacks after contracting,” in which township and town governments or village-level organizations come forward to lease farm households’ contracted land and then sublease or subcontract it does not conform to the household contract management system and should be stopped.

Articles 32 and 33 of the Law on Land Contracts in Rural Areas expressly stipulate: Land contractual management rights obtained through household contracting may in accordance with the law be circulated by subcontracting, leasing, exchanging, transfer, or other means. The circulation of the contractual management rights to land shall abide by the principles of equal consultation, voluntariness, and compensation; no organizations or individuals shall force the contract-undertaking party to circulate the contracted land or prevent him from doing so.

Finally, the Third Plenary Session of the Seventeenth Central Committee of the CPC (2008) clearly stated that it was necessary to establish a market for the circulation of land contractual management rights, to improve services and intermediary management, and to build a circulation platform. 2.1.2

The Basic Framework and Rights System of the Rural Land System The reform of China’s rural land property rights system has been recognized as a model of successful land system reform in the world. By using the farm household to replace the old production team as the basic unit of production and management decision-making, and without changing the collective ownership of land, it has given farm households the right to use, derive income from, and transfer farmland, which has been conducive to

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the growth of agricultural production and farmers’ incomes and has laid the institutional foundation for rural stability. Since the 1980s, the central government has formed the following basic policies and legal norms for China’s rural land property rights and rural land market development through several “no. 1 documents” on rural work through the years and a series of documents for enhancing farmers’ autonomy and contractual management rights on land, the Law on Land Contracts in Rural Areas promulgated in 2004, and later the Property Rights Law. (1) The contracting right has changed from a debt to a real right. Before the Law on Land Contracts in Rural Areas was put into effect, the right to contract land was a right of use, namely, the right to tenancy. In the Law on Land Administration, however, it was treated as a creditor’s right. The Law on Land Contracts in Rural Areas and the Property Rights Law made substantial progress in identifying farmers’ land rights, and the contracting right has the nature of a real right. (2) By continuously extending the contract period, farmers’ expectations regarding the land were stabilized. When household contracting was first implemented, many places stipulated a five-year term. By 1984, a 15year period was explicitly proposed, and in 1997, it was extended from 15 to 30 years. Article 20 of the Law on Land Contracts in Rural Areas stipulates: The term of contract for arable land is 30 years. The term of contract for grassland ranges from 30 to 50 years. The term of contract for forest land ranges from 30 to 70 years; the term of contract for forest land with special trees may, upon approval by the competent administrative department for forestry under the State Council, be longer.

(3) The rights and obligations of the contractee and contractor parties were clearly stipulated, even to the point that the legislative intent was clearly to limit the power of the contractee and guarantee the rights of the contractor. Before the Law on Land Contracts in Rural Areas, local governments and collective economic organizations often interfered with farmers’ contractual management rights, claiming for instance that they were taking back farmers’ contracted land for the promotion of agricultural industrialization, or doing it for “large stability, small adjustment,” and so on. The Law, however, clearly stipulated that the contractee could not take back the contracted land during the contract period or make adjustments to that land.

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(4) The implementation procedures for contracted management were established, and registration and certification procedures for contractual management rights on land were initiated. This work was done for the purpose of establishing a land property rights infrastructure. (5) It was clarified that the contractor has the right to transfer the contractual management rights on the land, within the scope of the agricultural use of rural land. Central Committee documents since the mid-1980s have emphasized the need to strengthen the circulation of rural land contractual management rights. In 2001, “Notice of the Central Committee of the CPC on Doing a Good Job in the Circulation of Farm Households’ Contracted Land Use Rights” (Zhongfa 2001, no. 18) further specified clearly that the circulation of rural land contractual management rights should be done autonomously by farm households on a voluntary and compensatory basis. 2.2

The Development of the Market for China’s Rural Land Non-agriculturalization: Toward the Maximization of Local Government Interests

Unlike rural land property rights, which have developed toward real rights for farmers, the non-agriculturalization of rural land is oriented in another direction, i.e., toward maximizing the interests of local governments. 2.2.1 Policy Restrictions on Rural Land Non-agriculturalization The first policy has been to strictly control the conversion of arable land into non-arable land, and to implement a strict system for protecting arable land. The Law on Land Administration, passed in 1998, aims to control land use, formulate an overall plan for land use, elevate the level having the basic power to review and approve petitions to change land use, and implement a dynamic total balance system for protecting arable land in which “occupation of one [field] entails the resupply of another” (zhan yi bu yi 占一补一). In 2004, the “Decision of the State Council on Deepening Reform and Strict Land Management”5 reiterated that the laws and regulations on land management should be strictly implemented; an application for changing the use of land should be examined and approved strictly in accordance with the statutory authority, a 5 “Guowuyuan guanyu shenhua gaige yange tudi guanli de jueding” (国务院关于深化 改革严格土地管理的决定; Guofa 2004, no. 28).

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compensation system for occupied arable land should be strictly implemented, and the implementation and management of overall land use planning, urban overall planning, and village and market town planning should be strengthened. On the basis of that document, the State Council issued another one, “Notice of the State Council on Issues Concerning the Strengthening of Land Controls,”6 which further clarified the responsibilities of land management and arable land protection. It proposed that the main leaders of local people’s governments at all levels had general responsibility for the cultivated land reserve, the area under basic farmland protection, the overall land use plan, and the implementation of the annual plan in their respective administrative areas. The second policy has been to form a government monopoly of nonagricultural land in rural areas. Using the 1998 revision of the Law on Land Administration as a standard, it aims to: (1) implement mandatory planning management for the conversion of agricultural land; (2) strictly examine and approve the conversion of land; (3) make expropriation the only method of converting rural land for construction use; and (4) make the compensation for farmers’ land based on multiples of the earnings from its original use. Third, changing the rural collective construction land market from an open door to a gray area. Before the mid-1980s, the government encouraged farmers to use collective construction land to engage in nonagricultural industries, but in the early 1990s, the government began to close the collective construction land market. The 1998 Law on Land Administration stipulated that farmers’ use of collective construction land was an alternative to expropriation by the state. 2.2.2

The Basic Framework of the Policy on Rural Land Non-agriculturalization The basic spirit of the laws and policies on this issue—from the Regulations on the Expropriation of Land by the State for Construction (国家 建设征用土地条例), issued in 1982, to the Law on Land Administration and its implementation regulations promulgated in 1998, and then to other relevant policies issued in recent years—has increasingly been strengthened, and it may be expressed by the following two points: (1) the entities who make the decisions and who manage the conversion of 6 “Guowuyuan guanyu jiaqiang tudi tiaokong youguan wenti de tongzhi” 国务院关于 加强土地调控有关问题的通知; Guofa 2006, no. 31).

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rural land to non-agricultural land are government agencies at all levels, not the entities that own agricultural land, and (2) the conversion of rural land into non-agricultural land is to be strictly controlled. In 2003, after the proposal was raised to subject all land to macro-planning controls, the government’s control over the land market reached the point of comprehensive, strict control. The policy on the conversion of rural land to non-agricultural land mainly includes the following features: (1) Implementing mandatory planning management for the conversion of rural land. The state was to formulate an overall plan for land use, control the total amount of land to be converted, incorporate the land conversion carried out by villages and market towns into planning management, publish and implement the Measures for the Administration of Annual Plans on the Utilization of Land (土地利用年度计划 管理办法), and implement mandatory management of agricultural land conversion plan indicators, which were not to be broken. In the absence of planned indicators for the conversion of agricultural land, the land’s conversion was not to be approved. (2) Strict administrative examination and approval of land conversion. The first paragraph of Article 44 of the Law on Land Administration stipulates: “Where occupation of land for construction purposes involves the conversion of agricultural land into land for construction purposes, the examination and approval procedures in this regard shall be required.” As for the authority for examination and approval, paragraphs 2–4 of Article 44 have the following provisions: Where the building of roads and pipelines and large infrastructure projects approved by the people’s governments of provinces, autonomous regions, and municipalities, as well as construction projects approved by State Council, involve the conversion of agricultural land into construction-use land, State Council approval is required. Where agricultural land is converted into construction purposes as part of the efforts to implement the general plans for the utilization of land within the amount of land used for construction purposes as defined in the general plans for cities, villages, and market towns, it shall be approved batch by batch according to the annual plan for the use of land by the organs that approved the original general plans for the utilization of land. … The specific projects within the scope of land approved for conversion shall be approved by the people’s governments of cities or counties.

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The State Council is also required to approve the expropriation of basic farmland ( jiben nongtian 基本农田) more than 35 hectares in area and any arable land other than basic farmland more than 70 hectares in area (Article 45). In addition, Article 15 of the Administrative Measures for the Preliminary Examination on the Use of Land for Construction Projects (建设 项目用地预审管理办法), which was put into effect in 2009, stipulated that the procedures for supplying land, i.e., any conversion of agricultural land or expropriation of land, cannot be done without the preliminary examination and approval. (3) The only means of converting rural land into non-agricultural land is through expropriation by the state. Article 43 of the Law on Land Administration stipulates: Any unit or individual that needs land for construction purposes must apply in accordance with the law for the use of state-owned land. … The phrase “apply in accordance with the law for the use of stateowned land” used in the preceding paragraph refers to land owned by the state and also state-expropriated land that was originally owned by farmers’ collectives.

In other words, rural land that is converted into non-agricultural land must undergo expropriation by the state; the nature of the land must be changed first by changing it from collectively owned to state-owned, before it can be used for non-agricultural construction. The essence of this regulation was to reduce collective land rights and to expand and realize the nationalization of land through land conversion. (4) Farmers’ use of collective construction land is retained in a constricted space. An exception clause is set in Article 43 of the Law on Land Administration, which stipulates that the application could be filed: … except for land owned by peasant collectives used by collective economic organizations for building township enterprises or building houses for villagers, or land owned by peasant collectives approved according to law for use in building public facilities or public welfare facilities of townships (towns).

At the same time, however, this exception clause is also strictly limited. Article 63 states:

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The land use rights of farmers’ collectives shall not be assigned, transferred, or leased out for non-agricultural construction, except in the case of legal transfer of the land that conforms to the general plan for the utilization of land and legally obtained by enterprises due to bankruptcy or acquisition.

In recent years, due to concern that any transfer of collective construction land will affect the protection of cultivated land, “using rent in lieu of expropriation”7 has been regarded as illegal and strictly prohibited. (5) There is a policy to differentiate the supply of construction land. There are two methods for supplying land after its conversion from farmland: allocation (huabo 划拨) and assignment (churang 出让). The allocation method is used for land needed by state organs and for military use, land for building urban infrastructure and for public welfare, land for key state infrastructure-building projects in energy, transportation, and water conservancy, and land for other uses as specified by laws and administrative regulations. The method of assignment, which is paid for, is used for most other construction purposes. (6) The proceeds from land appreciation go to the government. The state implements the system of paid land use in accordance with the law, and the construction units need to pay the fee for the assignment of land use rights, as well as other fees. In view of the ineffective use of land caused by relatively low land use fees, the state in 2006 doubled the standard for land use fees, tripled the urban land use tax, and included foreigninvested enterprises within the scope of the urban land use tax. The funds from the paid land use fees for newly added construction land are shared by the central and local governments. Specifically, 30% goes to the central government and 70% is reserved by the relevant local governments, and 7 See the “Circular of the State Council on Issues Related to Strengthening Land Control” (国务院关于加强土地调控有关问题的通知), issued on 31 August 2006. In addition, according to a Xinhua News Agency report dated 20 March 2007, Zhang Xinbao ( 张新宝), the Director of the Law Enforcement and Supervision Bureau of the Ministry of Land and Resources, pointed out that local government-led expropriation and “using rent in lieu of expropriation” were still the main forms of land law violation. “The phenomena of illegally renting out land by village collectives and buying and selling land in disguised form have increased. Some village collectives rent out their own land, some enterprises rent from the village groups, and some [local] governments lease land from farmers and then lease it to enterprises.” According to Zhang Xinbao, in 2006, a total of 7,316 land law violations by village groups and collectives were investigated and dealt with, involving a cumulative land area of more than 9,100 hectares, representing year-on-year increases of 51.1% and 119.8%.

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all of that is earmarked for arable land development. As for the urban land use tax, 50% of the funds is turned over to the central government, and 50% is reserved for local distribution. 2.2.3 Evolution of the Market for State-Owned Construction Land Due to the existence of the dual land and rights systems, the development of China’s land market has also been divided into two completely separate markets. The market for the use of state-owned construction land has changed from free to paid. Before the 1980 reforms, China implemented a system in which the supply of land was free and indefinite, but in 1987, the Law on Land Administration stipulated the two parallel land use models, administrative allocation (huabo) and paid assignment of use (churang ). In November 1987, the State Council approved the establishment of pilot reforms in land use in Shenzhen, Shanghai, Tianjin, Guangzhou, Xiamen, and Fuzhou. On 1 December 1987, Shenzhen held the first public auction of use rights to an 8,588 square meter parcel for a term of 50 years. This was the first time that land use rights entered the market as an asset, and the first time that the use rights to state-owned land were tendered and auctioned. In April 1988, the National People’s Congress amended Article 10 of the Constitution of the People’s Republic of China, deleting the stipulation that land shall not be leased, while adding the stipulation that “the right to use land may be transferred in accordance with the provisions of the law.” In May 1990, the State Council promulgated the Interim Regulations on the Assignment and Transfer of the Right to Use Stateowned Land in Urban Areas (城镇国有土地使用权出让和转让暂行条例), which clearly stipulated that three methods could be used in the assignment of land use rights: agreement, bidding, and auction. In August 1998, the revised Law on Land Administration was promulgated, and since then, land in most cities and regions in the country has been transferred with compensation. Ever since that time, Guangdong, Jiangsu, Zhejiang, and other regions with a relatively high degree of market economy have actively explored the establishment of the land market. Guangdong, Zhejiang, and other provinces have established systems for bidding and auctioning all commercial land, and these practices have been fully supported by the Ministry of Land and Resources. In 1998, the Ministry of Land and Resources forwarded the Administrative Measures for the Public Bidding and Auction of Urban State-owned Land Use Rights in Guangdong Province (广东省城镇国有土地使用权公开招标拍卖管理

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办法), and in January 1999, the Ministry issued the “Notice on Further Promoting the Assignment of the Rights to Use State-owned Land by Bid Tendering, Auction, and Quotation.”8 On January 6, 2000, the Ministry of Land and Resources issued the “Notice of the Ministry of Land and Resources on Establishing a Visible Land Market to Promote the Standardized Transaction of Land Use Rights,”9 which established and improved the management system for land transactions and standardized the operation of the visible market. In 2001, the State Council issued “Notice of the State Council on Strengthening the Management of State-owned Land Assets,”10 which proposed specific requirements in six aspects of managing state-owned land: (1) strictly controlling the total supply of construction land; (2) strictly implementing the system of paid use of state-owned land; (3) vigorously promoting bidding and auctions; (4) strengthening the management of the transfer of land use rights; (5) strengthening land price management; and (6) regulating administrative actions in examining and approving applications for land use. Visible land markets, benchmark land prices, and information disclosure systems also began to be established in many counties (cities) across the country. In May 2002, the Ministry of Land and Resources issued the “Provisions on the Assignment of State-owned Land Use Rights by Bid Tendering, Auction, and Quotation,”11 aiming to vigorously promote the bid tendering, auction, and quotation system. Besides stipulating that the use rights of all kinds of commercial land (commercial, tourism, entertainment, commercial housing, etc.) had to be assigned through bid tendering, auction, and quotation, it also strictly prohibited assignment of use rights by agreement. This change has been called a major

8 “Guanyu jinyibu tuixing zhaobiao paimai churang guoyou tudi shiyongquan de tongzhi” (关于进一步推行招标拍卖出让国有土地使用权的通知; Guotu zifa 1999, no. 30). 9 “Guotu ziyuan bu guanyu jianli tudi youxing shichang cujin tudi shiyong quan

guifan jiaoyi de tongzhi” (国土资源部关于建立土地有形市场促进土地使用权规范交易的 通知; Guotu zifa 2000, no. 11). 10 “Guowuyuan guanyu jiaqiang guoyou tudi zichan guanli de tongzhi” (国务院关于 加强国有土地资产管理的通知; Guofa 2001, no. 15). 11 “Zhaobiao guapai paimai churang guoyou tudi shiyong quan guiding” (招标挂牌拍 卖出让国有土地使用权规定; Guotu zifa 2002, order no. 11).

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“land revolution” both inside and outside the industry. The establishment of the system for assigning land use rights through bid tendering, auction, and quotation has led to the formation and rapid development of an open, fair, and just land market environment. Land transactions went from “under the table” to “above-board,” and transactions done in the open light of day became fairer, which prevented the loss of state-owned assets and possible corruption in land transactions. This also enabled the government to earn substantial funds from construction. Nationwide, the area and price for land assigned by bid tendering, auction, and quotation increased from 6,600 hectares and 49.2 billion yuan in 2001 to 66,500 hectares and 549.2 billion yuan in 2006. In August 2004, the government began to get strict in investigating and dealing with the assignment of commercial land use by agreement. In September 2006, it was stipulated that industrial land must be assigned via bid tendering, auction, and quotation, and that the price of the assignment could not be lower than the published minimum price standard. In October 2007, the Ministry of Land and Resources issued “Notice of the Ministry of Land and Resources and Ministry of Supervision on Issues Concerning the Implementation of the Industrial Land Bid Tending, Auction, and Quotation System,”12 which included new regulations on some important aspects of the assignment of use rights on state-owned construction land. These provisions were more in line with the spirit of the Property Rights Law and other relevant laws and regulations, and they were more precise, aiming to guide the development of the market for construction land toward a healthier, more regular direction. As a result, the state’s revenue from assignment of use on land (i.e., selling the use rights) has skyrocketed. 2.2.4 Exploring the Reform of the Land Expropriation System In the face of the large number of abuses caused by the land expropriation system, a central policy document in 2003 proposed the strengthening of control of overall land use planning and urban construction planning, prohibiting the arbitrary modification of the plan as well as the indiscriminate occupation of arable land. It was necessary to distinguish between public welfare land and commercial land, reasonably determine 12 “Guotu ziyuan bu jiancha bu guanyu luoshi gongyedi yongdi zhaobiao paimai guapai churang zhidu youguan wenti de tongzhi” (国土资源部监察部关于落实工业用地招标拍卖 挂牌出让制度有关问题的通知; Guotu zifa 2007, order no. 39).

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the compensation standards, and properly resettle farmers. On the basis of investigation and research, the relevant departments further improved the methods of expropriating rural land. They gradually established a land expropriation system that met the requirements of the socialist market economy, was conducive to the coordinated development of the economy and society, and was conducive to the protection of cultivated land and the interests of farmers. “Notice of the Central Committee of the CPC on Doing a Good Job in the Circulation of Farm Households’ Contracted Land Use Rights” in 2004 even more clearly proposed to: … speed up the reform of the land expropriation system. All levels of government must effectively implement the strictest system for protecting arable land, strictly abide by the approval authority and approval procedures for the occupation of non-agricultural land in accordance with the principles of protecting farmers’ rights and interests and of controlling the scale of land expropriation, and strictly implement the overall land use plan. It is necessary to strictly distinguish between public welfare land and commercial land, and to clearly define both the rights and the scope of the government’s expropriation of land. Improve the land expropriation procedures and compensation mechanisms, improve the compensation standards, improve the distribution methods, properly resettle landless farmers, and provide them with social safeguards. Actively explore ways and means for collective non-agricultural land to enter the market.

The Third Plenary Session of the Seventeenth Central Committee of the CPC (2013) put forward some new reform measures, which included a clear proposal to strictly define public welfare and commercial construction land. This narrowed the scope of land expropriation and provided a requisite for truly realizing land expropriation for public welfare purposes. The principle of compensation for the rights of farmers who lose their land was also put forward: “In expropriating rural collective land according to the law, reasonable compensation to rural collective organizations and farmers shall be given in a full and timely manner in accordance with the principle of the same price for the same land.” This means that the next step in the reform of the land expropriation system will be an important one. That is, the compensation for farmers who lose their land will shift away from the current compensation, which is based on the land’s agricultural output value, to a compensation based on their rights and interests, and their resettlement will be changed to

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comprehensive guarantees including employment, housing, and social insurance.

3

Brief Comments and Conclusions

From the review above, we can see that rural land policy is gradually evolving towards enhanced protection of property rights and the marketization of rural land. The clarification of the property nature of land contractual management rights has strengthened the status of the contracting farm household as the main entity in circulating the land in the market, and many restrictions have been imposed on local governments and collective economic organizations to prevent them from interfering with farm households’ property rights. However, because the right to use the land for non-agricultural business is restricted by existing laws, both the protection and the marketization of rural land property rights under policies and laws are also limited within the scope of the land’s agricultural use. By contrast, China’s rural land non-agriculturalization policy is a policy of economic planning, one with a high degree of state monopolization and comprehensive governmental control. Rural collective construction land needs to be included in the national plan and undergo an application review and approval process by relevant government departments. Rural land used for urban construction is allotted and expropriated by the government, and then the government assigns the use of the expropriated land to construction units. Compensation for the allocated and expropriated land is calculated according to the rural land’s original use, and all of the revenue from the paid assignment of the use of the land belongs entirely to the government, which then distributes the funds among the different levels of government. We can see, then, that completely different rights and interests appertain to the same land, just because its agricultural use is different from its non-agricultural use, and their rules of operation are also completely different. Farmers are basically excluded from the non-agricultural use of rural land. Another way of describing it is that, for the non-agricultural use of rural land, the decision-making power of the village collectives and farmers is greatly restricted, and their right to benefit cannot be guaranteed. China’s economic and social development is in a critical period, and reform of the land policy will play a key role in the sustainable development of China’s economy and social harmony. The current land system must be fundamentally reformed, and efforts must be made to promote

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the marketization of land. The core of such reform would be to change the policy imposing a dualistic division of the land, and to implement a “same land, same rights, and same price” policy for collective land and state-owned land. The problems, specifically, are: First, in the area of rural land property rights, unremitting efforts have been made to take farm households’ contracting rights on land in the direction of real rights, but in the implementation of property rights, they have always faced the challenge of collective ownership. Second, in terms of the strategy used to improve rural land property rights, farm households’ use rights have been strengthened, but the arrangements for their exercise of the right to transfer land are lagging behind. When rural land is transferred for non-agricultural purposes, it is always expropriated, so that the farmers lose the right to transfer the land. Rural collective construction land (including collective reserve land and house sites) cannot enter the market, and farmers cannot use land to participate in the processes of industrialization and urbanization. The incompleteness of the rights and powers to transfer has become a fundamental institutional obstacle for farmers to realize their land property rights. Third, and most fundamentally, due to the strengthening of the dual land system, the protection and realization of farmers’ land rights are limited to the rural land’s agricultural use, and this rural land is excluded from the process of industrialization and urbanization. In the process of rural development and urbanization, the dual land system has guaranteed China’s rapid industrialization and urbanization since the late 1990s, and it has become the most endogenous and indispensable institutional arrangement in China’s current development mode. But the problems it has brought about are also obvious and are manifested in two ways. First, local government finance and infrastructure investment have become highly dependent on land use assignment fees and land mortgages, which has increased the financial risks for both the government and the banks. Second, the low compensation for expropriated land and the high fees collected for land use assignments, coupled with the government tenure system, encourages current local governments to expropriate and sell as much land as possible, which results in wasteful and non-intensive land use. Some farmers’ land property rights have been violated. Farmers are dissatisfied with the low compensation they receive for expropriated land, which causes mass incidents and becomes a main cause of social instability. Using the Social Insurance program (shebao

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社保) as a remedy also brings larger and longer-term social issues. The exclusive monopoly on land supply leads to the establishment of rent on land as well as rent-seeking behavior on land, which becomes an institutional root of land corruption and also causes land hoarding and land speculation.

CHAPTER 13

China’s Land Expropriation System: Features and Problems

In any country or region, regardless of whether it uses a private or public ownership system, the land expropriation system is one of the most important systems used in converting land to non-agricultural use. Since different countries have different systems and levels of development (and use different terms to describe it, such as land acquisition, compulsory purchase, eminent domain, etc.), there are huge differences among them in terms of purpose and scope of land expropriation, the procedures involved, and the compensation, so the degree of impact it has on economic development also varies. Over the past 40 and more years of reform and opening up, the Chinese economy has maintained a vigorous, high level of growth. The economy has maintained a growth rate of more than 10% per year. By 2011, China’s industrialization rate had reached 46.8% and its urbanization rate had reached 51.3%. With these processes of industrialization and urbanization, a large quantity of land has been converted to nonagricultural uses. In comparison with economies that have undergone high-speed industrialization, land has played a very unique and important role in China’s economic development. Since 1998 especially, China’s high economic growth rates have been driven by the twin engines of high-speed industrialization and urbanization, but land functions as the ignitions of those engines. The local governments have established industrial parks through the low-cost expropriation of farmers’ land and © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_13

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promoted high-speed industrialization through land lease agreements (letting the land out at cost or at zero cost). Using this land which they expropriate at low prices, they have a monopoly on the first-level land market, and promote the rental and mortgage financing services which they offer in their push for rapid urbanization (Liu et al. 2012, pp. 1–10). This chapter will sort out the formation of China’s land expropriation system and its main features, analyze the role of the land expropriation system in China’s economic growth, reveal the main problems in the current land expropriation system, and make policy recommendations for reforming the current land expropriation system.

1 The Formation and Main Features of China’s Land Expropriation System Land expropriation is the administrative act in which the state, based on the needs of the public interest, exercises its highest ownership right. The administrative organ that exercises the executive power on the state’s behalf, following procedures set by law, obtains people’s property by compulsory means and gives the property owners suitable compensation. There are four crucial elements in the exercise of land expropriation power by any government. First, in the planned public enterprise motivating the expropriation, or in the purpose of the expropriation, there must be a level of public interest sufficient to justify it; the matter of public interest must be a major and special one that undergoes a decision-making process. Second, the expropriation must have a legal basis and be carried out on the basis of established laws. Third, the expropriation must be in line with the principle of proportionality, i.e., the place and the method for minimizing loss to the interested party should be selected. The scope of the expropriation must be limited to what is necessary and must not be indiscriminately expanded, in order to avoid excessive infringement on people’s property rights. Fourth, fair and reasonable compensation must be given for any expropriation. Basically, land expropriation everywhere is based on these four elements, but the content of the various steps differs rather widely from country to country. In the course of China’s economic development over the past 60-plus years, the uniqueness of the socialist system and, later on, the rapidness of industrialization and urbanization have meant that the objectives, content, and features of China’s land expropriation system are also quite unique and constantly evolving (Chen 2010).

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The Formation and Evolution of China’s Land Expropriation System

We can divide the formation and evolution of China’s land expropriation system into three periods, based on the relevant laws that were promulgated and implemented. During the first period, from 1953 to 1981, the state promulgated the 1953 Measures on Land Expropriation for Stateled Construction (国家建设征用土地办法) and the 1954 Constitution, and in accordance with the Measures, guaranteed the supply of land for construction during the planned economy period. During the second period, from 1982 to 1997, the 1982 Constitution and the first Law on Land Administration (1987) were promulgated; the latter law was in use until 1997. During the third period, from 1998 to the present, the revised Law on Land Administration (1998) was introduced; this forms the basic framework of China’s current land expropriation system. The implementation period of this law coincided with the period of China’s rapid industrialization and urbanization starting in the late 1990s. First period (1953–1981). After seizing power, the CPC promulgated the new China’s first Constitution in 1954. At that time, because land was still mainly privately owned, this Constitution emphasized, “The state protects farmers’ right of land ownership and other means of production in accordance with the law,” and at the same time, it also for the first time clearly specified that the state would “purchase and expropriate urban and rural land for the needs of the public interest, and restore it to state ownership.” These expressions provide us with three very important pieces of information: (1) land expropriation can be carried out only if there is a public interest need; (2) the object of land expropriation would include not only rural land but also urban land; and (3) the expropriation method would not be limited to confiscation but also include acquisition (i.e., with compensation). With the start of the first Five-Year Plan, large-scale construction projects were launched, so in 1953, China introduced the Measures on Land Expropriation for State-led Construction. For the most important element of land expropriation, the expression “public interest,” which appears in the 1954 Constitution, does not appear; the relevant clause instead reads, “to adapt to the needs of national construction.” As for the scope and uses of land expropriation, the law listed them, to wit, “for the building of factories, mines, and railways, for transportation, water conservancy, and national defense projects, for cultural, educational,

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and health facilities, municipal construction and other construction.” As for compensation and resettlement, the law had several distinct features. First, resettlement was placed first. Before expropriation occurs, “… there must be proper resettlement for the production and living of the person from whom the land is expropriated. If the person from whom the land is expropriated cannot be resettled for a time, the expropriation should proceed after the resettlement has been done properly, or other land should be chosen for expropriating.” To the present, this land expropriation law was the one that set the strictest and most explicit conditions for proceeding with expropriation. Second, the law stipulated that when the compensation was made, “adjustments to state-owned land and public land should be made as much as possible,” and that it was only in cases where such land adjustments or their aftereffects would affect the production and lives of those whose lands were being expropriated that compensation or allowance would be paid. Third, the amount of land compensation was based on the total value of fixed production for the preceding two to four years; the housing compensation consisted of being given either an equivalent house, under the principle of guaranteeing that the original house occupants would have a house to live in, or compensation paid on a fair and reasonable basis; for attachments to the house, compensation would be paid on a fair and reasonable basis. Second period (1982–1997). After the Third Plenary Session of the 11th CPC Central Committee of 1978 opened the curtain on China’s reform and opening up, state governance was gradually put on a sounder legal track. In 1982, the first Constitution after reform and opening up was promulgated and implemented. It restored the 1954 Constitution’s “public interest” prerequisite for land expropriation, clearly stating, “The state may expropriate land in accordance with the law for the needs of the public interest.” However, this Constitution for the first time stated: “Urban land belongs to state ownership. Rural and suburban land, house sites, private retained plots, private reserved mountains, except where they are owned by the state in accordance with law, belong to collective ownership.” As a result, the structure of two coexisting land ownership systems, wherein “urban land is state-owned and rural land is collectively owned,” has become one of the most important institutional arrangements in China’s unique land expropriation system. Based on the principles of the 1982 Constitution, China in 1987 introduced its first Law on Land Administration. It had the following distinctive features.

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First, adherence to the principle that land expropriation in the name of the law must be in the public interest. As mentioned above, the Constitution states quite clearly, “The state may expropriate land in accordance with the law for the needs of the public interest.” Regrettably, the 1987 version of the Law on Land Administration did not clearly define which land uses would reflect the public interest, and it adopted a description of these uses that was even broader than the one in the 1953 version of the Measures on Land Expropriation for State-led Construction. That is, land could be expropriated wherever “the state proceeds with economic, cultural, and national defense construction and establishes social public utilities.” It is worth noting that, in contrast to the 1982 Constitution, we find that the 1987 version of the Law on Land Administration changed “may expropriate land” to “may expropriate collective land.” We have not verified the reason for this, but this was undoubtedly the first time in the legal history of the new China that land expropriation was targeted at rural collectively owned land. Second, the principle of urban–rural separation is followed. The Law on Land Administration (1987), following the 1982 Constitution’s structure of two coexisting ownership systems, adopts the split governance of urban and rural land: “Urban land is state-owned, and rural and suburban land is collectively owned.” Significantly, if we compare the Law on Land Administration (1987) and the 1982 Constitution on the matter of the borders of state-owned land, the latter says, “Urban land (chengshi tudi 城市土地) is state-owned,” while the former says, “land in urban districts (chengshi shiqu tudi 城市市区土地) is state-owned.” Scholars who study urban land issues are well aware that China’s expressions for cities vary quite widely, e.g., “urban built-up areas” (chengshi jiancheng qu 城市建成 区), “urban planning areas” (chengshi guihua qu 城市规划区), and “urban districts,” which has resulted in a wide variance in the scope of what a “city” is, and hence the scope of governance in the divided urban–rural governance system also varies widely. Although we cannot determine why the Law on Land Administration made this sort of change on the Constitution, it does link to the process of urbanization in China. Under the heading of “urban land owned by the state,” and through the constant adjustment of city planning, a land nationalization trend, wherein rural land is drawn into city maps via land expropriation, becomes a reality. We must admit that the legislators of that time, by putting a limit on the content of the “city,” were quite ingenious.

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Third, limits to governmental examination and approval authority for expropriating land were defined. When formulating and implementing the Law on Land Administration, China still had not adopted common international land planning and use regulations—it still followed the examination and approval processes of the planned economy era. To protect cultivated land, measures were taken to define the limits of governmental authority at all levels to review and approve the expropriation of land. Specifically, any expropriation of 1,000 or more mu of cultivated land and 2000 or more mu of other land were to be approved by the State Council; an expropriation of 3 or fewer mu of cultivated land and 10 or fewer mu of other land were to be approved by the county-level people’s government; and expropriations of land between those limits were to be approved by the people’s government of the provincial city and autonomous prefecture, and if not passed, the matter would be have to be decided by the Standing Committee of the Provincial or Autonomous Regional People’s Congress. Fourth, the methods for determining compensation and resettlement based on the annual output of cultivated land were further clarified. Compared with the Measures on Land Expropriation for State-led Construction (1953), the Law on Land Administration (1987) first increased the compensation many times over, so that it became three to six times that of the average annual output value for the three years prior to the expropriation of the cultivated land. Secondly, the resettlement allowance would also be multiplied, based on the output value of the cultivated land. That is: The resettlement allowance of the expropriated cultivated land is to be calculated based on the number of people to be resettled. The resettlement allowance standard for each agricultural population that needs to be resettled shall be two to three times the average annual output value per mu for the three years prior to the expropriation of the cultivated land.

The law also specified that the sum of the land compensation fee and the resettlement allowance could not exceed 20 times the average annual output value of the three years prior to the expropriation of the land. As for the payment of compensation, only the compensation for attachments and young crops is paid to the land-expropriated person himself. The compensation for the land and the resettlement allowance was to be paid to the land-expropriated unit, and this was to be retained and used to

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develop production, arrange for the employment of surplus labor created by the land expropriation, and pay living allowance for unemployable persons. Fifth, arrangements for the re-employment of land-expropriated farmers were implemented. Besides the land and resettlement compensation, the Law on Land Administration (1987) also included measures for the employment and change of status of land-expropriated farmers. First, it arranged for some land-expropriated farmers to enter the employment of the unit taking use of the original land or the collective or enterprise belonging to the whole people taking possession of the original land. Second, if all of the land of the land-expropriated unit was expropriated, then the household registrations of unit members were converted from agricultural to non-agricultural. In the early days of reform, since there were obvious advantages of being in a “whole people’s” or collective ownership unit, re-employment and resettlement were still more attractive to land-expropriated farmers. However, with the development of multiple ownership economies, especially the non-public economy and foreigninvested economy, the vast majority of collectives and units belonging to the whole people were at a competitive disadvantage, and when the land-expropriated farmers got placed in these units, they usually became the first targets in layoffs. As a result, this resettlement method became less and less attractive to land-expropriated farmers. Third period (1998 to the present). As China’s industrialization and urbanization have accelerated since the end of the 1990s, the nonagriculturalization of land has also greatly accelerated, so that the threats to cultivated land and national food security are becoming increasingly serious. For this purpose, when China revised the Law on Land Administration in 1998, one of the more important changes was to reform the methods of land expropriation. The 1998 version of the Law on Land Administration retains and improves some of the basic principles of the 1986 version. For example, it still follows the principle, in the legal sense, of land expropriation in the public interest. The principle of separation of urban and rural is not only continued, but further strengthened. As for compensation and resettlement from land expropriation, the original principle of compensation based on original use, but with the standards raised. Specifically, the amount of land compensation was raised to six to ten times the average annual output value of the cultivated land in the three years prior to its expropriation; the amount of resettlement subsidy was raised to four to

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six times the average annual output value of the cultivated land in the three years prior to its expropriation. Moreover, the sum of the two items above was not to exceed 30 times the average annual output value of the land in the three years prior to its expropriation. While the review and approval process still followed the approval management approach, the power of review and approval was further limited. That is, in the expropriating of basic farmland, if the amount of cultivated land in excess of the basic farmland exceeds 35 hectares, and the amount of other land exceeds 70 hectares, it would have to be approved by the State Council. In addition, the 1998 version of the Law on Land Administration made major changes in the following three areas, which have since had great impacts on land administration, land transfer, and land income distribution in China. The first was to establish a “land use regulation system.” The state prepares a master plan for land use, stipulates land use, and divides the land into agricultural land, construction land, and unused land. The conversion of agricultural land into construction land is severely restricted, the total amount of construction land is controlled, and special protections are implemented for cultivated land. Units and individuals using the land must do so strictly in accordance with the purposes determined by the master planning of land use, because, within the land use regulation system, the land use master plan is legally binding. Through tiered review and approval of the land use master plan, the amount of protected cultivated land, the scale of construction land, and the amount of land used in each category is controlled from above. The master planning of land use constrains scale of construction land in the urban master plans and the village and town plans. Controls on total land use and annual land use are implemented through the annual planning of land use. The second was to stipulate the objects of using and the means of obtaining construction land. First, any unit or individual that is building and needs land to do so must apply for the use of state-owned land in accordance with the law; this includes both state-owned land and land that the state has expropriated from farmers’ collectives. Second, if construction on occupied land involves the conversion of agricultural land into construction land, it is necessary to go through the approval procedures for such a conversion. To expropriate agricultural land, one needs to handle the conversion of agricultural land first.

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The third was to implement a system for the paid use of state-owned land. In 1998, the Constitution was amended, from “No organization or individual may misappropriate, buy, sell, lease out, or in any other form illegally transfer land,” to, “No organization or individual may misappropriate, buy, sell, or in any other form illegally transfer land. The use rights of land may be transferred in accordance with the law.” The Law on Land Administration (1998) also clearly stipulated, “The use rights of land may be transferred in accordance with the law,” and, “The state implements a system of paid use of state-owned land in accordance with the law.” In its capacity as landowner, the state grants land use rights to land users within a certain period of time through agreement, bidding, and auction. The land user then pays the land use rights transfer fee according to the transfer contract. 1.2

Characteristics of the Current Land Expropriation System, with Evaluations

By constantly evolving, China’s land expropriation system has formed an institutional arrangement with its own distinctive characteristics. We shall summarize them as follows: (1) A generalization of land expropriation under the principle of the public interest. In the past 60-plus years, apart from the 1953 Measures on Land Expropriation for State-led Construction, the various versions of the Constitution and their amendments, and land administration laws and their revisions, have all clearly stated that land expropriation must be to fulfill the demands of the public interest. However, so far, no law has given the meaning of the public interest to which they refer, and no law has clearly defined the range of purposes of land expropriation for the public interest. Not only that, but China’s regulations on land acquired by means of expropriation are becoming more and more broad. The 1953 Measures on Land Expropriation for State-led Construction was more detailed about listing the uses of expropriated land: “... for the building of factories, mines, and railways, for transportation, water conservancy, and national defense projects, for cultural, educational, and health facilities, municipal construction and other construction.” Judging from the kinds of projects listed, except for the building of factories and mines, the other items

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do basically have a “public interest” nature. By the time of the 1986 version of the Law on Land Administration, however, the kinds of projects for which the state could expropriate land had become “economic, cultural, and national defense construction and for the establishment of social public enterprises.” This is obviously broader in terms of the range of purposes than that stipulated in the 1953 Measures on Land Expropriation for State-led Construction. When the 1998 version of the Law on Land Administration was introduced, not even the general range of purposes for land expropriation was listed—the relevant clause had become, “Any unit engaged in construction must use state-owned land.” The land available for construction, in addition to land that was originally state-owned, was collective land expropriated from farmers. That is to say, since the enactment and implementation of the 1998 version of the Law on Land Administration, what has in fact happened is that all construction must now use state-owned land that has gone through the process of expropriation, and this trend is becoming more and more obvious as industrialization and urbanization progress. From this, we can see that even though China has always stated in its laws that land can be expropriated to meet the needs of the public interest, no law thus far has defined what the public interest means or has set any clear boundary to the range of purposes for land to be expropriated. This is quite at odds with the practice of the major market economies, which restrict land expropriation and reduce the erosion of land property rights by defining the public interest. In China’s laws and regulations and in its actual operation of land expropriation, any engagement in economic construction is virtually equivalent to the public interest. It is precisely because of the generalization of the public interest in land expropriation that it has become convenient for the government and land users to obtain farmers’ collective land by expropriation. During the planned economy era, since economic construction was always for the state’s interest, drawing an equivalence between economic construction and the public interest could still be justifiable. However, as China’s socialist market economy has improved, land-using entities and interest structures have increasingly diversified—and yet all construction is equated with the public interest, and the expropriation of land on a grand scale has become the usual

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practice. This has opened the door of convenience for public power to legally infringe upon private rights; this is contrary to jurisprudence, nor does it conform to social fairness and justice or the basic principles of the market economy. (2) The separate administration of urban and rural under two ownership systems. The 1982 Constitution divides the land into urban state-owned land and rural collectively owned land. This is the most important institutional arrangement that distinguishes China’s land system from that of other countries and regions in the world. To implement the land ownership structure of this constitutional urban–rural division, two different sets of legal governance have been adopted for China’s urban and rural land. Rural land is regulated by the Law on Land Contracts in Rural Areas, so the use, derivation of income from, and circulation of farmers’ collective agricultural land are subject to that law. Meanwhile, land transfer and urban state-owned law are regulated by the Law on Land Administration, so the conversion of agricultural land to non-agricultural use and the use, derivation, and transfer of use of that land after it has been transferred are protected by that law. From this, two completely different systems of rights appertaining to urban and rural land have been formed. Rural land users enjoy the rights to use, derive income from, and transfer use rights to agricultural land. As soon as agricultural land is converted to nonagricultural, the original rural landowner (the collective) not only loses its ownership but also loses its rights to use, derive income from, transfer, and develop that land. Farmers’ right to use agricultural land in a non-agricultural way is restricted only by a clause in Article 43 of the 1998 version of the Law on Land Administration—they can only “build township or town enterprises or build houses for villagers, after having lawfully obtained approval of using the land owned by farmers’ collectives, or build public utilities or public welfare undertakings of a township (town) or village, after having lawfully obtained approval of using the land owned by farmers’ collectives.” (3) Conversion of agricultural land under many layers of regulation. Based on the experiences of land management in countries and regions around the world, the conversion of agricultural land to

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non-agricultural land must be subject to planning and use regulations. However, land transfer in China is much more complicated, since it is subject to three layers of controls. The first layer is planning and use regulation. When the Law on Land Administration was revised in 1998, China studied the land management methods of countries with market economies, then implemented a land-use regulation system through a master plan of land use. At the same time, the construction and use of land after its conversion to non-agricultural use became subject to the cities’ overall urban planning. Judging from the functional divisions and linkage relationship between the two plans, the function of the master planning of land use is to restrict the conversion of agricultural land to construction land and protect cultivated land; it is used to frame the boundaries of land use and make use regulation effective. The function of a city’s overall urban plan is to make sure that use of every parcel of land within its borders is defined and implemented. However, since China is rapidly industrializing and urbanizing, cities are rapidly growing in scale and number, and their boundaries are constantly expanding outward. It has become the norm now for city governments to expand room for development by adjusting their administrative divisions and revising their urban plans. Due to the cities’ continuous expansion and shifting boundaries outward, the power of the land use master plan to restrict cities’ border-shifting has weakened, and it has become difficult to resist urban sprawl and the conversion of agricultural land to non-agricultural land. The second layer is land ownership control. According to the principle of separate administration of urban and rural land, rural land belongs to the collective ownership of farmers, while urban land belongs to the state. Rural land must be expropriated in order for it to be changed into construction land, and if it is incorporated into urban territory, then that land must be changed from its original rural collective ownership to state ownership. This creates a large difference between China and the major market economies in terms of land conversion: in the latter, as long as planning and use regulations are followed, then landowners not only can use the land for non-agricultural construction but can also dispose of and transfer the land. They can also earn the differential income from the land’s conversion to non-agricultural use. However, in

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China, due to the imposition of controls on ownership, a huge gap has been set between different owners in terms of land use rights and the distribution of profit from land. For farmers’ collectives, even if their land belongs to a non-agricultural construction zone in the plans and use regulations, they have no right to use it or derive income from it. Instead, they must transfer it to the scope of urban planning and transfer it to state ownership, and then the local government assigns it to other users. The original farmers then collectively lose their rights to use, derive income from, and develop the land. The third layer consists of annual land plan quotas and approval management. Due to the failure of land use regulation and the softness of the constraints on urban land use planning in urban expansion, plus a low-cost land expropriation system that encourages local governments to expropriate more, tenure more, and convert more rural land into urban land, the central government has had to strengthen the annual indicators and the management of the application-and-approval process for converting land to construction-use, in order to restrict local governments from using land use planning to expand cities. However, since the management by plan indicators and approval systems both carry a strong planning tinge, this top-down allocation of indicators not only has difficulty adapting to the needs of economic development, but also has difficulty really restraining local governments’ use of land. The allocation efficiency is also low, and it creates rent-seeking problems. (4) Compensation according to the original use of land in land expropriation and resettlement. As countries and regions with market economies develop, the volume of land expropriation will continue to decline, and the compensation for land expropriation will continue to be oriented toward marketization and property compensation. In China, since there is no land property market, land ownership has no value. Therefore, when the government expropriates farmers’ land, it has never taken the approach of compensating for the land property value. Even so, when expropriating land, the Chinese government has constantly faced problems due to the increasing land value and increasing rights awareness among farmers. To cope with rising farmers’ demands, the Chinese

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government has mainly adopted the approach of occasionally multiplying the amount of compensation based on the land’s agricultural output value and continuously improving the compensation standards. Compensation for land in the 1953 Measures on Land Expropriation for State-led Construction was based on the total output for the previous two to four years; in the 1987 version of the Law on Land Administration, compensation was based on the annual output value of cultivated land and calculated at three to six times the average annual output value for the previous three years. By the time that the 1998 version of the Law on Land Administration was enacted, the government still firmly adhered to the principle of calculating the compensation based on the land’s original use, but the compensation standard was increased to six to ten times the average annual output value of the land for the three years prior to its expropriation. Since compensation based on land property has not been implemented, China must use resettlement and employment as remedies in land expropriation. In 1953, the procedure was to put resettlement before expropriation—that is, without resettlement, the land could not be expropriated. In the 1987 version of the Law on Land Administration, monetary settlement for the farming population was set at a multiple of the output value of the land, and the resettlement subsidy standard for each agricultural population to be resettled was set at two to three times the average output value per mu for the three years prior to the expropriation. The 1998 version of the Law on Land Administration raised the resettlement standard, so that the resettlement subsidy standard for each agricultural population to be resettled was set at four to six times the average output value per mu for the three years prior to the expropriation. Clearly, this kind of labor settlement based on multiples of the farmland’s output value cannot guarantee the long-term livelihood of farmers who have lost their land. Besides resettlement, reemployment and transfer of household registration are used in land expropriation. During the planned economy era, farmers who lost their land due to land expropriation were resettled by the state. First, they went from “agricultural to non-agricultural,” i.e., their agricultural household registries were converted into urban ones. The second thing done was to arrange for the agricultural laborers to be employed in an urban enterprise

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or institutional unit and become employees. Under the dual system of that time, this made a fundamental change in the farmer’s status. He and his children could enjoy all the employment and benefits of people in the city, and the social conflicts caused by land expropriation were not as sharp or widespread. Many farmers welcomed, or even hoped for, the state’s expropriation of their land, since they considered it a chance to transform their own destinies. During and after the 1990s, however, China gradually established a socialist market economic system, and state-owned enterprises also gradually restructured. The non-public economy developed to the point that it accounted for half the economy. Employment and resettlement lost their meaning as a guarantee to farmers who had lost their land. For farmers who lose land through land expropriation, the state no longer resettles them—it has switched to increasing the standard by which the resettlement compensation is calculated, the compensation is entirely monetary, and the resettlement subsidy is also estimated based on multiples of the annual agricultural output value of the land. But in fact, once a farmer completely loses his land, it is impossible to farm, and if he is employed outside of agriculture, there is a long or short period of time when the cost of living for him greatly increases. It is difficult to maintain a normal life with the compensation for agricultural labor, so the standard of living for farmers whose land has been expropriated actually decreases. As a result, social conflicts caused by land expropriation have gradually become conspicuous. As these social conflicts have intensified, some localities have explored and implemented guarantees to maintain a minimum standard of living for land-expropriated farmers. The Ministry of Land and Resources and Ministry of Human Resources and Social Security have jointly issued a document asking that local governments establish a social security system for land-expropriated farmers, but only 42% of places have established this system as of 2010. Even so, since this system provides only a low level of protection, it can hardly be considered commensurate with the land development rights that the farmers have lost (Huang 2011). (5) Land appreciation income returns to the government. The land system arrangements described above make China quite unique in that regard. First, rural land belongs to the collective ownership of farmers, and farmers collectively possess the rights to use, derive

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income from, and transfer farmland, and when agricultural land is converted to non-agricultural use, the farmers’ rights on the land are lost as soon as they receive compensation based on a multiple of its annual output value during its original use. Meanwhile, urban land is state-owned, and local governments enjoy the rights of disposing of, assigning, and deriving income from construction land. Second, the government has a monopoly on land, and local governments become the only legal channel for converting agricultural land into construction land. With one hand they expropriate land from farmers, and with the other hand they exclusively assign use of the construction land under their own name. Third, because the government is deeply involved in the non-market allocation of land, the implementation of the application and approval system for the occupation of agricultural land, the implementation of the land use planning controls on construction land, the marking off of construction land, and the negotiations on assigning the use of that land, the government controls the assignment and pricing of commercial land ( jingyingxing yongdi 经营性用 地). Fourth, governmental administration and business administration are united. The local government is both a land manager and land operator. In this uniquely structured land system, there are two core institutional arrangements: the compulsory, low-cost land expropriation system and the paid use system on construction land under the government monopoly. Under this system, land expropriation has become the only conduit for converting agricultural land into non-agricultural land, and state-owned land has become the only land that can be used legally for non-agricultural construction.

2 2.1

The Land Expropriation System and Economic Development

Using Compulsory, Low-cost Land Expropriation to Drive Economic Growth

The Chinese economy has maintained vigorous, high-speed growth since reform and opening up began. The economic growth rate and industrial added-value growth rate have remained in the double digits, and more

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than half of China’s population now lives in cities. China has become the world’s second largest economy and the world’s largest exporter. In comparison with the features of high-speed industrialization and urbanization phases of other economies, land in China’s last round of economic development has played a very unique and important role. The unique land system that China implemented during this period has been one of the secrets to its achievement of such high economic growth. China’s high rate of economic growth was supported by high investment and export levels and regional competition led by the government, and the land system was an important factor ensuring the success of this growth model. First, during the last phase of China’s high-speed development, due to insufficient domestic demand and lack of innovation, economic growth was driven mainly by high investment and export levels, and on reliance on increased investment and expanding scale. This approach to development can only be supported through high consumption of resources. In factor input, because of the huge reservoir of rural surplus labor, the supply of low-cost labor was a major advantage. Land was another important input factor. Even though China’s land resources are scarce due to population pressure, and lack of land is a basic national condition, the implementation of a dual land system of urban–rural inequality, a low-cost compulsory land expropriation system, and a non-market system for supplying land together enabled China to avoid the high land costs that would otherwise have affected economic growth. China could instead rely on an ample, guaranteed land supply to support economic growth. Secondly, in government-led regional economic competition, taking the initiative to attract investment and creating a suitable policy environment were the two most important magic weapons for local governments to beat the competition. Since land was the most valuable resource that local governments could control, using that land became their main investment promotion technique. Their main tools for keeping business enterprises local were incentives on land revenue and land tax. The ample supply of land and high consumption of resources ensured high levels of investment; a low-cost land supply kept land prices low, which guaranteed a high level of exports; and using land to attract business investment guaranteed rapid industrialization and urbanization. All of these promoted high rates of growth in local economies. In the last round of economic growth, the ample supply of land played a fundamental role. From 1996 to 2010, the total area of construction

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land nation-wide increased by 74.1 million mu from 437.71 million mu to 511.81 million mu—a 16.9% increase, with an average annual increase of 5.293 million mu. Since 2006 especially, the scale of China’s construction land has grown even more swiftly. In 2010, the total land supply nation-wide reached 6.45 million mu, an increase of 83.8% over the 2006 figure. During that period, the total amount of new construction land increased by more than 7.14 million mu per year, so that by 2010, the total area of new construction land nation-wide went as high as 10.68 million mu. Not only has the total amount of construction land increased significantly, but the supply of various types of land has also increased significantly (see Table 1). It can be seen from Table 2 that land supply has a high correlation with economic growth. From 2003 to 2010, during years with a large supply of land, the GDP growth rate was also higher, and during years when the supply of land decreased, the GDP growth rate was also relatively low. As cities expand, their urban circles continue to move outward and rural land is taken into the urban territory, which means that the rural collectively owned land is expropriated by the government and transformed into urban state-owned land. In fact, since 2000, the land occupied by urban construction has been obtained mainly by expropriation. As shown in Table 3, from 1999 to 2008, newly added urban construction land amounted to 13,632.86 km2 , with an annual average of 1,863.3 km2 . During the same period, 13,925.49 km2 of farmers’ land was expropriated, with an annual average of 1,392.5 km2 , accounting for 74.74% of the newly added urban construction land. One can see from this that even though China implements the world’s most stringent system for protecting cultivated land, the supply of land has not at all been reduced. It is especially the expropriation of land to guarantee the supply of construction land that has become the most important factor promoting economic growth. 2.2

Using Low-cost Land to Promote High-speed Industrialization

In the last round of high economic growth, the rapid advancement of industrialization was a dominant force. From 1979 to 2011, China’s industrial added-value grew at an average annual rate of 11.5%, and the contribution rate of industrialization on GDP growth has increased from 14.7% in the early 1980s to 44.7% in 2011. Since the mid-1990s

116,379.4 106,756.7 109,813.8 154,635.3 141,723.4 92,918.09 141,486.5 153,977.6

2003 2004 2005 2006 2007 2008 2009 2010

53,676.46 43,831.1 29,591.38 32,124.51 57,751.08 26,532.02 27,570.86 38,905.15

Commercial use land

63,751.63 59,689.78 55,144.85 65,153.68 80,174.84 62,030.09 81,548.17 115,272.5

Total residential land

35,145.51 27,189.5 23,481.34 29,582.6 33,248.17 26,573.24 43,763.85 52,945.57

Public administration and public service land 3552.02 2697.05 4123.94 2239.51 1945.48 2623.58 1761.48 2522.37

Special land

10,398.81 13,456.98 14,779.49 18,135.89 20,258.82 17,004.19 45,613.76 48,795.49

Transportation land

3532.8 4298.58 7334.64 4934.41 6872.11 6503.5 19,436.83 19,490.72

Water and water conservancy land

Source Zhongguo guotu ziyuan tongji nianjian 中国国土资源统计年鉴 [China Land and Resources Statistical Yearbook] (successive years)

Industrial, mining, and storage land

Growth of various types of land use, 2003–2010 (unit: hectare)

Year

Table 1

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Table 2

Total land supply and GDP growth rate, 2003–2010

Year

Total land supply (hectares)

GDP growth rate (%)

2003 2004 2005 2006 2007 2008 2009 2010

286,436.66 257,919.7 244,269.47 306,805.89 341,973.95 234,184.68 361,648.75 432,561.42

10.6 10.4 10.7 13.3 14.6 9.8 8.9 10.8

Source Zhongguo guotu ziyuan tongji nianjian [China Land and Resources Statistical Yearbook] and Zhongguo tongji nianjian 中国统计年鉴 [China Statistical Yearbook]

Table 3 Expropriated land area as a proportion of new urban construction land area nationwide, 1999–2008 Year

Urban construction land area (sq. km.)

New urban construction land area (sq. km.)

Expropriated land area (sq. km.)

Expropriated land area as a proportion of new construction land area (%)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Total

20,877 22,113.7 24,192.7 26,832.6 28,971.9 30,781.3 29,636.8 34,166.7 36,351.7 39,140.46 293,064.86

369.4 1236.7 2079 2639.9 2139.3 1809.4 −1144.5 4529.9 2185 2788.76 18,632.86

340.64 447.49 1813.11 2881.31 1606.40 1613.34 1264.17 1397.16 1216.61 1345.27 13,925.49

92.21 36.18 87.21 109.14 75.09 89.16 −110.46 30.84 55.68 48.24 74.74

Note The 2005 urban construction land area data do not include Beijing City and Shanghai City Source Zhongguo chengshi jianshe tongji nianbao, 2000–2008; Zhongguo tongji nianjian, 2000–2008

especially, thanks to an export-oriented industrialization strategy, China became the “world’s factory” in just over a decade. China’s system of compulsory low-price land expropriation and the exclusivity of the government’s allocation of land resources are important factors driving its high industrial growth. On the one hand, when

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local governments use the land expropriation powers granted to them by the law and give land compensation and resettlement subsidy to the land-expropriated farmers based on output value of the land as originally used, that is only equivalent to six to ten years of the income derived from the land. On the other hand, the local governments control the primary market for land, and they hold the authority to supply construction land in their own hands, thereby ensuring the supply of land for industrial construction at non-market prices. This unique land system arrangement not only enables China’s industrial development to avoid the land scarcity problem but also makes the land a tool for attracting investment and promoting industrial development. Under this institutional arrangement, local governments take advantage of their convenient grasp of land resources to attract investment, using very large concessions on land prices in exchange for relatively scarce capital, technology, and the prospect of future tax revenue. The quick combination of low-cost land and low-cost labor with foreign capital and technology became an important factor in speeding up industrialization. In some places, local governments even supply land below cost or at no cost in order to recruit or retain business enterprises with tax potential, and in other places, local governments have formulated policies that set price ceilings for industrial land use agreements. The competition among regions to attract investment evolved directly into a vicious cycle, with each region lowering its land prices, and behind it was a financial competition among their local governments, resulting in long-term low prices for industrial land. Thus, a unique phenomenon of the Chinese land market has been the scarcer the land resources, the lower the land price. It is precisely within this unique land system arrangement that China allocates a large amount of scarce land for industrial use, thus ensuring the rapid development of industry (see Table 4). From 2003 to 2010, the annual industrial, mining, and warehousing land supply is 127,211.3 hectares, accounting for 41.3% of total annual land supply. Compared with the major market economies, such quantities of industrial land are unusually high, and they are higher than the industrial land levels that these countries and regions had during their period of most rapid industrialization. It is precisely because of this unique industrial land system, where land in China is becoming scarcer and land prices more and more obvious, that the amount of industrial land has been able to stay at a low level for a long time. From the changes in land prices in 21 cities across the

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Table 4 Industrial, mining, and warehousing land as a share of total land supply, 2003–2010 Year

Total land supply (hectares)

Industrial, mining, and warehousing land (hectares)

Percentage (%)

2003 2004 2005 2006 2007 2008 2009 2010

286,436.7 257,919.7 244,269.5 306,805.9 341,974 234,184.7 361,648.8 432,561.4

116,379.4 106,756.7 109,813.8 154,635.3 141,723.4 92,918.09 141,486.5 153,977.6

40.6 41.4 45.0 50.4 41.4 39.7 39.1 35.6

Source Zhongguo guotu ziyuan tongji nianjian [China Land and Resources Statistical Yearbook] (successive years)

country, we can see that from 2000 to 2011, the national comprehensive land price level, commercial land price level, and residential land price level increased by 323.06%, 348.78%, and 571.59% respectively, but the industrial land price level increased only by 78.94% (see Fig. 1). Based on the analysis of 21 cities across the country, from 2000 to 2011, industrial land price nationwide increased from 467 yuan/m2 to 705 yuan/m2 , with an average annual growth rate of 3.8%. In the east, industrial land increased from 580 yuan/m2 to 883 yuan/m2 , with an average annual growth rate of 3.9%; in the central region, it increased from 347 yuan/m2 to 566 yuan/m2 , with an average annual growth rate of 4.5%; and in the west, it increased from 391 yuan/m2 to 560 yuan/m2 , with an average annual growth rate of 3.3% (see Table 5). The government’s intervention in industrial land prices was conducive neither to the transfer of manufacturing from the east to the central and western regions, nor to the optimization and upgrading of industries in the east and the more intensive use of scarce land. 2.3

Rapid Urbanization Driven by Land Expropriation

Since the mid-1990s, China’s urbanization process has greatly accelerated. From 1995 to 2010, China’s urbanization rate increased at an average annual rate of 1.5%, from 29.04% to 49.95%. This rapid urbanization drove high economic growth, promoted industrial restructuring,

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8000 7000 6000 5000 4000 3000 2000 1000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Comprehensive land

Commercial land

Residential land

Industrial land

Fig. 1 Changes in national land price levels, 2000–2011 (yuan/m2 ) (Source China National Bureau of Statistics) Table 5

Changes in industrial land prices in different regions, 2000–2011

Region (yuan/m2 )

2000 2001

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Average industrial land price in 21 cities Average in east Average in central region Average in west

467 475

486 495 508 516 536 640 613 634 672 705

580 588

598 610 627 639 665 831 769 784 837 883

347 351

364 367 377 382 399 492 508 518 549 566

391 400

413 421 430 437 448 471 476 511 535 560

Source Ministry of Land and Resources, Tudi shichang jiance dongtai 土地市场监测动态 [Land Market Monitoring Dynamics ]

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and caused dramatic changes in the means of production, lifestyles, and values of rural residents. During this period, each 1% point increase in the urbanization rate brought an increase of 633 yuan in per capita GDP. If we examine the contribution rates of three different kinds of industry to GDP, we see that the contribution rate of primary industry fell from 9.1% to 3.9%, of secondary industry fell from 64.3% to 57.6%, and of tertiary industry rose from 26.6% to 38.5%. In China, a floating population of 230 million, made up primarily of farmers who go to the cities to work and live, and which accounts for the majority of China’s farming population, enjoys the benefits of development and is provided with unprecedented opportunities. Rapid advancement of urbanization has benefited from China’s unique land expropriation system, planning system, and local governments’ exclusive land revenue.1 Because the government can expropriate land at low cost and has its exclusive land transfer system, it provides local governments an incentive for expropriating and occupying more farmers’ collective land. To this end, the local governments use the planning controls and revision rights and do their utmost to mark off and bring rural and suburban land into the urban planning circle. They use their legal land expropriation authority to expropriate farmers’ collective land and convert it to state-owned land, and then they use their exclusive land assignment authority to assign the government-controlled land to the land market, thus maximizing the land’s value. As the cities’ land area continues to expand, the share of state-owned land increases, and more and more land comes under governmental control. In recent years, local governments have rapidly expanded their urban areas through planning revisions and adjustments to administrative divisions. We call this “expansionary urbanization of urban circles” (chengshijuan waiyi de chengshihua 城市圈外移的城市化). From 1995 to 2010, the area of built-up urban areas nationwide increased by 20,793.8 km2 , when an average annual increase of 1,386.3 km2 (see Table 6). From 1999 to 2008, the development of all types of cities has shown rapid expansion from their centers to spaces along their outer edges. During that time, the built-up area for China’s top 10 cities expanded from 2,629 km2 to 7,727 km2 (see Fig. 2).

1 Translator’s note: It is important to remember that when “assignment” (churang 出 让) is used in conjunction with land, it refers to the assignment of the right to use land.

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China’s urban areas and urban built-up areas, 1995–2010 (unit: km2 )

Year

Urban areas

Urban built-up areas

Year

Urban areas

Urban built-up areas

1995 1996 1997 1998 1999 2000 2001 2002

1,171,698 987,077.9 835,771.8 813,585.7 812,817.6 878,015 607,644.3 467,369.3

19,264.2 20,214.2 20,791.3 21,379.6 21,524.5 22,439.3 24,026.6 25,972.6

2003 2004 2005 2006 2007 2008 2009 2010

399,173.2 394,672.5 412,819.1 166,533.5 176,065.5 178,110.3 175,463.61 178,691.7

28,308 30,406.2 32,520.7 33,659.8 35,469.7 36,295.3 38,107.3 40,058.0

Source Zhongguo chengshi jianshe tongji nianjian 2008 中国城市建设统计年鉴 2008 [China Urban Construction Statistical Yearbook, 2008]

built-up areas (unit: square kilometers)

1800

1999

2008

1600 1400 1200 1000 800 600 400 200 0

Fig. 2 Comparison of the built-up areas of major cities in China, 1999 and 2008 (unit: square kilometers) (Source Ministry of Housing and Urban-Rural Development, China Urban Construction Statistical Yearbook)

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In the land urbanization process, land expropriation is the main method, and the forced low price of expropriated land the main incentive. As urbanization progresses, urban maps continue to extend into the countryside, and the collective land of the farmers is expropriated by the government as state-owned. From 2005 to 2010, China’s newlyadded residential, industrial, and mining construction land totaled 21,627 km2 , and during the same period, the land expropriated for residential, industrial, and mining construction use totaled 14,551 km2 , i.e., expropriated land accounted for 67.3% of that newly-added land area used for residential, industrial, and mining purposes. Meanwhile, the government uses expropriated land for financing by assigning it and by collateralizing it, in order to raise funds for urban infrastructure construction and provide leverage for rapid urbanization. As the pace of urbanization accelerates, there is a huge demand for infrastructure. Since 2000, local governments in China have relied on land assignment revenue, land reserve centers, and various financing platforms to obtain large amounts of bank loans with land as collateral, in order to ensure funding for land development and infrastructure building. Funding for urban infrastructure building mainly comes from three sources—government investment, loans, and self-raised funds. In 2008, government investment accounted for 32.2% of urban infrastructure funds, bank loans 29.6%, and self-raised funds from business enterprises 28.7%. Each of these three funding sources are highly dependent on land. Now, while the proportion of China’s urban infrastructure investment from the central government’s financial allocation dropped from 26% in the early 1980s to 1.1% by 2008, local governments became the mainstay of government investment. After the tax reform of 1994, which further divided the central and local governments’ tax systems (to reflect the shift toward a more market economy), the local governments had already established a pattern of “relying on financing for revenue, and depending on land for construction.” In other words, they have become basically dependent on revenue from their land operations to fund all their infrastructure building. As for bank loans and self-raised funding, this comes mainly from local city investment or financing platform companies, but the ultimate source for repayment, again, is mostly tied up with the land. The bank loans are pledged mostly by the land use rights and land revenue rights; they are repaid by future income derived from the land. The Ministry of Housing and Urban–Rural Development estimates that in 2009, the land assignment fees used for investment in urban

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infrastructure building was around 334.1 billion yuan, which accounted for 48% of the total funding for such investment that year (the other sources included direct investment by government and subsidies for such investment under the names of business enterprises). Since the total land assignment fees collected in 2009 was calculated to be 1.59 trillion yuan, this means that 21% of the land transfer fees were used for urban infrastructure building. Let us consider the example of urban investment in Chongqing. From 2002 to 2008, the total financing scale was 85 billion yuan, 40% of which came from bank loans, and of this, 63% came from land use rights and income rights allocated by the government as a pledge. In addition, revenue from land consolidation contributed 13% of the total financing.

3 The Economic and Social Consequences of Land Expropriation 3.1

Endangerment of National Food Security Due to Large-Scale Occupation and Use of High-quality Cultivated Land

Due to the low cost of land expropriation, local governments are engaged in the construction of development zones, cities, and large-scale key projects, and because they usually choose to build on land where development costs are low, large amounts of high-quality cultivated land are expropriated. It has been calculated that from 1996 to 2008, the area of cultivated area occupied by construction totaled 2.7 million hectares, which resulted in a sharp decline in the area of cultivated land. During the same period, the net reduction in cultivated land area was 8.32 million hectares, a decrease of 6.40%. The amount of arable land per capita decreased from 0.106 hectares in 1996 to 0.092 hectares in 2008. Moreover, the cultivated land that was occupied was mainly high-quality. Figure 3 shows the comparison of per capita cultivated land in each province and municipality. The rise of industrialization and urbanization along China’s coast also came at the expense of the high-quality farmland in these areas. The increased quantity of cultivated land occupied by construction in the eastern and southeastern parts of China after 2000 caused a sharp decrease in the quality of cultivated land, and the center of gravity of cultivated land shifted northeast. Economically developed areas, such as the Jiangsu-Zhejiang-Shanghai area and the Beijing-Tianjin-Hebei area,

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0.35

Unit: Hectare

0.3 0.25 0.2 0.15 0.1 0.05 Heilongjiang Inner Mongolia Jilin Gansu Yunnan Guizhou Tibet Shanxi Shaanxi Qinghai Liaoning Anhui Hebei Guangxi Hainan Henan Hubei Shandong Chongqing Sichuan Jiangxi Jiangsu Hunan Tianjin Zhejiang Fujian Guangdong Beijing Shanghai

0

Fig. 3 Per capita cultivated land in each province and municipality (Source Ministry of Housing and Urban-Rural Development, China Urban Construction Statistical Yearbook)

stand out especially for the quantity of cultivated land now covered by construction. These areas rank first in the nation in terms of total amount of newly-added construction land and reduction of construction land. These areas were traditionally China’s main food-producing areas, but the occupation of such large quantities of their cultivated land has led to a nationwide change in the food supply-and-demand map. The main food-producing areas moved from the southeast to the north and central western regions, and accordingly, food production shifted from regions with abundant natural rainfall and a warm climate to regions with dry, cold climates. Currently, only six of the 13 major food-producing provinces and autonomous regions in the country are net food exporters. In 2007, China’s 13 major food-producing areas accounted for 75% of the country’s total food output. These include Hebei, Inner Mongolia, Liaoning, Jilin, Heilongjiang, Shandong, and Henan, seven of which are in the north. Their share of the total national food production was 36.2% in 1991, but by 2007 it had increased to 43.5%. Meanwhile, total food production in the south declined. The six main food-producing regions

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in the south—Jiangsu, Anhui, Jiangxi, Hubei, Hunan, and Sichuan— saw their share of total national food production fall from 36% in 1991 to 31.6% in 2007. In the seven main consumption areas—Beijing, Tianjin, Shanghai, Zhejiang, Fujian, Guangdong, and Hainan—the food production-demand gap has expanded each year. Their share of total national food production fell from 12.2% in 1991 to 6.3% in 2007, so that the production-demand gap in these regions increased from 48.5 billion kg to approximately 55 billion kg in 2007. We should be even more vigilant of the fact that, with the accelerating industrialization of the central and western regions, land use and expropriation are still replicating the development pattern of the eastern region—and the pace of land expropriation is accelerating. The threat to China’s national food security cannot be underestimated. 3.2

Reduced Governmental Credibility Due to Overstepping Its Role

The conversion of land from agriculture is completed mainly by the government, but in the land expropriation process, it is the local government that plays the role of decision-maker, fixer, organizer, implementer, and arbiter. Since building cities and development zones depends primarily on land assignment and land mortgage financing, a local government also has an incentive to more land expropriation, more land tenure, and more land assignment. This has resulted in a large number of occurrences of illegal land use by local governments. As urbanization progresses, the value of land becomes more and more obvious. The value-added income from land climbs rapidly, so the competition of land interests steadily intensifies. Hence land-related disputes have become an important reason why people lodge appeals to the government. At present, the scope of distribution of land interests in China has expanded and deepened somewhat, so the problems have become more and more prominent, but the most important one has been the conflict of interests between land-expropriated farmers and local governments. In the current distribution of land benefits, the land-expropriated farmers do receive land compensation and resettlement subsidy, and in recent years the state has also established a social security system for land-expropriated farmers. However, in general, the landexpropriated farmers have not had a share in the results of urbanization. Furthermore, violations of the land expropriation procedure, deductions from land acquisition payments, and too-low compensation standards for

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land expropriated for state key projects have caused dissatisfaction among farmers in some places, and this makes land expropriation a prominent problem affecting China’s social stability. According to statistics of the National Public Complaints and Proposals Administration, 60% of the collective appeals they receive are related to land. Land disputes have become the number one focus of farmers’ appeals since tax reform and account for 40% of all appeals received, and of these, 84.7% relate to disputes over compensation for land expropriation. 3.3

Debt Risk for Local Governments and Financial Risk for the Central Bank

The land expropriation-for-development model has ensured the rapid growth of China’s economy, but it has also led to the Chinese economy’s excessive dependence on land, resulting in local government debt risks and bank financial risks from land assignment and the use of land financing. Since 1997, local government debt in China has increased year by year. In 1998 and 2009, their debt balance had increased, respectively, by 48.20% and 61.92% over each of the previous years. In 2010, the debt balance increased by 18.86% over the previous year (see Fig. 4). There are 78 municipal and 99 county-level governments that have debtrepayment obligation ratios above 100%; these governments account for 19.9% and 3.56% of their respective tiers of government. The debt balance announced by the National Audit Office for 2010 amounted to 10.7 trillion yuan, accounting for 26.9% of GDP for that year. If we add to that public sector debt shown by nominal indicators (about 20% of GDP) and financial bonds issued by policy financial institutions (about 6% of GDP), China’s overall public sector debt ratio should be between 50 and 55%. The local debt situation in some areas is even less optimistic, and problems of imbalance and unsustainability are quite prominent. At the end of 2010, the debt balances of the 11 provinces (municipalities) and five municipalities with independent planning status ( jihua danlie shi 计划单 列市) in the eastern region amounted to 5.32 trillion yuan, accounting for 49.65% of the total; the debt balances of the eight provincial governments in the central region amounted to 2.47 trillion yuan, accounting for 23.06%; and the debt balances of the 12 provinces (autonomous regions, municipalities) in the western region amounted to 2.93 trillion yuan, accounting for 27.29%. At the end of 2010, the municipalities with independent planning status in the east and the central region and

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70

353

61.92

Growth rate (unit: %)

60 48.20

50 40 30

33.32 24.82 20.52

23.48 18.86

20 10 0 1997

1998

2002

2007

2008

2009

2010

Fig. 4 Growth rate of local government debt balance (Source National Audit Office, Quanguo defang zhengfuxing zhaiwu shenji jieguo《全国地方政府性债务 审计结果》[Results of National Audit of Local]

western region had debt ratios of 19.2%, 24.2%, and 36.4% respectively. What should draw our attention, however, is that collateralized land has become the most important source of revenue for governments to repay their debts, and that the repayment of local debts depends more heavily on revenue from land assignment. An investigation by the National Audit Office showed that at the end of 2010, except for 54 countylevel governments, all provincial- and municipal-level governments and the vast majority of county-level governments had government liabilities, and that the amount of land assignment revenue they had promised for the repayment of debts amounted to 2.55 trillion yuan; that accounts for 37.96% of the amount of debt they are obligated to pay off. If one day the revenue from land assignment in various places were to decline, the local governments would quickly become insolvent. To build infrastructure, local governments have set up all kinds of financing platforms and make use of the state-owned land in their hands as collateral for huge bank loans. By now, these local financing platforms

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have formed a cycle: collateralize land → obtain loans → acquire more land → collateralize land. According to the National Audit Office’s findings, as of the end of 2010, the debt balance of these financing platform companies amounted to 4.97 trillion yuan, accounting for 46.38% of total local government debt balance. Of the debt balance already spent by the local governments of various levels, 1.02 trillion yuan, or 10.62%, was used for land acquisition and reservation. If we examine the sources of local government debt, we find that banks are the largest providers of funds. As of the end of 2010, banks had loaned local governments 8.47 trillion yuan, accounting for 79.01% of local government debt funding. Of this amount, the debt which the governments bear the responsibility to repay amounted to 5.02 trillion yuan, accounting for 74.84% of the total. The proportion of local financing platform loans as a share of total bank loans is unevenly distributed among different types of institutions (see Fig. 5). At the end of 2009, loans to local government financing platforms by major listed banks accounted for about 10% of the total loans, the proportions of loans from China Development Bank (CDB) and local financial institutions were higher. Among the latter, loans from CDB to the financing platforms (with capital construction loans as the statistical standard) accounted for as much as 69%. The local financing platforms repay a relatively high proportion of their debts via the method of “taking out new loans to pay off the old.” At the end of 2010, 358 financing platform companies used precisely that method to repay government debts and other related debts of 105.97 billion yuan, so that 55.20% of the repayments, on average, were made this way. Included here are 387 colleges and universities and 230 hospitals, where more than 50% of the repayment on debt for which the government bears responsibility, and on other related debts, was made by “taking out new loans to pay off the old.” In 2011, the China Banking Regulatory Commission (CBRC) explicitly prohibited this method, which made the short-term debt repayment risk of the financing platforms even more conspicuous. The overdue debt ratio of local financing platforms will further increase. At the end of 2010, 148 financing platform companies, or 2.3% of the total, had overdue debts of 8.00 billion yuan, and the overdue debt ratio averaged 16.26% (see Fig. 6). If we consider that in the next few years the local governments’ revenue from land assignment and mortgage prices is expected to decline, we can see that this “taking out new

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80 70

unit: %

60 50 40 30 20 10 0 CDB

Urban commercial banks

Corporate banks

State-owned commercial banks

Fig. 5 Balance of loans from various financial institutions to financing platforms as a percentage of total loans. Note Statistical standard for loans from CDB (Source Bank annual financial reports)

loans to pay off the old” method is inherently unsustainable. Hence in the next few years the overdue debt ratio is expected to increase. The local financing platforms have rather long debt cycles and relatively weak profitability. If we examine the yearly debt repayments, we see that, with regard to the debt balances of local government at the end of 2010, 24.49% and 17.17% of the debt was repaid in 2011 and 2012 respectively, and in 2013, 2014, and 2015, 11.37%, 9.28%, and 7.48% respectively; repayments in 2016 and after accounted for 30.21%. Since the funds borrowed by the financing platform companies are invested mainly in public interest or quasi-public interest projects with long payback periods and relatively poor ability to have sustained cash flow, in 2010, for example, 26.37% of the total 1,734 financing platform companies suffered losses.

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60 50

unit: %

40 30 20 10 0 Rate of "taking out new loans to pay off the old"

Overdue debts

Loss ratio

Proportion of debt repaid in the fifth year or afterward

Fig. 6 Bank risks on loans to local financing platforms at the end of 2010 (Source National Audit Office, Quanguo difang zhengfuxing zhaiwu shenji jieguo 《全国地方政府性债务审计结果》 [Results of the Audit of Local]

3.4

Unfair Distribution of Land Value-Added Income

Local governments have become the main recipients of land value-added income because they can legally force the expropriation of farmers’ land at a low price and then have the exclusive right to assign use of that land. From 1999 to 2009, the ratio of the transaction value of revenue from their land assignment to total revenue rose from 0.092:1 to 0.437:1, and the ratio of the transaction value of revenue from their land assignment of state-owned land to their extra-budgetary revenue rose from 0.163:1 to 1.942:1 (see Table 7). The role of land assignment income in local development is becoming more and more significant. Since the 2008 financial crisis, local governments’ dependence on land financing has not decreased at all. It has intensified instead. City governments in particular have grown even more dependent on land financing. Because of the dual land ownership systems—state ownership of urban land and collective ownership of rural land—and the fact that any unit

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Table 7 Ratio of transaction value of revenue from assignment of state-owned land to local fiscal revenue and extra-budgetary revenue, 1999–2009 (billions of yuan) Year

Transaction value

Local government fiscal revenue

Local government extra-budgetary revenue

Ratio of land assignment revenue to local government fiscal revenue

Ratio of land assignment revenue to local government extra-budgetary revenue

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

51.43 59.56 129.59 241.68 542.13 641.22 588.38 807.76 1221.67 994.39 1423.97

559.487 640.606 780.33 851.5 984.998 1189.337 1510.076 1830.358 2357.262 2770.342 3258.074

315.472 357.879 395.3 403.9 418.743 434.849 514.158 594.077 628.995

0.092 0.093 0.166 0.284 0.55 0.539 0.39 0.441 0.518 0.359 0.437

0.163 0.166 0.328 0.598 1.295 1.475 1.144 1.360 1.942

Source Zhongguo guotu ziyuan tongji nianjian 中国国土资源统计年鉴 [China land and resources statistical yearbook] (successive years)

needing land must use state-owned land, most of the land value-added revenue goes to city governments, and most of the land assignment revenue is used by the cities, too. This results in an urban–rural imbalance in the use of land assignment revenue. At present, the part used by the cities is used mostly for urban construction, the State Land Revenue Fund (国有土地收益基金), and affordable housing projects. From 2008 to 2010, an average of 58.76% of land assignment revenue went to urban construction (66.27%, 48.64%, and 61.65% for the three years respectively), an average of 7.43% of the revenue went to the State Land Revenue Fund (6.77%, 6.41%, and 8.25% respectively), and an average of 3.37% of the revenue went to affordable housing projects (3.19%, 2.72%, and 3.80% respectively). Total expenditures for these three items for the three years—76.23%, 57.78%, and 73.70%—were an average of 69.56% of the land assignment revenue. Meanwhile, the percentage of land assignment revenue that goes to rural villages and agriculture is still low. Most of it goes to the Agricultural

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Land Development Fund (农业土地开发资金) and the Rural Infrastructure Building Fund (农村基础设施建设资金). From 2008 to 2010, an average of 1.94% of the revenue from land assignment went to the Agricultural Land Development Fund (2.76%, 2.08%, and 1.55% for the three years respectively), and an average of 7.58% of the revenue went to the Rural Infrastructure Building Fund (7.41%, 6.31%, and 8.36% respectively). Total expenditures in rural areas for these two items for the three years—10.18%, 8.39%, and 9.91%—were an average of 9.52% of the land assignment revenue. Following the implementation of policies to increase the support of land assignment revenue to agricultural and rural areas, accrue education funds, farmland water conservancy construction funds, and so on, the structure of land assignment revenue and its expenditure will change accordingly, and the proportion of land assignment revenue spent on urban construction is expected to gradually decrease. However, the share of land assignment revenue that gets allotted to farmers is unreasonable. From 2008 to 2012, even though the standard rates of compensation for land expropriation in various places have increased by 30% or more, their share of the land assignment revenue has not—in fact, it has decreased substantially. According to statistics on compensation for land expropriation and land assignment revenue for Liaoning, Zhejiang, and Henan provinces, in 2007, compensation fees for land expropriation in the three provinces accounted for 16.82%, 8.62%, and 19.58% of their land assignment revenue, but in 2010, those percentages had dropped to 10.37%, 2.91%, and 12.99%, or by more than one-third.

4 Land Expropriation System Reform: Exploration and Progress As they considered problems in the land expropriation system, the central and local governments began to experiment and explore reform of the land expropriation system from the mid-to-late 1990s. Understanding of the problems of the land expropriation system has been continuously deepened, and the demand for reforming the land expropriation system has become more and more urgent. Experiments have also led to some progress, and the ideas for reform are becoming clearer and clearer. However, the debates around how to reform the land expropriation system have never subsided.

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Many Compensation and Resettlement Models Began in Economically Developed Areas

In the 1990s, as industrialization and urbanization of developed regions advanced rapidly, the amount of land use increased accordingly, and the financial resources of local governments also increased. Farmers’ demands with regard to land expropriation were getting higher and higher, so it was already difficult to meet the requirements of compensation to farmers based on the standards stipulated in the Law of the People’s Republic of China on Land Administration. In line with their needs of economic development, the developed regions initiated their own exploration attempts. For example, Nanjing carried out a reform to monetize compensation and resettlement in land expropriation; Guangdong implemented a reform in which a proportion of the construction-use land was returned to the village for resettlement (liudi anzhi 留地安置). Zhejiang adopted a method in which development land was left for farmers after expropriation, and a social security system for land-expropriated farmers was also established. Shanghai tried not changing the land ownership when an expressway was built: the farmers instead used the land to buy shares, and after the expressway was built, they were paid dividends. Beginning in 1999, the Ministry of Land and Resources arranged for two batches of 19 cities across the country to carry out pilot projects in different areas, such as compensation and resettlement after expropriation, land expropriation procedure, and so on, trying to explore the road toward land expropriation system reform. This stage of reform was characterized by a combination of bottom-up exploration and top-down reform. When good results were obtained by practical innovations by local governments, the Ministry of Land and Resources would follow up and summarize the practices in a timely manner, strive to convert these local experiences into policy documents, and then promote reform from top to bottom. 4.2

Explorations on Improved Compensation Standards

Disputes over the route of the reform of the land expropriation system have existed since the beginning of the reform. Radical reformists believed that the current land expropriation system has seriously violated farmers’ rights and interests. For them, the fundamental way to solve the problem was to completely reform the land expropriation system, endow farmers

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with complete land property rights, and completely change the practice of the government monopolizing the primary market. Moderate reformists, meanwhile, recognized the rationality of the current system and believed that its main problem was the low compensation to farmers; for them, the reform should focus on improving the compensation standard in the future. This debate continued until 2004, when the State Council issued Document No. 28, “State Council Decision on Deepening Reform of and Tightening up Land Management,” which advocated raising compensation standards and establishing a social security system. A main demand concerning land expropriation system reform in this State Council document was that the people’s governments of the provinces, autonomous regions, and municipalities directly under the central government were to formulate and announce their uniform annual output value standards or comprehensive land prices of the areas for land expropriation in each city and county, and that the compensation for land expropriation had to be the same for the same land. At the same time, it established a social security system for land-expropriated farmers. From then on, the main task of the reform was to formulate the comprehensive land prices and uniform annual value standards of the expropriated areas, and to implement them comprehensively. In July 2005, the Ministry of Land and Resources issued the “Notice on Starting Work on Formulating Expropriation Uniform Annual Output Standard and Comprehensive Land Section Price in Expropriation” (Guotuzi fa [2005] No. 144), and issued guiding opinions in the form of attachments. It required that in land expropriation, the farmers had to be compensated according to the uniform annual output value standard of land expropriation and the comprehensive land price of the land expropriation area. Factors such as the location, market (land supply and demand), social and economic development level, minimum living security level of urban residents, and other factors had to be taken into consideration, and the compensation standards for land expropriation were generally increased by 20–30%. One can say that unifying the standards for the annual output value and the comprehensive land price of expropriated areas was the core and the focus of land expropriation system reform at this stage. A characteristic of this stage was that the state strongly promoted a uniform compensation standard, while local innovations and explorations in other areas were not emphasized enough. The method of unifying the standard for annual output value and breaking through

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the limit on compensation multiples for the comprehensive land price of expropriated areas has generally been implemented nationwide by 2010. Document No. 28 also established a social security system for landexpropriated farmers, which pushed the reform of the land expropriation system one step further, but still without touching on substantive reform of that system. Starting in 2001, the government initiated the pilot work on the land expropriation system reform, with the pilot projects carried out by various regions. Beginning in 2000, Heilongjiang Province implemented the uniform annual output value standards for major land expropriations in its cities and counties. At the same time, Hangzhou City in Zhejiang Province and Nanjing and Suzhou Cities in Jiangsu Province stopped using multiples of annual output value to calculate compensation; instead they comprehensively took into consideration factors such as land use, land location and conditions, local economic development level, and the local land supply and demand relationship, combined with the social security level of local urban residents, in order to determine the compensation standard for land expropriation. On the basis of these pilot projects, the Ministry of Land and Resources issued the “Notice on Starting Work on Formulating Expropriation Uniform Annual Output Standard and Comprehensive Land Section Price in Expropriation” (Guotuzi fa [2005] No. 144). The so-called uniform annual output value standard for land expropriation within a certain area (usually the administrative areas of cities and counties) thus meant the comprehensive income value as calculated mainly on the average output and price of the main agricultural products for the previous three years, taking into general consideration factors such as the type of agricultural land being expropriated, the quality, the grade, the farmers’ investment into the land, and the prices of its agricultural products. Compensation for land expropriation is calculated on the basis of uniform annual output value standards, according to land location, the existing living standards of local farmers, socio-economic development level, original land expropriation compensation standards, and other factors go into the calculation determining the corresponding land compensation and resettlement subsidy multiples. The so-called “comprehensive land price of expropriated areas” refers to the comprehensive compensation standard for land acquisition within the scope of construction land determined by the overall land use planning of urban administrative regions; this is divided into areas and

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calculated according to factors such as land type, output value, land location, agricultural land grade, per capita cultivated land, land supply and demand, local economic development level, and minimum living standard of urban residents (in principle, it does not include compensation fees for ground attachments and young crops). The scope of comprehensive land price calculation for expropriated areas focuses on the scale of the construction land in cities and market towns as determined in the overall land use plan, but it can be extended to the suburbs of cities or to even larger areas according to land expropriation needs and actual conditions. It can be seen that even though the comprehensive land price of the expropriated area takes into account the land development rights of the land-expropriated farmers, the scope of implementing this standard is limited to cities and market towns, and a large number of land expropriations outside of this range are still carried out according to the standard of output value (i.e., of the land’s original use). So far, China’s land expropriation is still limited to the principle of original use compensation. 4.3

Formation of a Reform Plan Aimed at Reducing the Scope of Land Expropriation

Since the beginning of this century, relevant documents and leadership speeches of the Party Central Committee and the State Council have repeatedly emphasized the need to promote the reform of the land expropriation system. In 2003, the Third Plenary Session of the 16th CPC Central Committee proposed: In accordance with the principle of protecting the rights and interests of farmers and controlling the scale of land expropriation, reform the land expropriation system and improve land expropriation procedures. Strictly define public welfare and commercial construction land; when land is expropriated, it must be in compliance with overall land use planning and use controls, and farmers are to be given reasonable compensation in a timely manner.

The Fifth Plenary Session of the 16th Central Committee of the CPC proposed: “Speed up the reform of the land expropriation system, and improve the reasonable compensation mechanism for farmers whose land has been expropriated.” The “Decision of the Central Committee of the CPC on Several Major Issues Concerning Building a Harmonious

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Socialist Society,” passed by the Sixteenth Plenary Session of the Party, also stated: “Strictly control the scale of land expropriation, speed up the reform of the land expropriation system, increase compensation standards, explore effective ways to ensure farmers’ real interests and long-term stable income, and solve the employment and social security issues of land-expropriated farmers.” In 2005, Central Document No. 1, entitled “Several Opinions of the Central Committee of the CPC and the State Council on Promoting the Construction of a New Socialist Countryside,” said: “Promote reform of the land acquisition and household registration systems, gradually form a unified factor market between urban and rural areas, and enhance the vitality of rural economic development.” In 2006, Central Document No. 1 clearly stated: “Speed up the pace of reform of the land expropriation system, and further explore reform experience in accordance with the requirements of reducing the scope of land expropriation, improving compensation methods, expanding resettlement channels, and standardizing land acquisition procedures.” In 2008, Central Document No. 1 proposed: “Continue to carry out the pilot reform of the land expropriation system, standardize the land expropriation procedure, improve the compensation standard, improve the social security mechanism for farmers whose land has been expropriated, and establish a land expropriation dispute mediation and adjudication system.” When the Third Plenary Session of the 17th CPC Central Committee was held in October 2008, it made major arrangements for the future reform of the land system and proposed: “Outside the scope of urban construction land determined by the land use plan, the approved use of rural collective land for non-public welfare projects allows farmers to participate in development and management through various methods in accordance with the law and protects their legitimate rights and interests.” From then on, reduction of the scope of land expropriation was formally proposed, and the arrangement of pilot projects was begun. In 2010, the Ministry of Land and Resources launched a new round of land expropriation system reforms, and it identified 11 cities in the national comprehensive reform pilot area to carry out pilot land expropriation system reforms. The main content of the pilots included three areas: first, distinguishing between public welfare and non-public welfare land, and reducing the scope of land expropriation; second, improving the land expropriation compensation and resettlement mechanisms; and third, improving the methods for reviewing and approving agricultural land conversion and expropriation. In Tianjin, Chongqing, Shenyang,

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Wuhan, Changsha, and Chengdu, pilot projects were conducted on reducing the scope of land acquisition, exploring ways to reasonably define the scope of land expropriation and non-public land expropriation, and safeguarding farmers’ land property rights and development rights. Among them, Tianjin, Chongqing, and Chengdu simultaneously carried out pilot reforms of the review and approval system, “separating expropriation and conversion” (zhengzhuan fenli 征转分离) in the process of converting agricultural land to construction land. Tangshan, Hangzhou, Foshan, Nanning, and Xi’an carried out pilot projects on land expropriation, demolition and removal compensation, and housing demolition and removal compensation. The Ministry of Land and Resources’ “Guiding Opinions on Carrying out the Pilot Work of Land Expropriation System Reform” defined nonpublic use land. This mainly includes land for tourism and entertainment, commercial services, industrial storage, and other types that obtain legal approval for construction. It determined that the area for land expropriation would be reduced. Within the scope of urban construction land as determined by the overall land use plan, except where the law has stipulated that farmers’ collective land may be used, in principle, construction land involving rural collective land was to be expropriated. Outside the scope of urban construction land determined by the overall land use plan, non-public welfare land is excluded from the scope of land expropriation, and rural collective land has to be acquired in other approved ways. The reform at this stage began to impinge upon the scope of land expropriation as the essence of the land expropriation system, but unfortunately, due to the short time and the small scope of the pilot, no results were achieved. 4.4

A Brief Comment on the Exploration of Land Expropriation System Reform

After more than ten years of exploration in the reform of the land expropriation system, the legal awareness of local governments and farmers has improved, the compensation standards for land expropriation have been improved, and there are more choices in resettlement channels. A social security system for land-expropriated farmers has been established, and land expropriation procedures are becoming more regular. For land expropriation to take place, various procedures need to be completed, such as the public announcement, confirmation, a hearing, and so on, and

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the social security for the land-expropriated farmers must be implemented before the land expropriation takes effect. The governmental power is thus being increasingly restricted, and farmers’ land and property rights are being gradually expanded. However, there are still deficiencies in the land expropriation system. First, the compensation standard for land acquisition has always been based on compensation based on the land’s original use. If we look broadly at the changes over the past few decades, it should be said that the compensation standard for land expropriation has been increasing year by year, but the basic idea of compensation remains based on what the original use of the expropriated land was, i.e., it is a multiple of the land’s output value under agricultural use, and this has not changed. The fatal flaw of this thinking is that it makes it impossible for the farmers to share the value-added income from the land fairly. They can only get compensation based on the agricultural use of the land, and they cannot obtain the value-added income generated by the use of the land for industrialization and urbanization. China has entered the stage of development in which industry nurtures agriculture and cities support the countryside, so this primitive accumulation model should be ended as soon as possible. In a market economy, an adjustment mechanism should be formed for ensuring that the price of compensation for land expropriation is in keeping with the times. Second, government pricing is still adopted for the compensation for land expropriation. Whether the compensation is based on multiples of the annual output value, or based on a unified annual output value standard or the comprehensive land price of the expropriated area as stipulated in State Council Document No. 28 (2004), it is essentially government pricing. Moreover, there are no clear compensation regulations for house sites and farmers’ houses. Third, there are a few problems in the implementation process of comprehensive land pricing and the uniform annual output value standards for expropriated areas. First, considering that land price negotiation has been generally adopted in various places, it would still be impossible to achieve good results by promulgating the comprehensive land pricing and uniform annual output value standards for provincial-level areas. During the land expropriation process, the actual compensation price far exceeds the results calculated based on multiples of the uniform annual output value, and it exceeds the multiple stipulated in the Law on Land Administration. In economically developed areas especially, what

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is reported in the land expropriation approval file is often not the actual compensation for land expropriation. This is especially true in developed regions. Second, the original intention for promulgating comprehensive land prices and uniform annual output value standards for expropriated areas was mainly to solve the “same price for the same land” problem. However, solving the “same price for the same land” problem simultaneously also brings the “same price for different land” problem. Since the uniform annual output value divides a county into several regions, parcels of land in the same region, whether it is arable land, vegetable land, paddy land, or dry land, are not distinguished. Compensation according to the uniform multiple of output value has brought about the “same price for different land” problem, which has aroused dissatisfaction among farmers. Third, having to adjust the comprehensive land price and uniform annual output value standard for expropriated areas every two or three years, according to the regulations, has brought great trouble for local governments. It is generally agreed in all regions that land expropriation standards should be gradually raised, but it is also thought that the adjustment period for compensation standards causes a lot of problems for local land expropriation. Farmers whose land was expropriated to the original compensation standards will often demand additional compensation according to the new standards. In areas where land expropriation is about to begin, farmers will have expectations for the new improved compensation standards, and this affects the normal progress of land expropriation. Fourth, the pilot projects on the scope of land acquisition have not proved effective. The new round of pilot projects on the land expropriation system have been going on for a period of time, and the cities that have obtained approval to carrying out the pilots on reducing the scope of land expropriation basically have not attempted to do so—but they are generally quite enthusiastic about having been approved to “separate expropriation and conversion” in the conversion of agricultural land into construction land. Exploring reform of the land expropriation system with the main purpose of reducing the scope of land expropriation has not gained support and recognition from the pilot cities. Basically, city governments and land administration departments have been inactive in reducing the scope of land expropriation, but they generally welcome the accessory product of the reform of the land expropriation system, i.e., the “separation of expropriation and conversion,” which served to

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simplify the process of approving the conversion of agricultural land to construction land. We can summarize the reasons as follows: First, there is no clear definition of what the public interest is. This is a discussion on the scope of the government’s right to expropriate land caused by China’s laws and regulations on land expropriation. First of all, judging from the practices of the various pilot cities, no single city has been able to give a general definition for “the public interest” or a list of public interests based on its own reality. Secondly, even if they could in theory define the public interest accurately and rigorously, do they have the power to define it legally? Second, whenever the discussion touches on the scope of land expropriation, there is usually more qualitative analysis and less quantitative analysis, more reasoning and demonstration and less empirical analysis, more listing of phenomena and less thorough research. Although this kind of broad-line result grasps the direction, the results are not very pertinent and operable. When evaluating the reduction of the scope of land expropriation, there is no accurate estimate of the extent to which it can be reduced. Third, Article 23 of the Regulations on the Implementation of the Land Administration Law states: If land needs to be used for a specific construction project, application must be made for the use of state-owned construction land within the scope of urban construction land as determined in the overall land use plan according to the law. Construction projects for energy, transportation, water conservancy, mining, and military facilities, for which land outside the scope of urban construction land as determined by the overall land use plan is indeed required, shall be handled in accordance with the following provisions. . .

The implicit meaning of the policy is that only construction projects for energy, transportation, water conservancy, mining, and military facilities can use land outside the scope of urban construction land as determined by the overall land use plan; construction for all other purposes must use state-owned construction land within the scope of urban construction land. In accordance with this legal provision, the Third Plenary Session of the 17th Central Committee of the CPC proposed: “Outside the scope of urban construction land as determined by the land use plan, where

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rural collective land has been approved for the use of non-public welfare construction projects, farmers are allowed in accordance with the law to participate in development and management through various methods and to protect their legitimate rights and interests.” Fourth, if expropriation is not carried out on non-agricultural land, then collective construction land has to be used. However, relevant laws and policies on this matter have not yet been issued at the national level, and there is no relevant legal policy support for the use of collective land for construction.

5

The Basic Thinking on Reforming the Land Expropriation System

Since the 16th National Congress of the CPC, the Party has put forward the governing philosophy of “governing for the people,” and “power for the people, affection for the people, benefits for the people,” as well as the concept of Scientific Outlook on Development. Since China is still in the period of rapid industrialization and urbanization, the nonagriculturalization of rural land will still be at its peak for a period of time, and the social conflicts caused by interests in land will also enter a period of intensification. We are faced with the reality of frequent land expropriation conflicts, but if we follow the current land expropriation-driven development model, disregard farmers’ rights and interests in land, fail to solve effectively the issue of farmers’ long-term livelihoods, and unilaterally equate land expropriation with development, it will inevitably lead to resistance from the farmers, cause confrontation between the government and farmers, destroy the image of the Party and the government among farmers, and damage the credibility of the Party and the government. Because of this, it is necessary to follow the guidance of Scientific Outlook on Development, fundamentally reform the land expropriation system, change the model of land-based development, and ensure sustainable economic and social development. 5.1

Implementing the Constitution’s Principle of Expropriating Land for the Public Interest

China’s economic development in the past few decades has benefited from its reliance on land expropriation to ensure a supply of land. In the planned economy period, all economic construction was for the

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public benefit, and therefore, as long as the construction was done, the land expropriation method was accepted by people, both in terms of the theoretical logic and the rationality. However, since the implementation of the socialist market economy with Chinese characteristics, China has not only failed to approach the practices of countries and regions with mature market economies in terms of land acquisition and supply, but has instead strengthened the expropriation of land for economic development. The Law on Land Administration stipulates that any unit engaged in construction must use state-owned land, and state-owned land is obtained primarily by expropriating land owned by farmers’ collectives. In this way, as industrialization and urbanization advanced, farmers’ collective land could only legally enter the non-agricultural construction pipelines by being expropriated and becoming state-owned land. On the one hand, it means that the right to participate in industrialization and urbanization and the right to share the value-added benefits from the process of de-agriculturalization no longer appertain to farmers’ collective land. On the other hand, it means that the government monopolizes the primary market for land, resulting in a dislocation of government functions and a distortion of the land market. Therefore, to move toward a more complete socialist market economy and ensure that China basically realizes industrialization and urbanization, it is necessary to change fundamentally the pattern of depending on land expropriation to guarantee the supply of all non-agricultural construction land under the current system. Specific recommendations are as follows: First, clearly define the scope of land expropriation that is for the public interest. As we have mentioned above, China’s earlier Constitutions and their amendments have clarified the principle of land expropriation for the public interest. However, thus far, not only have there been no regulations on the scope of land expropriation, but the use of land expropriation has become more and more extensive. This is inconsistent with the basic direction of building a country with a modern socialist market economy. At present and in the future, we must draw lessons from the experience of countries and regions with mature market economies, combine them with China’s current stage of economic development, and clearly limit the scope of government land expropriation. Considering that the meaning of “for public interest purposes” is rather controversial, and that a consensus view on it would be difficult to reach, it may be

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possible first, as a transitional plan, to formulate a catalog of purposes not for the public interest, so that land would never be expropriated for profit-making purposes. Second, reform the setup in which all non-agricultural construction relies on the land expropriation to ensure land supply. Ensure that land to be used for non-agricultural construction, except for land to be used for public interest purposes, can be obtained only through market transactions, whether the demand is for land inside or outside urban built-up areas. Third, narrow the scope of land allocation. Further expand the reform of state-owned land market allocation, gradually reduce the scope of allocated land, continuously expand the coverage of paid use, and finally abolish the dual-track system of land supply. Of the land used for basic infrastructure, municipal facilities, and various kinds of social undertakings that are competitive, generate operating income, and have mature conditions for reform, implement compensated use first for commercial-use land. In the near future, except for land to be used for the military and affordable housing, and special land related to national security and social public order, which can continue to be allocated for use, all other types of construction land should be allocated by the market.

5.2

Changing the Divide in Urban–Rural Governance and Realizing Equal Rights in the Dual Land Ownership Systems

The most unique feature of China’s land system, in comparison with countries and regions with modern market economies, is its separate governance of urban and rural areas. Even though China, like those other countries and regions, has also established a land use control system and a planning control system, it has also added an ownership control system. That is to say, even if it is in compliance with use controls, farmers’ collective land can only legally enter the non-agricultural land market if it is first transferred to the state through expropriation. Precisely because of this ownership control, city governments can redraw farmers’ collective land as urban state-owned land through adjustments to planning, and then restrict farmers’ use right, income right, and transfer right on that collectively owned land through planning controls. Therefore, the divided

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governance between urban and rural areas has resulted in inequality in the rights appertaining to rural collective land and state-owned land, which has formed the trend toward the nationalization of land in the industrialization and urbanization processes. If this divide in urban–rural governance does not change, farmers’ land rights and interests will not be guaranteed in the urbanization process, the urban–rural inequality in land conversion will not be changed, and the instability of society in the process of structural transformation will intensify. Therefore, we recommend: First, use the controls strictly, strengthen the rigidity of urban planning, and abolish land ownership controls. It is necessary to effectively implement use controls, strengthen the role of overall land use planning in the management and control of cultivated land protection and urban land use, and use legal means to ensure the supervision and implementation of overall land use planning. Integrate the overall land use plan and overall urban planning according to plans for future economic development, in order to realize the leading role of planning in economic development. Fix the boundaries and expanded boundaries of cities (towns) at all levels in order to prevent urban sprawl. Under the premise of strict use control and planning control, abolish land ownership controls. That is, when land is being converted from agricultural to non-agricultural use, then as long as the use and planning controls are complied with, both the state-owned land users and collective land owners can equally enter the non-agricultural land market, participate in the process of industrialization and urbanization, and share land value-added benefits fairly. Second, clarify the scope of urban land use. In the divided governance between urban and rural areas, urban land is state-owned, but rural collective land is also state-owned. To change the situation in which the government expands urban scope through planning revisions, which results in the de facto trend toward the nationalization of land, we suggest that, with regard to the article in the current Law on Land Administration that states, “Land in urban areas is owned by the State,” both the content and the scope of “urban areas” should be clearly defined, in order to prevent urban sprawl. Third, allow farmers’ collective land outside urban built-up areas to enter the non-agricultural land market without going through

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the expropriation process, as long as it complies with use controls and planning, and except where it must be expropriated for public purposes. Fourth, for stock collective land within city limits and collective land in development zones, we recommend adoption of a sectional expropriation method, in which a part of farmers’ collective land retains its collectively owned character and is incorporated into the plan for legal use by farmers, and the rest of the land enters the state-owned land market, where it realizes land premiums for urban infrastructure construction and public construction.

5.3

Basing Property Compensation for Land-Expropriated Farmers on Marketized Price

How compensation is rendered for land-expropriated farmers relates to their livelihoods and also to social justice. In various countries that have undergone economic development, the compensation for land-expropriated farmers has also shifted from low, non-market-based compensation to marketized compensation. For example, until 2008, Singapore still used the 1973 announced price level of land as the standard for expropriation. In any case, a basic trend has been that as the level of economic development increases and as the government’s financial resources increase, land expropriation generally tends to be compensated based on market prices. In China, the impact of low land compensation fees on the livelihood of land-expropriated farmers is not only an economic problem, but also increasingly a social problem. As we have shown in the earlier review, in recent years, China’s explorations of land expropriation reform have basically focused on improving the compensation standards and providing social security systems for land-expropriated farmers. Judging from their implementation, this reform plan was not accepted by farmers because, during the land conversion process, the value of the land appreciates too quickly, but the farmers whose land has been expropriated earn very little. However, in the discussion of land expropriation reform, theoretical debates have fallen into chaos. One point of view is that the principle of compensation based on the land’s original use should be adhered to, and another point of view is that the compensation should be based on the value of the land as an asset. The questions directed at the original-use compensation principle are, “What

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does ‘original use’ refer to? If a parcel of land was planted with food last year and flowers this year, what is its original purpose?” Meanwhile, the theory that land should be compensated for based on its value as an asset is questioned, because land value appreciation is highly related to location. That is to say, the value of a piece of land in an urbanized area is not comparable to the value of a piece of land in a traditional agricultural area. Therefore, when a piece of land in a traditional agricultural area is expropriated, compensation could then only be made at the market price of the land when it was used for farming. When a piece of land in an urbanized area is expropriated, compensation must be made according to its market price. Therefore, our point of view is that the compensation for land expropriation should not only conform to the principle of fairness and take the form of property compensation for the land expropriated, but also follow the economic principles of land value formation, with compensation for different types of land based on its use. Our specific suggestions are as follows: First, when the government expropriates rural land, the land expropriated should be compensated for according to the market price of rural land. Considering the need to ensure the long-term livelihood of land-expropriated farmers, it is necessary, while compensating for the land, to establish a social security system on a par with that for urban residents. Second, when the government expropriates land in an urbanized area, compensation for the land expropriated should be according to the market price of the adjacent land. Considering that compensation for land based on market price will bring a huge financial burden on the government, urban land rezoning and sectional expropriation methods can be considered, so that land-expropriated farmers could cooperate with the government on developing the land. This would not only reduce the government’s financial burden, but also enable the original landowners to benefit from the increase in land value. It would not only solve the long-term livelihood issue of the farmers, but also alleviate the social conflicts caused by land expropriation, demolition, and removal. Third, adopt a method for transferring land development rights in order to deal with the unfairness caused by differences in land appreciation in different regions. The land development right (tudi fazhan quan 土地发展权, also called tudi kaifa quan 土地开发权),

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refers to the right to develop land by changing its existing use and by the intensity of that use. The land development right system is composed mainly of the land development right transfer and assignment system (tudi fazhan quan zhuanrang zhidu 土地发展权转让 制度) and the land development right expropriation and purchase system (tudi fazhan quan zhenggou zhidu 土地发展权征购制度). The land development right transfer and assignment system divides land into restricted development areas and areas where industrial and commercial development is prohibited, depending on allotment needs. These are usually agricultural areas, areas with fragile natural environments, areas that need to preserve open spaces, wild animal and plant habitat areas, historical building protection areas, environmental protection areas, and so on. Areas where the land development right is received and assigned are areas where land development and construction can be carried out according to the plan, usually in the central area of a city. The land development right transfer and assignment system is led by the government to establish a transaction market for land development rights; it makes it easier for land right holders between zones restricted from development and developable zones to carry out transactions on their land development right. The basic process of such transactions is that the development right of land in the restricted development zone is sold to buyers in the developable zone. Land developers who buy the land development rights can enjoy extra land value-added income by carrying out additional development on the original land in the developable area. Landowners who are thinking of selling land development rights in a zone restricted for development have two options at this time: one is to retain the right to land development, i.e., not transfer the right of land development and continue to use the land according to its original planned use. The second is to sell the land development right and obtain certain economic compensation. Of course, after the land development right is sold, the original use of the land is clearly determined, and the landowners can only use the land according to its original use, nor can he change the original use to seek greater development opportunities. Through the transfer and assignment of land development rights, a market coordination mechanism is set up between the restricted land development area and the development area, in order to adjust the imbalanced interests attached to these two kinds of areas due to land use controls.

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Reforming the Land Finance and Government Land Management Structures

In all the laws and systems of countries around the world, governmental land management for business and profit is prohibited. China’s government-managed land system was gradually formed during the transition from the planned economy to the market economy, which had its historical reasons. During this transition, the government’s land management played a positive role in promoting the reform and marketization of urban land; it also made positive contributions to the wave of industrialization and urbanization. However, as history has evolved, its disadvantages have become more and more conspicuous, and it has become a major institutional obstacle hindering development founded on scientific principles. Therefore, it is necessary to reform the government’s land management while reforming the land expropriation system. First, reform the administrative system that integrates land administration and land management business, and remove the land management business function from the land administration department. Referring to the experience of state-owned enterprise reform, we can consider establishing a state-owned land assets management committee similar to the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), as a government agency responsible for organizing and leading the work of state-owned land management. Meanwhile, establish economic organization, such as state-owned land companies. The state-owned land that needs to be managed would then be handed over to them, so the assets can participate in market operations, transfers, leases, joint ventures, and shareholding. The companies would assume responsibility for maintaining and increase the land value and for turning over the land proceeds to state finance. These economic organizations, as market entities, would accept government regulation and supervision in accordance with unified market rules. As state-owned companies, they would also have to accept the management and guidance of the newly established State-owned Land Assets Management Committee, obey the requirements of the state when necessary, and undertake certain responsibilities for land involvement in macro-control.

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Second, after dividing off the function of land management business, the land administration departments of governments at all levels will focus on administration, and there will be no more confusion of the functions at different levels of government. If the government is no longer an “athlete” competing against the people for profit, this can greatly improve the credibility of government administration. Its core administrative functions would then be, first, to strictly land use planning and strengthen land use controls; second, to equally protect the property rights appertaining to all types of land and build a unified land market in urban and rural areas; and third, to use land policies and involve them in macro-control. As for non-commercial state-owned land, such as land supplied by allocation and land supplied at low price, used as a means for land policy be involved in macro-control, this would still be operated by the administrative departments. Third, after separating the functions of land administration from land management business and establishing a property tax system, the government should further regulate expenditure from land assignment income. The main direction of this reform would be to establish a normalized government land fund, the annual expenditure from which, in general circumstances, could only use the interest, not the principal. Only in this way can we completely cut the dependence of urban construction on increases in land assignment revenue and fundamentally change the methods of outward-expanding growth.

5.5

Realizing the Fair and Equitable Distribution of Land Value-Added Income

To whom land value-added income belongs is an old topic in land economics. This issue was first put forward in 1879 by the American Henry George (1839–1897) in his far-reaching book Progress and Poverty. In his view, with the advent of industrialization and urbanization, wealth continued to grow and material progress continued to advance, but poverty, instead of being eliminated, had only become a major problem of his time. He saw the root cause as the land issue. Land and other natural resources are bestowed by nature, and everyone has a need for these things, and everyone has an equal right to their use. The

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value of land does not depend on the efforts of individual landowners, but is the result of the joint efforts of the entire society. The problem, as George saw it, lied in the fact that the law assigns rising land value to the person who holds the land, which causes landowners to monopolize land rent, enjoy the benefits, and draw income without labor. The solution he proposed to the problem of distributing land value-added income was to use land rent to fill the public coffer instead of making land publicly owned. After World War II, some late-developing countries applied this theory to carry out land replotting and promote urban construction and renewal. In China, land appreciation has been mainly caused by the transformation of agricultural land and collective land into construction land and state-owned land in the process of urban development and construction. The first increase occurs in the change of land use, i.e., the increased value caused by the transformation of agricultural land into construction land. This added value is determined by the overall planning of land use and urban planning compiled and issued by the public sector. The second increase is the value-added caused by the improvement of infrastructure, for which the investment and construction are mainly carried out by the government and public sector. The third is the value-added caused by factors such as limited total land resources and the scarcity of resources. The fourth is the value-added created by the increase of investment and the improvement of land use efficiency. The value-added generated by the first three situations should belong to the whole society, in what is known as “price increments belonging to the public” (zhangjia gui gong 涨价 归公). Under China’s current land system, land-expropriated farmers are compensated according to the land’s original use, and the income from land appreciation goes mainly to city governments. In recent years, the state has introduced one after another policy in an attempt to reverse the imbalance in the distribution of land value-added income between urban and rural areas. The Law on Land Administration revised in 1998 stipulates that the government shall collect a certain amount of compensation for the use of newly-added construction land and apply it for rural land consolidation and reclamation. According to a State Council issued in 2004, 15% of land assignment revenue should be used for agricultural land development. State Council Document No. 28, issued the same year, stipulated that land assignment revenue could be used to subsidize shortfalls in the compensation for land expropriation. The government has continued issuing more policies, requiring local governments to use

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10% of the land assignment revenue for affordable housing construction, 10% for farmland water conservancy construction, and 10% for education funds. However, the relatively low proportion that rural areas and farmers receive in the distribution of land value-added income has not fundamentally changed. We suggest the following: First, accelerate the reform of the land expropriation system. Further improve the land expropriation compensation and resettlement systems, broaden resettlement channels, explore various models reserved land resettlement and land shareholding, realize the “protection of rights and transfer of profits” or “transfer of rights and transfer of profits,” and ensure farmers’ long-term livelihoods. Improve the coordination and adjudication system for handling disputes over land expropriation compensation, unblock relief channels, and safeguard farmers’ legitimate rights and interests in land. Second, distinguish between “price increments belonging to the public” and “price increments belonging to the government” (zhangjia gui zhengfu 涨价归政府), in order to prevent “belonging to the public” becoming extra-institutional income for local governments and even some local government officials, and to ensure that the value-added from land, the “price increments belonging to the public,” is returned to society. Third, establish a land fund system. Collect a certain proportion of land income and use it to adjust surpluses and shortfalls, stabilize the impact of market fluctuations on local finance, and realize a reasonable “interannual” distribution of land income.

6 Realistic Choices of Land Expropriation System Reform2 The most important thing about the land expropriation compensation system is the need to distinguish between compensation for land expropriation and the resettlement of land-expropriated farmers. Compensation for land expropriation is compensation to land-expropriated farmers based on land asset market price; resettlement of land-expropriated farmers is 2 This section was written by Comrade Gan Zangchun (甘藏春). Since the discussion topics are the same, they are included in this chapter.

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based on the principle of social fairness and is carried out by the state for their relief and long-term guarantee of livelihood, and the most important part of the resettlement is employment. To resolve disputes arising from land expropriation, we must begin from consideration of national conditions and build more “barrage dams” to resolve conflicts. 6.1

A Scientific Definition of Land Expropriation Power

To reform and perfect the land expropriation system, it is necessary to scientifically define the land expropriation power. A modern land expropriation system was first produced in France. The French Constitution, written after the victory of the bourgeois revolution in the late eighteenth century, established the principle of the sanctity and inviolability of private property, and at the same time stipulated that the state may expropriate private property for the public interest but must make fair compensation. Since then, countries have followed this principle. Theoretically, the power to expropriate land has several characteristics: the first is sovereignty, which is the embodiment of national coercive power and is inherent in national sovereignty. Exercising the power to expropriate land is an exercise of national sovereignty, which is irresistible. Precisely for this reason, most Western countries authorize their governments to exercise this power through their constitutions. The second is compulsoriness. Land expropriation is an act of forcibly transferring private or legal person land ownership to state ownership. The third is fairness—that is, the purpose and scope of land expropriation must be for public purposes or public interests, and fair compensation must be rendered, following due procedures. 6.2

Basic Goals of Land Expropriation System Reform at the Present Stage

Since the founding of the People’s Republic of China, the general thinking on the legislation regarding the land expropriation system was that industrialization and urbanized development were its top priority goals. This was true of Measures on Land Expropriation for State-led Construction, formulated in 1953 and revised in 1958, the Regulations on the Requisition of Land by the State for Construction of 1982, and the Law on Land Administration of 1987. Although the 1998 version of

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the Law on Land Administration improved the land acquisition compensation and resettlement standards and standardized the land acquisition procedures, the basic policy orientation has not qualitatively changed. Practice has shown that such a system design was compatible with China’s overall development strategy at that time—otherwise it would be difficult to explain China’s rapid economic growth over the past few decades. However, we must also see that this process has indeed brought problems, such as the rapid reduction of cultivated land and the sacrifice of some farmers’ interests. The main reasons for the increase in land expropriation conflicts are as follows. First, the accelerated process of urbanization and industrialization. Some local governments, faced with the pressure to complete the expropriation process in a short period of time, have to a certain extent ignored or disregarded the due legal procedures for it, thus causing disputes. Second, there is a problem in the design of the land acquisition compensation and resettlement system: compensation and resettlement are mixed together without distinction, and this is likely to cause conflicts. Third, there is the lack of an effective dispute mediation mechanism. Judging from the land expropriation disputes in recent years, most farmers are not opposed to land expropriation itself, but the conflicts arise because their rights cannot be effectively guaranteed. In several respects, the reasons are superimposed, and land is the basic carrier, so land expropriation may bring other related problems, which makes land expropriation the focus of social conflicts. After the promulgation and implementation of the Property Rights Law in 2007, farmers’ house site use rights and contracted management rights have become usufructuary rights. Furthermore, rights awareness among various interest groups in society has gradually increased, and so has the demand for land needed for the food security of a population of 1.3 billion people. Factors such as these present complex and difficult circumstances for the land expropriation system, so it needs to be reformed and improved in order to adapt to the new situation. China is in a period of strategic opportunity, so seizing this favorable period to vigorously develop the economy is still the top priority at present, but it must also practice Scientific Outlook on Development, earnestly transform its methods of development to ensure that is sound, rapid, and comprehensive—it should not be a one-sided pursuit of GDP increases. With regard to the reform of the land expropriation system, it

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is necessary to change the “too much, too fast” consumption of agricultural land and instead save and intensively use it, and to improve land use efficiency while striving to reduce conflicts from land expropriation and maintain social stability. The reform of China’s land expropriation system must achieve three goals. First, it should continue to provide the necessary land resources for the process of urbanization and industrialization. Second, it should be conducive to the protection of cultivated land; it should prevent the excessive, over-rapid reduction of cultivated land and ensure food security, because the expropriation of rural land is to a large extent the occupation of cultivated land. Third, it must protect the rights and interests of landexpropriated farmers, reduce land-expropriation disputes, and maintain social stability. As an organic whole, these three goals check and balance one another, and the reform and improvement of the land expropriation system must achieve the organic unity of the three. For example, if the first goal of accelerating the process of modernization is overemphasized or not handled properly, the latter two goals may be sacrificed. Therefore, given the increasingly complex land expropriation dilemmas at this stage, improvements to the land expropriation system should focus on protecting farmers’ legitimate rights and interests, maintaining social stability, and allowing land-expropriated farmers have a really meaningful share in the outcomes of urbanization. 6.3

Effectively Preventing Abuse of the Land Expropriation Power

The power to expropriate land is a kind of stripping away of land property rights. Many countries have done beneficial explorations on preventing the state from abusing its power to expropriate land, and most of them stipulate in their constitutions that land expropriation must be based on public interests or public purposes. Public interest generally requires that the project itself be for the public welfare, while public purpose is flexible and relatively broad. At the beginning of the twentieth century, especially after 1919, due to the vigorous rise of the labor movement, Western countries began to introduce socialist concepts, emphasizing restrictions on private property. After the Second World War, with the implementation of theories on, for example, state intervention and macro-control, the scope of the land expropriation power has tended to be broader. Determining how to define “the public interest” is a point of difficulty in the current reform of China’s land expropriation system. Except

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for Japan and a few other countries whose laws enumerate provisions, most countries define the public interest in two ways. The first is the parliamentary decision method, which is found mainly in Europe, where land law stipulates that any project that conforms to national and local planning and has undergone parliamentary deliberation and approval can be regarded as being in the public interest. Local development plans are decided by local councils, but they must meet the planning requirements of the central government. Under this premise, projects approved by local councils are also considered to be in the public interest. The second is the American model, also known as the court arbitration model. The court does not judge whether a project conforms to the public interest based on the nature of the project (whether it belongs to private interests or national interests), whether it is profitable, etc., but rather decides through equity, i.e., the decision of whether a project is in the public interest, more broadly understood, is based mainly on whether the social interests are greater than the private interests. In the process of formulating the Property Rights Law, China tried to legislate a definition of public interests and non-public interests, but from a practical point of view, it is difficult to define them clearly in the current process of rapid modernization and industrialization. A reasonable determination of the scope of land expropriation should not overemphasize the specific identification of public interests, so two mechanisms may be introduced: first, for national projects (mainly infrastructure and key engineering projects), they must conform to planning and emphasize their public interest attributes; second, for some local construction projects, necessary pre-examination procedures must be set up. That is, the land expropriation can be announced only on the basis of having undergone a full hearing by the local people’s congress or the standing committee of the people’s congress. In this way, a land expropriation project can not only have legitimacy, but also have a sufficient public opinion base, which would then effectively curb the abuse of land expropriation power. 6.4

Improving the Compensation and Resettlement System as a Focus of Land Expropriation System Reform

From the 1987 Law on Land Administration to the 2004 revision of that law, the compensation standard for land expropriation doubled, and many places even broke through the “thirty times the average annual output value in the three years before the expropriation” stipulated by current

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law. Even so, the disputes over land expropriation continued. By contrast, from the planned economy period to the mid-1990s, when China’s land expropriation compensation and resettlement system mainly adopted the method of resettlement, supplemented by monetary compensation, there were generally fewer conflicts over land expropriation, because the vast majority of land-expropriated farmers had their household registrations changed so they could enter the cities, work, and enjoy national welfare and security. After 1998, monetary compensation basically became the mainstay. The compensation system for land expropriation was not effectively distinguished from the resettlement system, and the resettlement system was ignored. This gradually led to the formation of a large number of landless, jobless, and insecure farmers who were left wandering outside of the urbanization process, and they became one of the factors of social instability. The state after 2004 restudied the land expropriation compensation and resettlement system, put forward the general requirements that the original living standards should not be lowered and that the farmers’ long-term livelihoods should be guaranteed, established a social security system for land-expropriated farmers, and proposed that shortfalls in compensation and resettlement funds should be made up from the proceeds from urban state-owned land. Even so, some farmers in the mixed urban–rural fringe zones were not very willing to participate in the social security programs for land-expropriated farmers, because their original standard of living had been higher than those of ordinary urban residents, and even though the other farmers got urban household registrations, many of them became urban poor due to lack of treatment as urban residents, a lack of means of livelihood, and poor development background. A general principle when implementing the reform of the land expropriation system should be to ensure that the original living standards of land-expropriated farmers are improved and their long-term livelihoods are guaranteed. To achieve this, the most important thing is to distinguish the land expropriation compensation from the resettlement of land-expropriated farmers. The former is compensation according to the market price of land property, and the latter is the assistance and longterm living security provided by the state to land-expropriated farmers in accordance with the principle of social fairness. The most direct shortterm benefit of separating the two would be that it can prevent the

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excessive disputes with farmers over the compensation, but over the longterm, it will also be able to cultivate their self-development capabilities, steadily improve their living standards, and promote social harmony. Compensation for land-expropriated farmers mainly includes three aspects: first, compensation for land ownership; second, compensation for the farmers’ houses; and third, compensation for young crops and other structures and attachments on the ground. These things reflect the farmers’ property rights. The general principle is to compensate farmers for these things according to market price. Compensation for land ownership involves the issue of compensation according to the original use of the land or compensation for the planned use. Judging from the practice of countries in the world, developed countries such as Europe compensate according to the original use, because land appreciation is mainly brought about by the development and progress of society as a whole and by the state’s exercise of public power to formulate and implement plans. Some people have pointed out that since China has not formed an agricultural land market, then if compensation is made according to its original use, that becomes the price of agricultural land, which is difficult to determine. In fact, the governments of all countries set prices of agricultural land. In 2003, the Ministry of Land and Resources issued the Regulations on the Classification and Grading of Agricultural Land (农用地分等定级规程) and Regulations on the Evaluation of Agricultural Land (农用地评估规 程), so technically this is no longer a problem. From another point of view, the price differential becomes greater due to the different planned uses of the land after expropriation, so if compensation is made according to the planned use, it would cause new inequities. The resettlement of land-expropriated farmers must follow the principles of social fairness and of coordination and consistency between the process of land socialization and the process of the farmers’ becoming urban residents. Urbanizing land-expropriated farmers is not just about transferring their household registrations, but also about allowing them to enjoy the same treatment as formal urban residents, including social welfare and protections such as education, medical care, employment, and old-age care. Only by solving this problem can we eliminate the exclusion of land-expropriated farmers from the urbanization process and truly eliminate the hidden dangers of social instability caused by land expropriation. Where conditions permit, a part of the expropriated land may be set aside as land for the development of the farmers’ settlement and employment. Correspondingly, the form of their rural collective economic

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organization should also be reformed, reorganized, and reconstructed along with the urbanization process. Those with collective property can establish a form of property organization that truly reflects collective ownership, such as a joint-stock cooperative company; those without collective property can be directly changed to residents’ committees. For the resettlement of land-expropriated farmers, besides enabling them to enjoy the same social security that urban residents do, the most important thing is employment placement. The laws should make mandatory provisions on the basis of the summarized experiences from various locales. This may increase the cost of land expropriation, but overall, the advantages far outweigh the disadvantages. First, it can eliminate social instability caused by land expropriation. Second, it can slow down the speed of low-cost urban expansion. China’s expanding urbanization is not too slow or too little, but too fast and too big. Urbanizing land-expropriated farmers means that the more local governments expropriate land, the greater the urbanization, and the more land-expropriated farmers must be taken in as residents. It will also become more necessary to give comprehensive consideration of employment, education, medical care, infrastructure, and so on, in order to improve the way the cities are developing. Third, the government would then be able to occupy the commanding heights of administrative morality and change the public’s negative impression of the government using “low-cost land expropriation → change of use → resale” to make huge profits together with developers. Even if the government has interests, as long as the resettlement of land-expropriated farmers is completely resolved, much of the moral condemnation can be avoided and many social conflicts prevented. 6.5

Exploring the Establishment of a Land Expropriation Dispute Adjudication Mechanism

Even if the compensation given for expropriating land is sufficient or exceeds the value of the land property, for the farmers whose land is expropriated, there may still be feelings of emotional loss for the expropriated land. The problem does not lie in conflict, but in the need for establishing a normal land expropriation dispute resolution mechanism. Judging from the experience of developed countries, there are mainly the following three approaches to the problem: One would be to move the resolution of land expropriation disputes forward to the planning process. In various European countries and

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others, the planning process includes evaluating whether the land expropriation is legal, and whether it is in line with public interests. Local governments in particular implement full openness during the planning process, so that all local residents can participate in the discussion. People at every level can fully express their opinions, so that the planning process can fully reflect public opinion, and once these plans are confirmed, it will have legal effect. The biggest problems with China’s current land expropriation system are that the plans are adjusted too quickly and frequently, and public opinion, especially the feelings and opinions of the residents in the planning areas, are basically not solicited. We therefore recommend conducting a thorough rethinking and reform of the planning process. The second would be to establish a tax adjustment mechanism to prevent abnormally high or low distributions of land income. In Denmark, for example, since most of the value-added part of land property is taken away by the state through taxation, landowners generally do not care whether the compensation they receive for expropriated agricultural land is based on the land’s original use or its planned use. China also has the Provisional Regulations on Land Value-added Taxes (中华人 民共和国土地增值税暂行条例), but it has not been well implemented in actual operation. The third would be to establish an adjudication system that reflects the complexity and technical characteristics of land expropriation conflicts. Countries with common law systems all implement a system of administrative tribunals. They have special land tribunals attached to the courts, but the adjudicators are not necessarily professionally engaged in legal work but are rather professionals (such as land valuers), which is conducive for rapid resolution of various specialized problems. China often resolves land expropriation conflicts and disputes through political methods involving work by party committee members and working groups. Although this mechanism has achieved good results, it still lacks a mature legal system, and under new historical conditions it will have difficulty continuing. To resolve land expropriation disputes, we must proceed from China’s national conditions and build more “barrage dams” to resolve conflicts. First, the compensation should be fair, just, and open. Second, it is necessary to distinguish the issue of the legality of a land expropriation project from the issue of the legality of compensation and resettlement. Reviews of the legality of a land expropriation project are mainly carried out at the State Council and the provincial level. Separate that from the review

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and approval of the compensation plan for land expropriation, which is made public by the city and county governments. This would bring the focus of conflicts to the legitimacy and rationality of the compensation and resettlement plan itself. Third, establish an arbitration institution; for this it will be possible to learn from the past models of gentry governance. Fourth, establish a complete land market system. 6.6

Strictly Investigate Responsibility for Illegal Land Expropriation

While safeguarding legal land expropriation behaviors and resolving land expropriation disputes, the legal responsibility of those who violate the law and illegally approve or implement land expropriation must be strictly investigated. Illegal land expropriation often involves multiple liabilities, including civil liability, administrative liability, and criminal liability. Although there are corresponding provisions in Chinese law, in practice, the investigation of responsibility in this area, especially regarding criminal responsibility, has not been well implemented. The Law on Land Administration stipulates that violations of the law and violations of the statutory procedures in order to approve land expropriation, occupy, or embezzle the compensation fees and other related resettlement fees of the units whose land has been expropriated, etc., constitute a crime, which shall be investigated for criminal responsibility. Article 410 of the Criminal Law also has stipulations against the crime of illegally approving the expropriation, expropriated use, and occupation of land (which is classed as a crime of dereliction of duty). However, because the clause takes “selfishness and fraud” as a precondition, it is difficult to determine, and its results in actual implementation have not been ideal. To investigate responsibility for illegal land expropriation, we should establish a stricter and more perfect criminal responsibility investigation system in addition to enhancing enforcement in the current legal system. Besides prosecuting those who bear corresponding criminal responsibility for the crime of dereliction of duty, in order to facilitate identification and actual operation of those who illegally implement land expropriation leading to loss of property, provisions on the crime of intentionally destroying property in the crime of property infringement in the Criminal Law should be referred to; criminal responsibility should be investigated, and compensation for losses should be required. This would form a more direct and effective deterrent against land expropriation crimes,

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maintain the normal order of land expropriation, and protect the interests of land-expropriated farmers. Such multiple but integrated approaches would be able to minimize land acquisition conflicts while ensuring the economy’s sustainable and healthy development and fully safeguarding land-expropriated farmers’ legitimate rights and interests, so that the land-expropriated farmers can truly have a share in the fruits of urbanization, and the issue of land expropriation will no longer become the focus of social conflicts.

References Chen Xizhen 陳錫禎. 2010. Taiwan zhi tudi zhengshou 台灣之土地徵收 [Land Expropriation in Taiwan], in Taiwan dizheng jianjie congshu 台灣地政簡介 叢書 [Introduction to Land Administration in Taiwan Series ]. Taipei: Taiwan dizheng yanjiusuo. Huang Xiaohu 黄小虎. 2011. “Zhengdi zhidu gaige de lishi huigu yu sikao” 征 地制度改革的历史回顾与思考 [Historical Reflections and Thoughts on the Reform of the Land Expropriation System], Shanghai guotu ziyuan 32.2 (2011.2): 7–13. Liu Shouying刘守英, Zhou Feizhou 周飞舟, and Shao Ting 邵挺. 2012. Tudi zhidu gaige yu zhuanbian fazhan fangshi 土地制度改革与转变发展方 式 [Land System Reform and Methods of Transitional Development ]. Beijing: Zhongguo fazhan chubanshe.

PART V

Bidding Farewell to the Land-Driven Development Model

CHAPTER 14

Land System Reform and Economic Restructuring

Over the past 40 years of reform and opening up, China’s economy has maintained an annual high-speed growth rate of 9.6%. The average annual growth rate of industrial added value has been 14.6%, and the industrial added value has increased from 207 billion yuan to 28 trillion yuan, making China into the world’s leading manufacturer. The urban population has grown at an average rate of 4% per year, and the urbanization rate has increased from 17.92% to 58.52%. By now, 280 million farmers have left their villages to participate in this urbanization process and promote the historical transformation from a “rural China” to an “urban–rural China.” Everyone, whether they are supporters or detractors of China, agree that there must be something unusual behind such extraordinary economic growth and historic structural revolution in a major country. This chapter proposes that the secret behind the creation of the “Chinese miracle” is its unique land system arrangement and its reform, and in this regard, it differs from the current mainstream comparative advantage theory and the idea that the tournament theory applies among the local governments. In the past 40 years, China has opened up its economic rights under government-led development rights. The unique arrangements and changes of China’s land system have formed a land-driven development model, and the capitalization of land realized by the land system has promoted a transformation of the economic

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_14

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structure. However, a dilemma also arises as a result of this transformation, since the risks from the land-driven development model—especially after China’s economic growth shift and platform transformation—are increasing. Due to space limitations, this chapter mainly provides theoretical explanations of the role of the land system and its changes in China’s economic development, presents the stages of land system change and structural transformation, and finally describes the needs for deepening the land system reform.

1

The Role of the Land System and Its Changes in Economic Development

Exploring the source of growth is a constant theme in economics, but the economics underpinning the different stages of development places different emphases on the importance of various factors. Among the classical scholars of economics, land’s role is pivotal; it is described as the “mother of wealth” (Petty 1978, p. 66), or “was ever the first and the only source of all riches” (Turgot 1961, p. 48). When Adam Smith analyzed the nature and causes of national wealth, he regarded land, labor, and capital as the three basic production factors (Smith 2009). David Ricardo worried that the diminishing marginal returns of land, capital, and labor would cause a country’s economic growth to stagnate (Ricardo 1962). Alfred Marshall (1964) pointed out that agricultural technology improves too slowly, resulting in diminishing marginal returns in land cultivation. Thus, as Theodore W. Schultz (2001, p. 108) pointed out, “Early economists saw land as a constraint factor on economic growth.” Interestingly, the importance of land began to decline around the time the theory of marginal utility emerged in the late 1800s, and the reason given by this school was that land should not occupy a special place in economic development and should not be treated separately. Not only could land be replaced by capital, but technological progress was sufficient to offset the adverse effects of fixed land (Menger 2005; Jevons 2009; Walras 2009). When the neoclassical economists constructed their theoretical models, the land element even “disappeared” (Gunn and Douglass 1942; Harrod 1939; Solow 1956; Arrow 1962). The reason Roy F. Harrod (1939) gave was, “I discard it [i.e., land] only because in our particular context it appears that its influence may be quantitatively unimportant.” When Robert M. Solow (1956) takes output growth and breaks it down into contributions of capital, labor, and total factor productivity,

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land is included in capital. Theodore W. Schultz’s (1951) point of view represents why modern economics does so: Clearly, in particular countries, land is no longer the limitational factor it once was . . . . the economy has freed itself from the severe restrictions formerly imposed by land. This achievement is the result of new and better production possibilities and of the path of community choice in relation to these gains. This achievement has diminished greatly the economic dependency of people on land; it has reduced the income claims of this factor to an ever-smaller fraction of the national income …

Economic growth theory, after being freed from the problem of diminishing returns from land, focuses mainly on exploring the importance of the growth and allocation efficiency of physical capital, technological progress, human capital, innovation, and R&D investment in economic growth (Romer 1986; Lucas 1988). The relative importance of land has thus gone from vital to neglected, which reflects a simplification of the economic characteristics of the era these economists have lived in. The economy during the classical period was dominated by agriculture, and national economies and people’s livelihoods were highly dependent on land resources. Technological change was slow, and people had to struggle in order to avoid falling into the “Malthusian trap.” During the neoclassical period, when the economy was dominated by manufacturing and the cities, the economic importance of land declined. Economic growth depended on capital formation, allocation efficiency, and technological progress, and economic development shifted from reliance on land to reliance on innovation and the improvement of total factor productivity. Unfortunately, when economists try to solve problems of development, they still largely base themselves on the neoclassical growth theories in which they have been trained. Even though mainstream development economists recognize that structural change is at the heart of economic development (Chenery et al. 2015), their prescriptions are mainly: (1) reallocate labor from the low-productivity agricultural sector to the highproductivity industrial and service sectors (Chenery and Syrquin 1989); (2) use the “scissors” method of squeezing agricultural products to achieve capital accumulation (Sah and Stiglitz 1986); and (3) rely on the transfer of surplus rural labor that is willing to accept institutional wages in order to create capital (Lewis 1954).

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The neglect of the importance of land allocation and institutional arrangements in structural transformation not only widens the gap between development theory and reality, but also misses the function of land use in solving problems of development. First, a country’s transition from an agricultural to industrial economy and from a rural to urban society is a dynamic process, and the importance of land and the way it works are also in a dynamic process of change. As the structure changes, the economic importance of land as agricultural land will continue to decline. During the structural transformation stage, the reallocation and capitalization functions of land are enhanced; as the structural transformation approaches a steady state, economic development depends mainly on innovation and technological progress, and the overall role of land will decline. Second, economic development is defined as the structural transformation from an agricultural economy to an industrial and urban economy, but the reallocation effect of the structural transformation is only brought about by the increases in productivity from the allocation of labor from the low-productivity agricultural sector to the high-productivity industrial and service sectors. In fact, structural transformation is not only the reallocation of population and labor from rural society to urban society, but also the transformation of land from agricultural to industrial and urban uses. The value added by the reallocation of land between different economic activities cannot by any means be ignored. Promoting industrialization through capital accumulation is considered the main way for developing countries to achieve economic take-off. However, in developing countries, land is undoubtedly the most important source of capital creation. The reallocation of land between different economic activities brings the appreciation of land value, and the capture of that land appreciation value can bring huge amounts of capital to economic development. Third, the initiation and evolution of structural transformation are inseparable from the role of institutions and the promotion of institutional changes. In developing countries, land property rights and their means of allocation are generally inefficient, but by improving the rights arrangements and promoting market allocation reforms, income from land capitalization and the efficiency of resource allocation can be greatly increased. Therefore, the allocation effect of land resources, the role of land in capital formation and expansion, and the role of land institutional arrangements and changes in structural transformation are important forces that developing countries can use to transform from agricultural societies to urban societies.

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Along with its rapid growth and structural change, China has experienced not only a large-scale allocation and conversion of land from agricultural to non-agricultural uses, but also, and more importantly, a series of institutional changes in the agricultural land system, in the land conversion system, and in non-agricultural land use. The conversion of land created greater land differential income than the “price scissors” on products from the land during the planned economy period ever did. China’s unique land system arrangements and their reform have created a model whereby local governments use land to drive development, and the capital created by rent in the land system has become an important driving force for structural change. 1.1 China’s Unique Land System Arrangement and the Government’s Use of Land to Drive Development Compared with the land systems of other countries and regions in the world, the structure of China’s land system is very unique. First, China implements a dual land ownership system. Under the socialist public ownership system, rural land belongs to collectives, and urban land belongs to the state, more specifically, the State Council, while the exercise of ownership rights lies with the city and county governments. Second, the government monopolizes the non-agricultural land market. The conversion of agricultural land to non-agricultural land is done uniformly through the mechanism of expropriation, in which compensation is based on the land’s original use. The land used by any unit and individual can only be state-owned land, and local governments are the only entities that supply non-agricultural land. Third, three layers of control are implemented over the land. The state controls land use through its overall use plan and its annual plan; local governments, through urban planning, expand their boundaries and exercise functional control, and they implement ownership control for a change in land use. Fourth, China implements a government-controlled land value-added income capture mechanism. Whenever land is converted, the government obtains all the value-added of the land conversion, minus the compensation given to land-expropriated farmers, which cannot be more than 30 times the annual income from its original use. Under the government-led right to development, these land system arrangements have become the main tool for local governments to use land to drive plans for development. When a change of land use takes place, the government replaces the

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farmers’ collective as the land owner and as the operator of the now-urban land. Local governments use their exclusive rights to land to promote economic growth through a broad supply of land; they depend on lowcost land to attract investment and promote industrialization, and rapid urbanization is driven through land capitalization (Liu 2014). 1.2

Land Capitalization and Structural Transformation

Land rent is generated not only by the use and location of land, but also by the arrangement of rights and their changes. This is called institutional rent. Before the reform of the early 1980s, China implemented a system that arranged for the free and unlimited flow of land supply, which did not generate land differential income. Since 1987, China has separated land ownership from land use rights and has given to land users more complete rights over a longer term, which not only increases the value of those land rights, but also makes the value of the land owned by the government manifest and realizable. Through the paid use of land, the public bidding, auction, and assignment of commercial land and even industrial land, as well as the mortgage financing of land, the appreciated value of the future use of the land is obtained, and the asset value of the land is greatly increased. With the reform of the land system, the government’s closure of the farmers’ collective construction land market, and the strengthening of a series of systems in planning, control, setting annual indicators, and supervision, the degree and implementation capacity of the government’s monopoly on the land market have improved, and the rent realized by the government’s land monopoly has also increased by leaps and bounds (Huang 2006). Through the continuous reform of the land use system, the land has changed from free use to paid use, then to bidding, auction, and assigned use, and then to land mortgage financing. The degree of land capitalization has been continuously increased, and this creates a huge amount of capital for structural transformation.

2

The Stages of Land System Change and Structural Transformation

Since reform and opening up, China’s industrialization and urbanization has been closely related to the land system arrangement and its changes, and each stage presents different characteristics.

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1981–1994: Industrialization Launched by the Opening of Land Rights

China’s structural transformation began at the Second Plenary Session of the Seventh Central Committee of the CPC (1949), when Mao Zedong announced the transformation of China from an agricultural country into an industrial country. The national industrialization strategy in the 1950s started on the basis of an agricultural economy, and capital accumulation mainly relied on the agricultural collectivization system and the national unified purchase and sales system to capture low-priced agricultural products from the countryside. It is estimated that from 1951 to 1978, farmers provided 97.8 billion yuan to the state in the form of taxes and 510 billion yuan to the state in the form of the “scissors difference” between industrial and agricultural products. During the same period, the state’s investment in agriculture was only 176 billion yuan. If we balance the revenue and expenditure, the net accumulated capital provided by farmers for industrialization was as much as 432 billion yuan. This contributed to the formation of a relatively complete industrial system during the planned economy period. After 1980, when China was implementing reform and opening up, the doors to industrialization and urbanization were gradually opened. As for industrialization, the door swung open to two special routes: rural industrialization and park industrialization. Rural industrialization arose from the need to find a way out for the great quantity of rural surplus labor released by the start of the rural household contracting system in the early 1980s reforms. The cities were still locked off from the farmers, so farmers could participate only in the industrialization that was breaking out in the villages. Township and village enterprises, described as “suddenly emerging,” first appeared rapidly in the early 1980s in southern Jiangsu and northern Zhejiang, which already had a relatively good foundation of communal and brigade enterprises, and then they expanded into the central and western regions with policy support (Zhou and Hu 1987). The rise of township and village enterprises benefited from the national policy of opening up farmers’ rights to use collective land to engage in industry. Before this, the main function of rural collective land was to provide low-priced food to support the country’s industrialization, and later on, the country allowed farmers to operate some of the “five small industries” (wu xiao gongye 五小工业) to serve agriculture on collective land. To promote the reform of rural structure, the state allowed farmers

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to set up enterprises on collective land and to use their own land to build towns, i.e., it allowed farmers’ collective land to enter the market directly. The non-agricultural use of rural collective land provided an important support for the prosperity of township enterprises during this period. As shown in Table 1, the number of people employed in township enterprises increased from 29.7 million in 1981 to 113 million in 1994. By 1992, total output value created by township enterprises accounted for one-third of industrial added value. As for park industrialization, its rise stemmed from the state’s original intention to establish high-tech development zones and economic and technological development zones in order to attract advanced technology and enterprises from abroad and investment from overseas Chinese, Hong Kong, and Taiwan. Governments at all levels understood that as long as they could set aside a piece of land and manage it according to special systems and policies, they could likewise “build a nest and attract a phoenix.” In the early 1990s especially, after Deng Xiaoping’s talks during his southern tour, the pace of China’s industrialization began to accelerate. Governments at all levels used their land control powers to set up various industrial parks; even township governments and village-level Table 1

Development of township and village enterprises from 1981 to 1994

Year

Number of employees (millions)

Total output value (billions yuan)

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

29.6958 31.1291 32.3464 52.0811 69.7903 79.3714 88.0518 95.4546 93.6678 92.648 96.091 106.246 123.4531 113.2997

73.665 84.626 100.787 169.778 275.504 358.328 494.772 701.776 840.182 958.111 1,162.169 1,765.969 3,154.068 4,258.851

Source Zhongguo xiangzhen qiye nianjian 中国乡镇企业年鉴 [China Township and Village Enterprise Yearbook], published annually

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organizations established industrial parks. Park industrialization also benefited from the intelligent design of the land system reform of this period. First, the separation of land ownership and use rights was implemented, so that municipal and county governments exercised their ownership of state-owned land, and land users obtained the land use rights by various means and for various lengths of time, and according to different purposes. Second, the paid use and legal transfer of land was allowed. In 1988, the Constitution was amended by deleting the stipulation that land could not be rented out, and adding the stipulation that “the right to use land may be transferred in accordance with the provisions of the law.” In May 1990, the State Council promulgated the Interim Regulations on the Assignment and Transfer of the Right to Use State-owned Land in Urban Areas (城镇国有土地使用权出让和转让暂行条例), which clearly stipulated that three methods could be used in the assignment of land use rights: agreement, bidding, and auction. These two institutional arrangements played a crucial role in opening up the use rights to state-owned land for investors and ensuring the stability of investors’ expectations in connection with their land rights. The separation of the two rights not only eliminated the difficulties of ideology and ownership supremacy, but also let the state realize the economic benefit of land ownership and reassure investors. Local governments opened up collective land rights. Their eagerness to use industrial park land to drum up industry was also related to the fiscal and taxation system arrangements of this period. After the mid-1980s, in order to mobilize the enthusiasm of local governments and enterprises, the tax collection contract responsibility system (shuishou chengbao zeren zhi 税收承包责任制) was adopted, so that local governments and enterprises could retain the surplus after handing in a fixed amount of tax funds. This provided local governments with an incentive to run industries (Zhou Feizhou et al. 2018). Local governments not only allowed farmers to use collective land to engage in industry, but also implemented loan liability guarantees and various support policies to promote the development of township enterprises, and they attracted investment through a low-cost land supply, the building of park infrastructure, and various preferential policies.

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1995–2002: Land-Driven Industrialization and Urbanization

After 1995, China’s industrialization and urbanization showed new characteristics. First, the speed of industrialization slowed, but the process of urbanization accelerated. The growth rate of industrial added value in 1995 dropped by 9.16% compared with the previous year, and the average annual growth rate of industrial added value dropped from 18.09% in 1981–1994 to 12.05% in 1995–2002. In sharp contrast, the urban population in 1995 increased by 3% over the previous year, and the urban population growth rate increased from 4.24% in 1981–1994 to 4.93% in 1995–2002.1 Second, the methods of promoting industrialization changed. After 1995, and especially after 1998, the number of industrial parks in various places increased rapidly. Development zones and industrial zones spread across all levels of the country. At their peak, there were 6,866 parks, with a total planned area of 38,666 square kilometers. Due to excessive flooding in the development zones, the state had to clear up and rectify them in 2003. In the end 1,568 development zones remained, and the total planned area was reduced to 9,969 square kilometers.2 By contrast, township and village enterprises, which were once an important tool for solving employment problems and an important source of grass-roots financial revenue, were gradually withdrawing. In the central and western regions especially, most of the village and township enterprises “extinguished their flames” as park-based industrialization became the mainstream and contributed significantly toward China’s becoming the “world’s factory.” These new features of the structural transformation were the results of several institutional arrangements at this stage. The first was the implementation of the tax-sharing system in 1994, which fundamentally changed the central and local distribution structure of the benefits formed by economic growth. The most impactful policy on local governments was dividing the manufacturing tax revenue between the central and local governments at a 75% to 25% ratio, while having 1 The data comes from the statistics database of China Economy Information (CEI) Net 中经网, https://db.cei.cn/jsps/Home. 2 The data comes from Gongye yongdi jiage bijiao yanjiu ketizu《工业用地价格比较研 究》 课题组, “Gongye yuanqu ji kaifaqu: tigao dijia menkan hou de chayihua jingzheng” 工 业园区及开发区:提高地价门槛后的差异化竞争 [Industrial Parks and Development Zones: Differentiated Competition after Raising the Land Price Threshold], Zhongguo dichan shichang (2007.9): 68–69.

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the revenue from the business tax, construction industry tax, and other taxes, as well as the fees paid for land use assignments, retained by the local governments. This change in the incentive structure transformed the behavior of local governments. It shifted the focus of development from industry to cities, because they wanted to increase industries that could bring local tax revenue, and it shifted the focus of industrial development from township enterprises to industrial parks, used to attract investment. Originally, the reason why local governments used loan guarantees and preferential policies to support the development of township enterprises was mainly because doing so could increase their fiscal revenue. However, after the implementation of the tax-sharing system, the tax revenue that local governments would obtain from township enterprises would decrease, and the risk would increase. Therefore, local governments directed their industrial development energy toward the parks, because the kind of enterprises attracted through investment incentives were larger in scale and had a stronger taxation capacity; at the same time the local governments could also obtain revenue through land use assignments. The accelerating pace of urbanization increased the local governments’ disposable income. In fact, from 1995 to 2002, local tax revenue relating to urbanization increased by 136%. As for tax structure, the construction industry tax and business tax grew the fastest during this period; revenue from land assignments was left to the local governments because the base figure when this tax-sharing system was implemented was too small. Growth during this period was relatively large. The development of industrial parks meant that a large share of the manufacturing tax revenue was kept locally, which was also conducive to industrial and demographic clustering. It formed a response to urbanization. Second were the major changes in the land management system during this period, especially after the revision and implementation of the Law on Land Administration in 1998, which provided an institutional guarantee for local governments to carry out structural transformation. The revised Law on Land Administration stipulated that the conversion of agricultural land to construction land had to undergo the process of land expropriation. Farmers’ use of collective land for non-agricultural construction was limited to a narrow channel, that of self-run township enterprises, and at the same time, land use controls were implemented, and the government obtained the power to monopolize land. The law clearly stipulated that “the rights to use land can be transferred according

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to the law,” and, “The state implements the system of paid use of stateowned land according to the law.” The state, in its capacity as land owner, represented by the people’s governments at the city and county levels, could assign the use rights on state-owned land within a certain period of time by means of agreement, public tender, and auction, and the land users would pay to the state a land use right assignment fee according to a contract. Since 1999, the state has continued to intensify the reform of this system of paid land use; it has reduced the proportion of land that it allocates and has increased the proportion of land for which it assigns use for a fee. Therefore, local governments used their exclusive monopoly power on land to provide land at a low price by agreement and to build park infrastructure on it; they used this land to attract investment, attract people, increase urban income, and exchanged future tax revenues for convincing enterprises to settle in. Almost 40% of construction land during this period was used for industrial land, and the price of industrial land was kept depressed for a long time—it was provided at cost. It was this park-based industrialization that made China as a whole into a major trading power and the “world’s factory.” Meanwhile, by allocating land for urban development, the government could increase the tax revenue that such development brought, while obtaining land assignment fees at the same time. Third, a reform of the housing system provided another channel for urban governments to realize the income from land assignments and increase urban tax revenue. In 1998, China began to halt the allocation of housing, gradually monetized housing distribution, and established a house financing system. The proportion of investment in real estate thus gradually increased. From 1997 to 2002, new urban housing in terms of area grew by an average annual rate of 25.90%, the proportion of real estate investment as a share of urban fixed asset investment increased from 16.07% to 21.95%, and the average annual growth rate of residential sales, in terms of area, reached 24.7%. The reform of the housing system increased tax revenue related to urban development, and tax revenue relating to construction and land also increased substantially. 2.3

2003–2008: Urbanization Financed by Land

After 2003, China’s urbanization continued to roar ahead. The urbanization rate of the permanent population increased from 40.53% in 2003 to 46.99% in 2008, an annual increase of 1.29%. Although the urbanization

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rate continued the trend of the previous stage, the difference is that from 1995 to 2002, the urban built-up area increased by 4.76% annually, but from 2003 to 2008, it increased by 5.76% annually. From 2003 to 2008, the national urban built-up area increased by 7987.3 square kilometers, with an average annual net increase of 5.64%. The expansion of major cities was even more significant. From 2003 to 2008, the built-up area of China’s ten largest cities increased from 4,911 square kilometers to 6,452 square kilometers, with an average annual growth of 5.61%. Land urbanization accelerated, reaching 28.22% during this period. In addition, both the influx of farmers into cities and the movement of people between cities accelerated. The urbanization rate of the permanent resident population increased from 40.53% in 2003 to 46.99% in 2008, with an annual increase of 20.1 million new city-dwellers, and the urbanization rate of the registered population increased from 23.6% in 2003 to 33.28% in 2008. By 2008, the difference between the urbanization rate of the permanent population and the urbanization rate of the registered population reached 13.71%. During this period, the phenomenon of “urbanization with Chinese characteristics” emerged—in which the urbanization of land was faster than that of the urbanization of the population, and urbanization of the permanent population was faster than that of the registered population. The new features of urbanization during this period were the result of the interaction between the land system reform and the housing system reform. The biggest change was the implementation of the bid tendering, auction, and quotation system for commercial land in 2003. This institutional arrangement allowed all land assignment income to enter the government’s basket and initiated the land-driven development model for government-run land. In the previous stage, the government’s main goal was to industrialize through land assignments by agreement in industrial parks, but in this stage, its main goal was to use land to generate wealth for running cities. Starting in 2003, local governments’ land assignment revenue exploded. From 1993 to 2002, they collected a total of 712.542 billion yuan in land assignment revenue; from 2003 to 2008, that figure increased to 4.827147 trillion yuan—6.77 times the original (see Table 2). Obviously, city governments were relying on land assignment revenue as the source of fiscal revenue and construction funds. Statistics on 84 key cities across the country show that, from 2003 to 2008, land assignment revenue increased from 343 billion yuan to 636 billion yuan, and increase of 0.85 times, and the proportion of land

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assignment revenue of their total government fiscal revenue was as high as 62.44%. Government management of land became an important fundraising channel for urban construction. As for investment in urban infrastructure, the proportion of central funding dropped from 26% in the early 1980s to 1.1% in 2008, as the local governments became the main investing entities. After the reform of the tax-sharing system in 1994, the pattern of local governments “Feeding on finance, building on land” took shape. Since 2000, local governments have obtained large quantities of bank loans with land as collateral, while relying on revenue from land assignments and going through land reserve centers and various financing platforms, all to provide funds for land development and infrastructure building. In 2008, among the three main sources of funds for Table 2 Statistics on China’s land assignment revenue and government fiscal revenue, 1993–2008 Year

Area of land assigned (hectares)

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

57,338 49,432 43,092 34,048 – 62,058 45,391 48,633 90,394 124,230 193,604 181,510 163,200 232,500 234,961 16.5860

Land assignment revenue (billion yuan) 42.078 63.795 38.752 34.889 – 50.769 51.433 59.558 129.589 241.679 542.131 641.218 588.382 807.764 1221.672 1025.980

Government fiscal revenue (trillion yuan)

Land assignment revenue as a share of government fiscal revenue (%)

0.43490 0.52181 0.62422 0.740799 0.865114 0.987595 1.144408 1.339523 1.638604 1.890364 2.171525 2.639647 3.164929 3.876020 5.132178 6.133035

9.70 12.20 6.20 4.70 – 5.10 4.50 4.40 7.90 12.80 25.00 24.90 18.60 20.80 23.80 16.70

Note In 1997, the State Council stopped the sale of profitable land in order to rectify the land market and lay the foundation for the promulgation of the revised Law of Land Administration in 1998. Data are excerpted from Zhongguo chengshi fazhan baogao 2014 中国城市发展报告 2014 [China Urban Development Report 2014]

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building urban infrastructure (financing, loans, and self-raised), government investment accounted for 32.2%, bank loans accounted for 29.6%, and self-raised investments by enterprises accounted for 28.7%, but all three funding sources were highly dependent on land. One institutional arrangement consisted of deepening the degree of housing marketization, which became a “downstream export” as the government realized the land use assignment revenue. In 2003, the state further clarified the direction that housing marketization was to take and increased support for housing consumption credit; market demand for housing increased greatly, and real estate became a pillar industry. In 2003, the sales area of commercial residential buildings nationwide increased 25.6% from the previous year, and the newly-started area of commercial residential buildings nationwide increased by 26.3% from the previous year. In response to the rapid rise in housing prices, land was involved in an adjustment in 2006, and the growth rate of the newlystarted area of urban commercial housing nationwide dropped to 9.3%, which drove housing prices up even further. In 2005, the state further increased controls on housing, which did not meet expectations on stabilizing housing prices. In 2005, 2006, and 2007, the average sales price of newly-built commercial housing nationwide increased by 12.6%, 6.2%, and 16.9% respectively, but in some cities, such as Beijing, they increased even more. In 2006, the price of newly-built commercial housing in Beijing rose by 19.69%, and in 2007 it rose 44.55% (Deng 2016). 2.4

2008–2016: Using Land as Collateral to Finance Urbanization

After 2008, China’s urbanization process has continued to accelerate, but the way it has promoted urbanization has changed. From 2008 to 2016, the urbanization rate of the permanent population increased from 46.99% to 57.35%, and the urban population grew at an average annual rate of 25.22%. Urban expansion accelerated, and cities at different levels nationwide expanded simultaneously. From 2008 to 2015, municipalities, provincial capitals, prefecture-level cities, and county-level cities expanded by 29.70%, 40.02%, 47.51%, and 35.65% respectively, but the industrial growth rate declined. The growth rate of industrial added value from 2008 to 2016 was 88.17%, down 49.76% from the previous stage. The tertiary industry proportion surpassed that of secondary industry in 2012. The overall economy became more dependent on the real estate industry. Real estate investment as a proportion of fixed asset investment

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increased by 18.23% annually, and the balance of real estate and personal home purchase loans in the balance of loans from financial institutions increased from 9.420 trillion yuan in 2010 to 26.30 trillion yuan in 2016, their proportion increased from 19.91% to 24.62%, and the growth rate increased from 13.90% in 2011 to 16.57% in 2016. In 2016, housing assets as a proportion of residents’ assets reached 65.99%. Such new features were also the results of changes in the land system and related systems during this period. There were three major changes: First, in 2008, in response to the international financial crisis, the government presented a 4 trillion yuan fiscal stimulus policy, loosened the currency and land supply, and increased investment. From 2008 to 2016, the annual growth rate of M2 assets reached 226.22%, and the growth rate of new construction land was 34.80%, which was the most important factor. Second, financing using land as collateral was broadened. After the taxsharing reform of 1994, some financing rights were withdrawn to central government, and so localities established investment and financial platforms, such as urban construction firms. In 1997, the State Council issued the document, “Concerning the Recent Plan for the Reform of the Investment System” (关于投资体制近期改革方案), and many local governments established wholly state-owned urban investment companies. Consequently, from 1997 to 2008, local governments’ use of investment and financing platforms for project financing increased. In the second half of 2008, governments at all levels established investment and financing platforms one after the other. In March 2009, the People’s Bank of China and the China Banking Regulatory Commission (CBRC) jointly issued the “Guiding Opinions on Further Strengthening the Adjustment of the Credit Structure to Promote Stable and Rapid Development of the National Economy” (关于进一步加强信贷结构调整促进国民经济平稳 较快发展的指导意见), which to a certain extent increased local governments’ enthusiasm for borrowing. In 2010, the State Council issued the “Notice on Issues Relating to the Strengthening of the Management of Local Governments’ Financing Platform Companies” (关于加强地方政府 融资平台公司管理有关问题的通知; Guofa no. 19) as a policy restraint. The CBRC’s list of local investment and financing platforms shows that by 30 June 2017, there were 11,740 investment and financing platforms established by various levels of government in various regions. Local governments have shifted away from the techniques used during the previous stage, when they depended on revenue from land assignment fees

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and took out new loans to pay off old debts, toward borrowing money by using land as collateral and as a pledge. Third, there has been increased investment in real estate development and infrastructure building. During the period when exports declined and manufacturing was transformed, investment for real estate development increased from 3.12 trillion yuan in 2008 to 10.3 trillion yuan in 2016, and infrastructure building investment in the same period increased from 3.27 trillion yuan to 11.9 trillion yuan, with an average annual growth rate of 18.69%.

Under this set of policies, China’s urbanization model has shifted away from reliance on land assignments through bid tendering, auction, and quotation, to reliance on land mortgage financing. From 2008 to 2015, even though the government’s land assignment revenue continued to increase from 1.03 trillion yuan to 3.37 trillion yuan (see Table 3), it started to fluctuate. In some cities, most of the newly added land became reserved land instead of being used. Furthermore, as farmers’ awareness of their rights improved, the cost of land expropriation, demolition, and removal has risen sharply. Since 2008, the costs of land assignment for the government have risen sharply, taking up more than half of the land assignment revenue in many places, and more than 60% in some places. As a result of these rising costs, the government’s net income from land assignments fell to around 20% by 2016. As land costs rose and land assignment income declined, city governments at all levels have turned to land mortgage financing as their source of funds for urbanization. From 2008 to 2015, the land mortgage area in 84 cities increased from 2.49 million mu to 7.36 million mu, an increase of 1.95 times, and the land mortgage amount increased from 1.33 trillion yuan to 11.3 trillion yuan.3 Land had become a financing tool of local governments. Chinese local governments are highly dependent on land both for borrowing and repayment. Fifty percent of them rely on local financing platforms, and land is the main collateral; their debt repayment relies mainly on the revenue from land assignments, but it is a form of repaying old debts with new debts. By the end of 2010, the amount of debt undertaken by governments at all levels with the idea that they would 3 The source of these data is the annually published Zhongguo guotu ziyuan gongbao 中国国土资源公报 [China Land and Resources Bulletin], http://www.mlr.gov.cn/sjpd/ gtzygb/.

40.53 41.76 42.99 43.90 44.94 45.68 46.59 47.50 51.27 52.57 53.70 54.77 56.10

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

28,308.02 30,406.19 32,520.72 33,659.80 35,469.65 36,295.30 38,107.26 40,058.01 43,603.23 45,565.76 47,855.28 49,772.63 52,102.31

Urban construction zone area (sq. km.)

0.542131 0.641218 0.588382 0.807764 1.221672 1.025980 1.591020 3.010893 3.150000 2.690000 4.200000 4.294030 3.365773

Government land assignment revenue (trillion yuan)

27.78 29.16 35.05 28.60 50.91 81.91 85.30 88.27 91.25 90.77 92.32 92.53 75.20

– – – – – 166,000 217,000 258,200 300,800 348,700 403,900 451,000 490,800

Proportion of area Mortgaged land assigned by bid area (hectares) tendering, auction, and quotation (%)

Sources China Economic Information Network (中经网) and Zhongguo guotu ziyuan gongbao

Urbanization rate (%)

Land capitalization and urban expansion

Year

Table 3

– – – – – 1.8107 2.5856 3.5300 4.8000 5.9500 7.7600 9.5100 11.3300

Land mortgage amount (trillion yuan)

2,359.00 2,778.00 3,167.66 3,366.79 3,863.90 3,800.00 4,681.00 5,032.00 5,357.10 5,790.99 6,237.00 6,324.00 6,793.00

Average sales price of commercial residence (yuan/ sq. m.)

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use land assignment revenue as the source of their debt repayment funds accounted for 37.96% of the debt that the local governments were responsible for repaying (Liu 2012). After 2011, the central bank raised the threshold for using land to borrow money, but for most local governments, land assignment revenue was still the main funding source for debt repayment. In 2011, there was a sharp drop in land assignment revenue nationwide, and the land assignment revenue paid into the state treasury dropped by 92.4% from the previous year. The drop of land assignment revenue in the eastern region was the most serious.4 In addition, banks are the largest providers of funds. At the end of 2010, bank loans accounted for 79.01% of local government debt funds, of which 74.84% were bank loans for which the local governments bore the liability for repayment. From information disclosed by the National Audit Office in 2013, it can be seen that in the national debt balance, the bank loan balance was 10.1 trillion yuan, which accounted for 48% of the national local debt balance. In this round, the main method of debt repayment by China’s local financing platforms has been to take out new loans to pay off the old. A survey of 358 financing platform companies showed that at the end of 2010, the average rate of these companies assuming new debt to repay the old was 55.20%. To prevent risk, the CBRC explicitly prohibited the practice in 2011, but even so, the overdue debt ratio of local financing platforms has still been increasing. At the end of 2010, 148 financing platform companies had overdue debts, and the average overdue debt ratio was 16.26%; there were 1,734 financing platform companies (26.37% of the total) that were suffering losses. At the end of 2012, there were more than 10,000 financing platforms in all, the combined loan balance of which amounted to approximately 10 trillion yuan, a year-on-year increase of about 500% (Liu 2013). Housing prices continue to climb, inflating asset bubbles. In 2008, the state strengthened the construction of subsidized housing (baozhangxing zhufang 保障性住房) and increased credit support for the consumption of personal-use commercial housing (zizhuxing shangpin zhufang 自住型 商品住房) and improved ordinary housing (gaishanxing putong zizhufang

4 See “Quanguo tudi churang shouru guanli ji shiyong qingkuang” 全国土 地出让收入管理及使用情况 [National Land Assignment Revenue Management and Use] (2011), http://www.mof.gov.cn/zhuantihuigu/czjbqk2011/czsr2011/201208/t20 120831_679821.html.

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改善型普通自住房),5 so that in 2009, the real estate market rebounded rapidly. The total sales area of commercial housing nationwide was 948 million square meters, a year-on-year increase of 43.6%. Of this total area, the sales area of commercial residential buildings was 862 million square meters, a year-on-year increase of 45.4%, and the national average sales price of newly constructed commercial residential buildings was 4,459 yuan per square meter, an increase of 898 yuan per square meter, or 25.1%, compared with 2008. In 2009, the state continued to comprehensively use land, finance, taxation, and other means to strengthen and improve the regulation of the real estate market, and curb the rapid rise in housing prices in some cities. From 2010 to 2013, the State Council, relevant ministries, and local governments repeatedly issued relevant regulatory policies, but the problem of sharp fluctuations in the real estate market in “hot” cities like Beijing was still rather conspicuous. In 2009, the sales area of commercial residential buildings in Beijing increased by 82.3%. In 2010 and 2011, it decreased by 36.1% and 16.9% respectively, but then it increased 43.3% in 2012. In 2010, the average sales price of newly constructed commercial residential buildings in Beijing still rose by 29.9% from the previous year; in 2011 and 2012, it decreased 9.5% and 0.1% respectively. Since the second half of 2012, with the rebound of sales and the decline of new construction, housing prices in Beijing have rebounded significantly. Since 2014, the commercial housing market has undergone major changes, as the sales area and new construction area of commercial housing have begun to decline significantly, while inventory has rapidly increased. Due to the effects of policy adjustments in purchase restrictions, credit, and so on, the sales area of commercial housing in 2015 increased by 7.9% from the previous year, but since 2016, this sales area has continued to grow. Since March of that year, the area awaiting sale has continued to decline, and has fallen below the level at the end of 2015 (Liu 2017). The rapid rise in housing prices is not only the result of the increase in demand brought about by urbanization, but is also related to China’s land system and government behavior. City governments have reduced the supply of residential land in order to obtain high income from their land, which has resulted in tight housing supply and rising housing 5 Translator’s note: “Improved ordinary housing” in the usual urban context refers to a second unit that a person purchases when he or she finds their original “ordinary house” (a unit of locally-designated standard size) is too small; the buyer may sell the original unit or keep it in addition to the new one. It is often larger than the original unit.

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prices. Residents’ demand for housing has thus shifted from a demand for a place to live to a demand for a tool for investment and speculation, which has further exacerbated the imbalance between housing supply and demand.

3 The Need for Deepening the Reform of the Land System In the 40 years of rapid economic growth, industrialization, and urbanization as a result of reform and opening up, China’s unique land system arrangements and pathways of change have played very important roles. The wide supply of land ensured high economic growth. Local governments attracted investment with distorted industrial land prices and used land to provide park infrastructure, promote high-speed industrialization, and make China into the “world’s factory.” Utilization of land capitalization and land financing solved the problem of providing the huge source of capital needed for China’s urban development, and it promoted rapid urbanization. However, in recent years, the institutional benefits of this institutional framework have been significantly reduced; institutional costs have risen, and the risks to the nation’s economic operations have increased. The problem’s main manifestation has been that after the economic growth rate has declined and the economic development stage has changed, the effectiveness of continuing to depend on releasing land to boost growth has diminished. An obvious fact is that in recent years, with the slowdown of the phased transition of economic growth, the demand for land has declined, the growth rate of local land supply has also slowed down, and the effectiveness of land-based investment in attracting investment has diminished. A specific manifestation is that the proportion of national industrial land is declining, and the demand for manufacturing is declining. After the last round of development, business enterprises in the eastern region have bid farewell to “shortage of capital,” and after they have upgraded themselves, their land costs as a share of total costs have decreased, so the demand for obtaining loans by using land as collateral has decreased. Meanwhile, business enterprises have shown less willingness to enter the central and western regions, due to insufficient development opportunities. Local governments there continue to use low land costs to attract investment and provide infrastructure even better

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than in the eastern region, but few businesses settle in, and their industrial parks have not performed well. As business demand for land diminishes, and the real estate land supply is linked to local governments’ land revenue, real estate land ( fangdichan yongdi 房地产用地) continues to keep a low position. To maintain growth, local governments allocate larger proportions of land as infrastructure land, thereby increasing the imbalance of land supply structure and exacerbating the imbalance in the national economic structure. As the costs to local governments of land assignments have climbed, and their net income from those land assignments have declined, their debt and repayment pressures have increased. Since land assignment income is not enough to meet the large-scale demand for construction capital, the local governments have to increase land mortgage financing, thus increasing bank financial risk. Therefore, the main purpose of the needed land system reform will be to respond to the changes in land functions after the phased transition of economic growth, evaluate the changes in the benefits, costs, and risks of the original system, and on this basis, make historically responsible improvements and revisions to the relevant institutional arrangements. China’s economy in its next stage will have some features significantly different from those of the previous one, and a grasp of these features will be helpful for judging the basic direction of land system reform: (1) Economic development will become less dependent on land. If China’s economy in the next stage cannot be driven by innovation, but continues to increase its dependence on land, China’s transformation will be a failure. As economic growth shifts to medium–high speed, the era of ensuring growth with a broad land supply has come to an end; the improvement of land allocation efficiency will play a more important role in the quality of economic growth. Determining how to adapt to this change in the way land is supplied and allocated is the first major unavoidable problem that must be faced in the revision of the Law on Land Administration. (2) In industrial transformation and upgrading, the competitiveness of industries supported by the supply of low-cost land will be weakened. Changes in comparative advantages, institutional costs, and the relative price of factors are making it impossible for China to continue to rely on low land costs to maintain its status as the “world’s factory.” Some regions, cities, industries, and businesses

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have improved their global competitiveness through transformation and upgrading. Some regions, cities, industries, and enterprises that lose competitiveness will face transformation and death. Due to the optimization of the structure of construction land, the reorganization of industrial land, and the reform of land supply methods, the revisions to the Law on Land Administration will also have to address these changes. (3) The long-term existence of an urban–rural China as an economic and social form must be treated with seriousness. In terms of economic and social form, China’s modernization has been having to go through three stages—rural China, urban–rural China, and urban China—rather than going directly from rural China to urban China. Urban–rural China has become an independent economic and social form and period of development because it has some unique characteristics. First, urban–rural China is unlike rural China and urban China, which are stable, because the cities and the countryside are constantly changing due to economic, social, and institutional changes. Second, it is experiencing an urban–rural structural revolution caused by intergenerational differences in population migration. The second generation of migrant workers are leaving the land, the farm, and the village and not returning, which is leading to changes in agricultural functions and forms, as well as changes in rural industries and their forms. Third, the face of both urban and rural areas is undergoing immense change, and the villages are becoming highly differentiated. Most villages will decline, while a small number will thrive. Some small towns will grow and become like post stations between cities and villages. Meanwhile, some cities will win due to a clustering of factors, knowledge diffusion, and the innovative vitality, while others will fade. Major changes in technology and institutions will promote the historical transformation at this stage. Migration and changes in relative factor prices will create a large number of new profit opportunities, induce technological changes, and promote the accelerated transformation and upgrading of agriculture, manufacturing, and service industries. These developments will bring about interaction between economic and political actors in order to promote institutional change. Urban–rural interaction

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will replace one-way urbanization, migration patterns will show convection between urban and rural areas, and while capital will go to cities, looking for profit, it will also go more quickly to the countryside—the allocation and capitalization of land between urban and rural areas will be accelerated. The key for a successful transformation from the urban– rural China to the urban China will be a systemic reform to open up both urban and rural areas, and the “key of the key” will be systemic reform of the land system.

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CHAPTER 15

Land System Reform and National Economic Growth

This chapter is based on field research in Guangdong, Zhejiang, Jiangsu, Anhui, Henan, Chongqing, Shaanxi, Beijing, Tianjin, Shanghai and other provinces and cities. We believe that in order to maintain a healthy national economy, we should make use of land policy’s role in macroeconomic control, and start from the reform of the land system to transform the methods of economic growth; neither of these can be neglected. The current land system launched high-speed economic growth, contributed to the formation of an expansionary growth mode, strengthened local governments’ ability to intervene in the economy, and formed a structure in which land and local finance, investment, financial credit and real estate market development are closely linked. However, a huge game of interests arises from this, and a great number of dilemmas arise through the process of land expropriation. Deepening the reform of the land system, shifting the allocation of the important production factor of land from the government to the market, and establishing a long-term mechanism to ensure that land supports the sustainable development of the national economy—these are the fundamental solutions.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_15

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1 1.1

Land Plays an Important Role in Current Economic Growth

Land Became a Booster for High-speed Industrialization and Urbanization

Starting from the late 1990s, the rapid advancement of China’s industrialization and urbanization has benefited from the current land system. With respect to industrialization, the government’s establishment of industrial parks and use of land to attract investment became the main axis for attracting industrial enterprises. It differed from the spontaneous, widespread kind of industrialization that occurred when town and township industries started in the late 1980s. During and after the 1990s, however, industrial enterprises entered the various governmentestablished industrial parks one after the other. The establishment and expansion of these parks depended mainly on the rolling development of land expropriated from farmers. By 2005, there were 6,866 development zones of various types in China, with a planned area of 38,600 square kilometers, which exceeded the total area of 31,500 square kilometers of existing urban construction land. After these were adjusted, there were still 1,568 national and provincial development zones with a planned area of 10,200 square kilometers. In 2004, the industrial added value realized by 49 national-level economic and technological development zones and 5 similar parks accounted for 9.19% of the national total industrial output value. In some of the large and medium-sized cities and developed coastal provinces, the industrial parks accounted for an even larger share. The GDP of the three economic and technological development zones in Tianjin, Dalian, and Guangzhou accounted for 19%, 18%, and 12% of their local GDP respectively. The industrial added value of the 62 provincial development zones in Zhejiang accounted for 25.35% of the industrial added value from industries of scale or higher in the province, while the industrial output value of the development zones at or above the provincial level in Fujian accounted for 45.49% of the province’s entire industrial output value. Industrial enterprises concentrated in parks not only because the parks could provide better infrastructure, services, and the scale effects of business clustering, but also, primarily, they were attracted by the local governments’ assignment of industrial land by agreement. The local governments generally supplied land to businesses at cost, but in order

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to attract and retain the stronger ones, some places would even supply land at a price lower than cost or even at “zero price.” In some places, local governments formulated a policy of capping the negotiated price of industrial land. The desire to attract investment directly evolved into vicious competition to offer the lowest land prices, since there was a financial competition among local governments. This kept the price of industrial land low for a long time, and in some regions, it decreased instead of increased in price. According to a Zhejiang Provincial Bureau of Statistics’ investigation on the province’s national industrial parks, the province’s average land development cost in 2004 was 98,800 yuan per mu, and in some parks it was as high as 200,000 yuan per mu. Most of the industrial parks were developed by the government, or the government authorized businesses to develop them, but the assignment costs of the industrial land were less than the cost—88,300 yuan per mu on average. For nearly one-fourth of the park land, the average assignment costs were less than half of the development cost. This phenomenon was also common in Shanghai, Jiangsu, Guangdong and other places. Since 1998, the negotiated assignment price of industrial land in the southeast coastal region has been maintained in the 120,000–180,000 yuan range. From 2000 to 2003, the negotiated price of industrial land in some counties and cities dropped by 40–50 yuan per square meter. The supply of industrial land at negotiated low prices ensured the rapid advancement of industrialization, but it also bred speculation in park land, which resulted in low land use efficiency and even a large amount of idle land. As for urbanization, the built-up, urban area in China increased from 21,400 square kilometers in 1998 to 32,500 square kilometers in 2005, at an average annual growth rate of 6.18%. Whether in the eastern or central and western regions, urban areas expanded rapidly, by relocating county seats, by transforming counties into cities or transforming cities into urban districts, or by other means of adjusting administrative divisions. Even for some county-level cities, the urban areas expanded outward at a rate of 5–6 square kilometers per year. According to statistics from 664 cities, by 2005, the per capita land for urban residents had reached 133 square meters, which was 33 square meters greater than the maximum limit of urban planning and construction land stipulated by the state, and far greater than the 82.4 square meters per capita of urban land in some developed countries. This expansion of cities resulted in a much lower floor area ratio or plot ratio than that of foreign cities. The floor area

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ratio of Chinese cities is only 0.33, while some foreign cities have reached the level of 2.0. The land system was an important tool that enabled local governments to carry out urban expansion so easily: First, the acquisition cost of rural land was low, and the expected benefit of converting it to urban land was high, which led to the extraordinary expansion of urban area by local governments. The first and most convenient method used by city governments was to continuously revise the urban construction plan in order to expand the scope of construction land, and the second method was to take advantage of the huge profit margin between the low compensation given out to land-expropriated farmers and the compensation received by cities in the form of land assignment fees; this way, they occupied a large amount of land with appreciation potential. Second, the low acquisition cost of most of the construction stimulated land users to over-occupy land and seek to occupy still more land. Only 15–20% of urban land, i.e., commercial, real estate, and other commercial land, was assigned through bid tendering, auction, and quotation; most of the urban land by far was supplied through administrative allocation and went for urban infrastructure and for use by non-commercial units. This encouraged an upsurge in vanity projects. 1.2

Land-related Income Became an Important Source of Local Government Fiscal Revenue

After the tax-sharing system was implemented in 1994, the basic pattern of fiscal distribution between the central and local governments was changed. After 75% of the VAT and half of the Income Tax funds went to higher levels, the proportion of local revenue in total fiscal revenue dropped from 78% in 1993 to 47.7% in 2005. For example, Shaoxing’s total financial revenue in 2003 and 2004 reached 3.08 billion yuan and 3.8 billion yuan respectively, but the revenue retained in the locality was only 1.35 billion yuan and 1.7 billion yuan, respectively. Yiwu City’s total financial revenue in 2003 was nearly 5.9 billion yuan, but its local tax revenue was only 1.3 billion yuan. However, the withdrawal of financial power to higher levels did not reduce local routine power accordingly, and the proportion of local financial expenditure as a share of total expenditure increased from 71.7% in 1993 to 74.1% in 2005. This situation also inspired local governments to actively develop sources of discretionary income.

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Their first method was to find means of increasing land assignment income. In the four years from 2000 to 2003, income from land assignments nationwide amounted to 910 billion yuan; in 2005 alone, it was 550 billion yuan. Local extra-budgetary revenue as a share of local fiscal revenue increased from 82.8% in 1993 to 92.5% or higher in 2004. A survey of the southeastern coastal region showed that in the three years before stricter land management was imposed, the land assignment revenue in some counties and cities was more than 1 billion and as much as nearly 2 billion yuan and accounted for more than 60% of their extra-budgetary income. In the central and western regions, due to the lower level of economic development, the proportion of land assignment income in local fiscal revenue was relatively low, but it was also showing an upward trend in more recent years. In Shaanxi Province, land use fees collected by Shaanxi Province increased from 36.26 million yuan in 2000 to 458 million yuan in 2004; a total of 1.36 billion yuan was collected during this period. The province’s land assignment revenue increased from 28.695 million yuan in 1998 to 871 million yuan in 2004. The second method that local governments used to increase their discretionary tax revenue was through urban expansion. Since the tax revenues brought by urban expansion, including the business and income taxes on construction and real estate industries, were all shared by local governments, the latter were very enthusiastic about developing the urban construction and real estate industries. Tax revenue from these two industries produced the largest increase in local tax revenue. In some developed counties and cities, it increased by as much as 50% to 100%, accounting for 37% or more of the total local tax revenue. In Xianyang City (咸阳 市), in the western region, the contribution from the construction and real estate industries to local tax revenue increased respectively by 3.8 and 2.9 percentage points from 2001 to 2003, and these two tax revenue streams accounted for more than 25% of the local government revenue. In Chang’an District, Xi’an City, tax revenue created by the construction industry in 2003 was nearly 6 times that of 1999, and tax revenue created by the real estate industry was 20 times that of 1999. 1.3

Land Became an Important Tool for Leveraging Bank Funds, Urban Infrastructure, Real Estate Investment, and Financing

In this round of urban expansion, urban infrastructure investment and real estate investment became the two main axes. That huge amount of money

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the government invested in urban infrastructure—where did it come from? In the counties and cities along the southeast coast, the investment in urban infrastructure ran as high as tens of billions of yuan, of which financial investment accounted for about 10%, land assignment revenue accounted for about 30%, and land financing accounted for 60%. In the western regions, local public finance depended mainly on support from transfer payments from the central government; land assignment revenue was limited, and bank loans accounted for a higher share, as much as 70% to 80%, of urban infrastructure-building investment. In Xianyang City, Shaanxi Province, 15 projects were completed or were under construction in the 2000–2005 period, with an actual investment of 953 million yuan; bank loans accounted for 76.7%. These funds were obtained by the government through land reserve centers, government corporations (zhengfuxing gongsi 政府性公司), and development zone management committees, which functioned as financing entities that obtained loans from banks, with land as collateral or government finance used as credit guarantees. Shaoxing County Urban Investment Company (绍兴县城投公司), which was established in September 2000, borrowed 326 million yuan from banks by 2004, using land as collateral for more than 60% of the loans. From 2003 to September 2004, Shaoxing County Land Reserve Center (绍兴县土地储备中心) obtained a loan of 2.113 billion yuan, using land as collateral. Jinhua City Land Reserve Center (金华市土地 储备中心) obtained a loan of approximately 2.6 billion yuan, using land as collateral. The same was true in the central and western regions. As of 30 September 2004, the Shaanxi Provincial Land Reserve Center (陕西省土 地储备中心) had obtained loans of 1.945 billion yuan with land as collateral, and the balance of Xi’an City’s land-collateralized loans had reached 1.571 billion yuan, accounting for 80.78% of the province’s total. In addition, many industrial parks were using the legal person qualifications of the park development companies and the collateralized reserved land in the parks to take out loans. From 1994 to 2003, Xi’an City High-tech Development Zone (西安市高新技术开发区) used a total of 4543.74 mu of various types of land with an assessed value of 4.849 billion yuan as collateral for loans amounting to 3.038 billion yuan. The development of the real estate market became the channel by which the government repaid the huge loans for urban infrastructure investment and realized the revenue from land assignments, while bank

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credit was the backing for real estate investment and for individual residents’ home purchases. From 1999 to 2004, the balance of real estate development loans of the four major state-owned commercial banks in some developed areas, counties, and cities increased by nearly 40 times, with an annual growth rate of more than 100%. Meanwhile, the balance of these commercial banks’ personal housing consumption guarantee loans increased by nearly 200% annually on average.

2

The Severe Challenges Faced by the Current Land System

China implements a system of dividing urban and rural areas, and the government monopolizes the primary market in urban land. On the one hand, rural and urban land are subject to different legal constraints; they are managed by different agencies and form different markets and rights systems. On the other hand, in any case involving the conversion of rural land into construction land, it must first be expropriated by the government, and any unit of land used for construction must be state-owned. This system makes local governments into the only bodies deciding the conversion of rural land into construction land, and the only suppliers for the primary market in urban land. Reforms have improved the degree to which the market allocates resources, but the government’s monopoly on land has also been strengthened. The status quo—that China’s economy is being driven by investment—is closely related to the fact that most of the investment is being provided by banks, and the local governments are using land to leverage their financing activity. The law gives to local governments a monopoly right to land, which is not only an important guarantee for them to survive and maintain their operations, but also facilitates the formation of the special incentive structure for them to use land to initiate economic growth. The more the government expropriates and sells land, the more disposable local income it has; the more land held by the government, the lower the cost of urban expansion; and the cheaper and easier it is to attract investment, the more sources of tax revenue the government has. The drawbacks of this approach to growth have been manifested in many areas—banking and finance, investment, price formation mechanisms, social harmony, and government behavior. The whole aim of using land’s role in macro-economic control is to restrain the behavior of local governments. However, local government finances are severely reliant on land and its related revenue, which sometimes

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greatly compromises the outcomes of the central government’s land regulation and poses a serious challenge to sustainable economic and social development. 2.1

The Administrative Allocation and Indicator Management Approach Is Still Used for Construction Land

Since the reforms, the vast majority of China’s products and production factors have completed the transformation from planned allocation to market allocation, but land is one of the few production factors in which application, review, and approval processes have been increased, in which rights and powers have been withdrawn to higher tiers of government, and government monopoly has been strengthened. To protect cultivated land and restrict the use of land by local governments, the central government uses the construction land indicator control and land use approval system. However, if this management model is not changed, it will inevitably lead to the wasteful use of land and affect the sustainability of economic development. When land is assigned through administrative allocation and agreement, it results in a waste of resources and a distortion of allocation. In 2000, 129,200 hectares of state-owned land were allocated and assigned nationwide; 62.36% of it was allocated, and 37.64% of it was assigned. In 2003, 258,900 hectares of state-owned land were allocated and assigned nationwide; 72.16% of it was allocated and assigned by agreement, and only 27.94% was assigned through bid tendering, auction, and quotation. In the southeastern coastal provinces and cities, where land is already extremely scarce, the administrative allocation of land is still as much as 40%, and the land assigned by agreement is around 35%. In the central and western regions, due to insufficient industrial development, the proportion of land assigned by agreement is low, but the proportion of administratively allocated land (due to substantial investment in infrastructure) is high. From 1998 to 2004, the proportion of land assigned by agreement in Shaanxi Province was about 22%, while the proportion of land allocated for infrastructure and public projects (public facilities, public buildings, and transportation) was as high as 55%. When such a high proportion of construction land was allocated free of charge and assigned at low prices, it encouraged relevant units to occupy more and more land, which resulted in land being non-intensively used. According

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to a survey of 400 cities, the amount of idle land in urban construction areas accounted for one-fourth of the built-up areas. The low price of land assigned by agreement induced business enterprises to close off and occupy more and more land, and it led to regional distortions in industrial land allocation. In the Pearl River Delta and Yangtze River Delta regions, too great a proportion of land is industrial, while urban functional land is in short supply. In the central and western regions, by contrast, local governments allocate construction land mainly by allocation for the purpose of urban infrastructure-building, but the tertiary industries of commerce, services, finance, and so on, which make up the heart of urbanization, have not been developed accordingly. Management through construction land indicators is out of touch with the demand for land for economic development. Although strengthening the indicator management and review and approval process aims to protect cultivated land and restrain wasteful use of land, it has not achieved these goals. The present construction land index allotted to each locality was issued from top to bottom when the overall land use plan was prepared in 1997, which is heavily planned—out of touch with the needs of local economic development. In particular, the speed of economic development in the developed coastal areas has exceeded expectations, and the actual land demand has greatly exceeded the planned amount. Some provinces used up their ten-year targets in five years, and some provinces used up their 2010 targets already in 2000. For example, in Zhejiang Province from 2000 to 2004, approximately 500,000 mu of construction land was used per year; in the peak year it was as high as 700,000 mu. In 2005, after the imposition of strict land management, the construction land index issued by the state amounted to 165,000 mu; this, plus the discount index of land already approved amounted to more than 200,000 mu. A large number of approved projects were waiting for land to start construction. According to the land use planning and construction land indexes of the time, some cities in Zhejiang would face the dilemma of having no more land available in five to ten years. Although the situation in the central and western regions was not as urgent as in the developed regions, the same situation had emerged for some districts and central cities. In 2005, only 60% of the planning indicators of Shaanxi Province had been used, but the construction land indexes for Xi’an and other central cities were already showing a large gap. By the end of 2003, the area of Xi’an’s construction land had already exceeded the planned target of 38,100 mu, and there were 84 key projects waiting

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for the target of 61,800 mu. With the rise of the central region and the implementation of the western development strategy, some regions in the Center and West found themselves in a situation similar to that of the developed regions in the East. The sharp difference between strict control with land use indicators and the demand for land due to rapid economic development led to the spread of illegal land use. Land-based rent-seeking and other rent-seeking behaviors were thus encouraged. With land resources entirely allocated by government administration, all kinds of rent-seeking behaviors on land emerged. It is difficult to ferret out how much rent there was, but there are several kinds of sources. First, there were the relevant fees for land charged by government departments. The fees of the land resource departments alone included cultivated land reclamation fees, management fees, business fees, registration fees, house demolition fees, discount index fees, compensation fees for recovering state-owned land, and paid use fees for newly added construction land. Together these amounted to more than 200 million yuan for some counties and cities. Second, local governments artificially reduced land supply, created scarcity, and increased land rents in order to raise the price of land offered through bid tendering, auction, and quotation. Third, some units profited by transforming administratively allocated construction land into construction land when urban plans were revised, or when “secondary industry was suppressed to develop tertiary industry” (tui er jin san 退二进三) in the 1990s. Fourth, businesses in industrial parks would use the industrial land which they had applied for to build residential buildings or staff dormitories. They would even fence the land and leave it idle, wait for planning changes and land appreciation, and then transfer the land to earn a form of land rent. Fifth, some local governments increased the proportion of allocated land, then allocated a certain proportion of that as non-public welfare land, and then took this land—which the central government had specified had to be commercial land for businesses and service industries, to be assigned by public bidding, auction, and quotation—and assigned it by agreement or by other means. This enabled private individuals and groups to earn huge profits, and it bred corruption.

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Some Local Governments Rely on Land Management and Financing

For government-managed land, risks and profits coexist. Land that the government allocates in the name of the “public interest,” that is, land for roads, greening the environment, and for scientific, educational, cultural, and sanitation uses, accounts for around 50% of all urban construction land. Meanwhile, 25–30% of the industrial land assigned by agreement is supplied at a price below cost and even at “zero price,” so that the government will be unable to obtain revenue from that land in the near future. According to one survey, industrial parks that are generally more successful in attracting investment from land can become self-sustaining only after eight to ten years of business growth and tax conservation. However, a large number of them are in a state of long-term loss due to using low prices on their land to attract investors, who then occupy the land but keep it idle. Only the commercial land used for business, entertainment, tourism, commercial housing, etc., which is assigned through public bidding, auction, and quotation, can bring current income. But only 15–20% of the land in various places is actually assigned this way. How much profit the management of this kind of land can bring to the local government depends on the level of local economic development and how well-developed the local real estate market is. Places like Xianyang in Shaanxi have only 10 million yuan of land assignment income each year. The city and county governments in Zhejiang, Jiangsu, Guangdong, and other eastern provinces, meanwhile, can earn much more than that from land assignments, but this amount can also be affected by macro policies. When strict land control was implemented in 2003, Shaoxing County and Jinhua City in Zhejiang only assigned a few hundred mu of land, so their land assignment income plummeted to 100 million yuan. This caused a dire shortage of funding for urban infrastructure building, which had been supported mainly by land transfer income and landcollateralized loans, and this in turn made it difficult for the government corporations to repay the loans. As the land reserve centers became institutions that manage land and provide mortgages, the government’s credit risk increased. Most of the land that enters their reserves has been expropriated from farmers’ collective land through administrative means. In the vast majority of counties and cities that have implemented this land reserve system, all the reserved land eventually becomes residential and commercial land through public

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bidding, auction, and quotation. Not a single mu goes for public welfare uses, nor for industrial land assigned through agreement. Land reserve centers have thus become institutions for the purpose of maximizing the government’s land income. At the same time, great risks are present in the government land reserves. One kind is business risk. In the central and western regions, due to the limited demand for land, many county-level cities and small city governments have purchased small amounts of reserved land, and most of this reserved land has not yet been supplied. From 2000 to 2004, as much as 65.8% of the reserved land in Shaanxi was unsupplied; only 37.2% of the reserved land in Xi’an has been supplied. The price of some of the land that has been supplied is also far lower than what the government had expected. In Xi’an High-Tech Development Zone, which had the highest land assignment price in Shaanxi, the net income per mu of land assigned from 2003 to 2004 was only 590,000 yuan, and the net income per mu of land reserved in Xianyang was about 180,000 yuan. The second kind is policy and legal risk. Since the government cannot provide direct loans, one after another government company has been established, each specializing in areas of urban infrastructure building, such as urban construction, urban development, and so on. The main way for them to obtain loans is to bring land from the reserve agency and use it as collateral with a state-owned bank. The term of the loan may be one or two years to ten years. The loans provided by the banks actually rely on government credit. The huge amounts of these corporate loans and the irregular way they operate directly endanger the stability of the local fiscal and financial system. Although land reserves are very abundant on the local level, so far there has been no national law or regulation on such land reserves—only local documents have been approved. Due to the lack of formal regulatory control, these companies have grown in an unpredictable way, which has raised alarms in some places. The excessive management of land by local governments and the high reliance on land mortgage financing have resulted in increasing fiscal and financial risks. The high dependence of real estate developers and personal housing loans on bank credit also increases financial risks. In this round of economic development, the level of the government’s disposable income depends on the income from the public bidding, auction, and quotation on land; land assignments depend on the level of activity and bidding from real estate developers; and the rise in commercial housing prices depends on the purchase of homes by residents. The government, real

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estate developers, and individual buyers all rely on bank credit as their backing, so it is the bank that ultimately bears the risk. Since 2006, the central bank has taken a series of measures to control the excessive growth of the money supply, but the total money supply is still too large. The fast-growing money supply drives the government’s investment in urban infrastructure, real estate development, and residents’ home purchases, and the collateral for all of these investments is land. In 2005, 60% of the loan balance of the four major state-owned banks in Guangdong Province was obtained through land and land-related collateral. In Shanghai, real estate credit already accounts for one-third to one-half of the total loans of Chinese-funded commercial banks. From 1999 to 2004, the real estate loan balance of the four major state-owned commercial banks in some of Zhejiang’s counties and cities increased by nearly 40 times, with an average annual increase of more than 100%; the average annual growth of the balance of personal housing consumption guarantee loans was nearly 200%. After the central government issued strict orders, the real estate development loans basically cooled down, but personal housing loans became the focus of various banks, and vigilance about the risks from these loans would be worthwhile: (1) The growth rate of residential housing consumption credit far exceeds the growth rate of urban residents’ per capita disposable income. From 1999 to September 2004, the balance of guaranteed loans for personal housing consumption in Shaoxing increased by 77 times, while the per capita disposable income of urban residents increased by 1.72 times during the same period—the former is far higher than the latter. The income of the vast majority of households is not commensurate with the soaring housing prices. (2) Under the pressure of making a profit, banks are doing their best to expand their mortgage business, and they do not pay careful attention to whether the personal loans can be repaid. Once housing prices fall, residents’ ability to repay loans will affect the development of the entire real estate market, the operation of the land market, and the stability of the entire financial system. In Shanghai, which has experienced a frenzy in the housing market, the nonperforming rate of personal loans has risen. By the end of 2005, 7,869 natural person customers had defaulted for more than three consecutive months, an increase of 2,650 or 50.78% over the end of the previous year. The number of defaults was 8,227, an increase

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of 2,771, or 50.79%, over the end of the previous year, and the increase in the non-performing rate still continues. From this, we can see that higher cash recovery rates do not seem to be a problem when the real estate market is booming, but once the real estate market enters a bear market and housing prices turn from rising to falling, the market weakens, and transaction prices become unreliable, which will lead to risks to the bank personal mortgage system. 2.3

Some Local Governments Ignored Farmers’ Land Property Rights

The land that is occupied by rapid urbanization and industrialization is obtained mainly through the expropriation of rural land. Each year from 1997 to 2004, 5.7 million mu of new construction land nationwide was added, occupying 3.04 million mu of farmland. In the eastern coastal provinces, the quantity of construction land each year reaches 400,000 to 500,000 mu, of which the proportion of expropriated land is as high as 90% or more, and around 75% if low. In the central and western regions, the amount of construction land is much lower than that of the eastern region. However, from 1994 to 2003, the amount of farmland occupied by various types of non-agricultural construction in Shaanxi Province also reached 727,900 mu, most of which was expropriated, and 90% of that was construction land. The quantity of expropriated land is so great that it infringes on farmers’ land rights, affects the livelihood of the farmers whose land is expropriated, and causes social conflict. First, farmers are particularly dissatisfied with the use of land that is expropriated for “public purposes” but then used for profit-making activities. According to the Law on Land Administration, the state may legally expropriate collectively-owned land for the needs of the public interest. In reality, however, this right to expropriate land has been abused in the non-agricultural construction area, and whenever rural land is converted into construction land, it is always expropriated. Some people attribute the emergence of this situation to the difficulty of clearly defining “the public interest.” A large quantity of the construction land in China has an obvious profit-making nature. Generally speaking, farmers whose land is expropriated can still understand and accept it if the government uses this land to build schools, hospitals, roads, green spaces, government office buildings, and so on, even though some of these constructions in the

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“public interest” are used for profit-making activities. However, when the government encloses a large amount of land for the establishment of an industrial park and then assigns the park land to businesses by agreement, the land-expropriated farmers will be very puzzled: “Why can only the government assign use of the land? Why can’t we lease the land to the businesses?” What makes farmers even more dissatisfied is that the use of the land acquired by the government and for which they have received very low compensation is handed over to businesses and real estate agencies at a price several dozen or even several hundred times greater. Most of China’s land-related mass incidents have been caused by this. Second, farmers feel that the compensation they receive for the land is unfair. The Law on Land Administration stipulates that the government must compensate land-expropriated farmers no more than 30 times the cost of the original use of the land. In the developed coastal provinces like Zhejiang and Jiangsu, where land assignment prices have skyrocketed as the level of economic development has improved, the highest land compensation and resettlement subsidies amount to only approximately 25,000 yuan, and the lowest is less than 20,000 yuan. There is a great contrast between the low compensation and farmer’s enhanced awareness of their land rights, and this is the main reason for the tension between the government and farmers in developed areas. In the central and western regions, farmers’ awareness of land rights and interests is not as strong as in the east. However, because of the large amount of farmland being used up for national key projects and infrastructure building, which often involve a lot of funding and tight scheduling, the compensation is either lower than the legal standard or not in place. Some state-funded projects require matching local funds, so the local governments solve problems of land expropriation on their own, even covering the cost at an average price per mu or per square kilometer, and in most localities, this can only be done at the lower limit of the statutory compensation standard. As a result, the level of the livelihood of land-expropriated farmers drops. Shaanxi Province’s compensation for land-expropriated farmers is generally only 6,000 yuan/mu for highways and 8,200 yuan/mu for railways. The maximum compensation standard for the construction of the Xi’an Ring Expressway was 6,000 yuan/mu, and after the increase it was still only 8,000 yuan/mu. The compensation standard for expropriated farmland for the first-class expressway from Fugu (府谷) to Dianta (店塔) was 600 to 3,200 yuan/mu; for the Wubao (吴堡) to Jingbian (靖边)

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expressway, it was 800–3,200 yuan/mu. Half of the farmers who lost their land had lower living standards than before. Third, the compensation for the land expropriation is withheld by some local governments and collective economic organizations. Under the current Law on Land Administration, the compensation for landexpropriated farmers should include compensation for the land, resettlement subsidy, and compensation for ground attachments and young crops. However, in the actual compensation, farmers often do not know which item is which, so the method used in some places is to give the land-expropriated farm household the resettlement subsidy and the compensation for ground attachments and young crops, but the compensation for the land is kept by the village collective economic organization. Sometimes even the town or township government will keep a cut. In some places, even the resettlement subsidy is not paid in full to the landexpropriated farm households, but some of the funds are put into the Social Pension Insurance of Landless Farmers (shidi nongmin yanglao baoxian 失地农民养老保险). Fourth, there is a lack of transparency and consultation in land expropriation procedures, and farmers’ participation is low. The Law on Land Administration stipulates that during the process of land acquisition, the local government must make the resettlement plan public in order to receive comments from the collective organizations and land-expropriated farmers. However, the same law does not specify clearly that the collectives’ or farmers’ opinions must be heard before the expropriation, and that they should be given the opportunity to respond. The government only notifies the farmers whose land is being expropriated about the purpose, location, compensation standards, resettlement measures, and so on, through announcements; it seldom communicates with them in advance. 2.4

The Central and Local Governments’ Goals on Land’s Function Are Quite at Odds

Rapid urban expansion is accompanied by the loss of large areas of farmland. The amount of cultivated land in the country dropped from 1.951 billion mu in 1996 to 1.83 billion mu in 2005, and per capita cultivated land dropped from 1.59 mu in 1996 to 1.40 mu in 2005. From 1996 to 2002, the average annual rate of farmland loss was 10.275 million mu, and the rate was accelerating, highlighting the inconsistency between

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the central government’s composite goals of farmland protection, food security, and economic growth and the local governments’ single goal of pursuing high-speed economic growth. As early as 1997, the central government proposed the implementation of the strictest system for protecting cultivated land out of concerns about food security. It included a system to compensate farmers for occupied cultivated land, a system that would keep a dynamic balance of total cultivated land, and a basic farmland protection system. However, some local governments took advantage of this institutional arrangement, devising means of preparing and working around the balance between occupying farmland with issuing compensation, in order to meet the central government’s approval and achieve the purpose of expropriating as much farmland as possible. Some localities made adjustments with others within the same province, e.g., an area with shortfalls in construction land indicators would pay fees to areas with surplus indicators. Other localities would obtain a license from the central government for the use of non-agricultural construction land through land development and consolidation. For example, from 1997 to 2003, Zhejiang Province added an additional 2,348,500 mu of cultivated land through land development and consolidation, so that for eight consecutive years, it has occupied more than its balance of farmland—in fact, an accumulated surplus of 436,500 mu. Still other localities would include fish ponds, river beaches, and slope land within the scope of protected agricultural land, resulting in the emergence of basic farmland “going up the mountains and down to the water.” To obtain the central government’s approval for land use, some local governments even directly compiled their own records on the dynamic total balance of cultivated land. The result was that there emerged certain regions where a large proportion of the land was industrial and commercial land, but on the books, the area of basic farmland was increasing instead of decreasing. There were other areas where, even though the balance of arable land had been achieved through land consolidation and the replacement of expropriated farmland with other land, the quality of the supplemented arable land was greatly reduced. Land with irrigation facilities occupied up to two-thirds of the reduced arable land, while they occupied only one-third of the supplemented arable land.

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In light of this, the central government issued the “State Council Decision on Deepening Reform of and Tightening Up Land Management,”1 which more strictly regulated the compensation system for occupied cultivated land and the protection of basic farmland. Two years later it issued “Circular of the State Council on Intensifying the Land Control,”2 which further clarified responsibilities in land management and farmland protection. However, the incentive mechanisms for local governments’ land management that were formed by the current land system still exist, and the right to implement the dynamic total balance of occupied and supplementary farmland still remains at the local level. The problem of inconsistency between the central and local governments with regard to land use goals will be difficult to change, and the game of “from year to year, there are not enough indicators to use, but the indicators are never used up” will not stop. Strict management measures alone still cannot effectively solve the various problems arising from the disconnection between farmland protection and economic development.

3 Suggestions on Deepening the Reform of the Land System 1. Break the government monopoly on the primary land market, and block the local governments’ land-selling mechanism at the source. Implement the provisions of the Constitution, adhere to the basic spirit of longterm coexistence of the dual systems of land ownership, and implement the “same land, same rights, same price” principle for state-owned land and collective land. In China, the collective and state-owned land ownership systems are equal systems, and both land ownership systems should be given equal rights to participate in the processes of industrialization and urbanization. We should change the ownership system under which the ownership of rural land must be changed from collectively owned to state-owned in order to become construction land. Prevent local governments from freezing farmers’ land use through administrative techniques such as planning controls, adjustments to administrative divisions, changing villagers to residents, making revisions to the new round 1 “Guowuyuan guanyu shenhua gaige yange tudi guanli de jueding” (国务院关于深化 改革严格土地管理的决定; Zhongfa 2004, no. 28). 2 “Guowuyuan guanyu jiaqiang tudi tiaokong youguan wenti de tongzhi” (国务院关于 加强土地调控有关问题的通知; Guofa 2006, no. 31).

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of urban planning, and using force to convert collective land to stateowned land—actions which lead to farmers losing their land, occupations, and rights. First, the government should start to formulate a “Negative List of Land Expropriation in the Public Interest,” which would clearly stipulate that land for profit-making purposes may not be expropriated. The expropriation of land should adhere to the principle stipulated both in the Constitution and in the Law on Land Administration that the state may lawfully expropriate or requisition the use of land for the needs of the public interest and make compensation, but in actual practice this has changed: now land can be expropriated just for economic or construction needs. To resolve the difficulty of arriving at an accurate legal definition of “the public interest,” I recommend the issuance of a policy clearly stipulating that as long as the land is used for profit, it can be judged not to be in the public interest, and that such land may not be obtained through expropriation. A list of land uses to be considered not in the public interest can serve in the future as important content for use by land-related agencies. Second, the use and proportion of administratively allocated land should be strictly limited. Since the use of administratively allocated land is too broad, too much land is occupied as a result, which not only wastes land, but also easily breeds corruption. It is suggested that the proportion of administratively allocated land for the construction of public facilities be strictly limited. Some land that was used ostensibly for the public interest but was in fact for the purpose of making a profit should be cleared. For certain types of public land, a pilot program in which compensation is based on the market price of land should be carried out. Third, government land reserves should be limited as stock land, and the expropriation of farmers’ collective land for inclusion into land reserves should be strictly prohibited. It should be clearly specified that land reserve centers are to acquire land mainly through taking back or purchasing stock construction land. As for taking back stock construction land, this would occur in the following situations: (1) when the unit using the land has had its operating license revoked or has moved; (2) when the land user has not used the land for two consecutive years; (3) when the land user has changed the land use without authorization, has been ordered to correct it, and has not corrected it by the deadline; (4) when the land user has not applied for renewal by the end of the land use period, or when the application

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for renewal has not been approved at the end of the land use period; (5) when the land has been left barren and idle for a long period; and (6) when state-owned land has been approved for scrapping (e.g., flooded land, or land of derelict highways, railroads, airports, mines, etc.). Purchasing stock construction land would occur, as needed, in the following situations: (1) for the public interest or for making urban planning adjustments; (2) for renovation of key areas of old cities; (3) business closures, moves, or industrial restructuring, entailing a need for land adjustment; (4) a land user is unable to develop the land after lawfully obtaining the use rights to it, and lacks the requirements to transfer the rights; (5) land becomes available when the land user petitions for the land to be taken back; (6) there is land for which the cost of transfer of use rights is clearly lower than the market cost; (7) there is reserve land or vacant land on both sides of a passage within an urban planning area; and (8) there are land parcels that must be requisitioned together based on planning needs. Considering that a land reserve system has been implemented in more than 1,000 cities across the country for about six or seven years, the central government should start to formulate relevant policies and regulations on the purpose, scope, institutional setting, legal person status, and the loan qualifications and mortgage methods for reserve land— all this for the purpose of ending the chaos caused by administration being handled by multiple actors who each follow their own rules, and preventing financial risks in the land reserve centers. 2. Respect farmers’ land property rights and let farmers use their land rights to share the fruits of industrialization and urbanization. First, be cautious about “exchanging social security for land.” To resolve the conflicts between farmers and the government over land interests, some places have begun to “exchange social security for land,” i.e., including the land-expropriated farmers into the minimum living security program. This is a step forward, but exchanging social security for land has to make farmers feel that it is worthwhile to hand over their land, while it also requires that the government has sufficient financial capacity to make the exchange. In fact, there are serious funding gaps in the New Rural Social Endowment Insurance System (xinxing nongye yanglao baoxian 新型农 业养老保险) and the social security provided by urban governments to urban workers. In some developed areas, landless farmers are guaranteed less than 200 yuan per month, a paltry amount. Guangdong Province estimates that its social security spending will increase the cost of land

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expropriation compensation to increase an average of 60,000 yuan per mu. Therefore, raising the social security costs to support landless farmers must be treated calmly, not only to prevent the government from being dragged into a huge financial quagmire, but also to prevent some localities from infringing on farmers’ land rights under the guise of providing them with social security. Second, actively promote local innovative practices. To respect farmers’ land property rights, compensation for land expropriation should be based on the land market price. In case this change cannot be made in a single step, the numerous innovative practices being made in different regions should be respected and promoted on the basis of sufficient research. (1) Classify land by grades within the scope permitted by law, and change the basis of compensation for expropriated land from the annual output value of the land’s original use to the comprehensive land price of the expropriated area. The determination of compensation for land should take into consideration both the land’s existing use and its location characteristics, so that the compensation received by farmers not only reflects the absolute land rent but also a certain differential land rent. (2) Reserve for the land-expropriated village a certain proportion of the land, which it can use for economic development. The village collective economic organization can then build standard workshops, storefronts, and so on, which it can rent out, and the rental income will be distributed among the villagers in the form of shares. Practical experience has proved that reserved land in the village is conducive to the growth of the village-level economy. Furthermore, in the absence of rural public finance, land rental income has become an important source of rural public goods, and land dividends have become an important way for farmers in developed regions to share land differential income. It is recommended that the central government issue a special document making specific provisions on the proportion of this reserved land, its methods of use, and principles of income distribution. (3) Protect the right of farmers to use their house sites and rent out the housing to obtain income. In the urbanization process, the biggest benefit for farmers is that they can use their house sites to build

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houses and obtain rental income from them. The lack of clear regulation under current law on the ownership of house sites has led to two situations: the government encroaching on farmers’ house sites, and farmers building houses that go beyond what regulations permit. Therefore, it is necessary to clearly specify in law that house sites are farmers’ property, and to establish clear regulations on the application for, use of, and leasing of house sites. It is particularly necessary to prevent some places from infringing on farmers’ rights on their house sites under the claim that they are reconstructing old villages and building new ones. 3. Improve the budget management of land assignment income and actively promote the reform of land property tax. First, introduce the implementation measures for the inclusion of land assignment income into local budget management as soon as possible, and make it clear that this land assignment income is to be used locally, and that the central government does not get involved in the distribution of its benefits. The central government can clearly stipulate that the total price of the assignment of state-owned land use rights should be fully included in the local budget and paid into the local treasury, and that the management of the “two lines of revenue and expenditure” will be implemented, since this is conducive to the regular and effective use of these funds. In operation, however, attention should be paid to the following two points: (1) In managing the budget, one calculates it at the beginning of the year and reviews it at the end, but land assignment income is the government’s income—it is a market behavior under a government monopoly. The amount of land that can be assigned in the current year can be controlled by the relevant agencies, but the amount that is actually assigned, and the income, is controlled by the market. Thus, there must be specific implantation rules on the way land assignment income is incorporated into local governments’ budget management. (2) In many countries’ experiences, land property tax is generally regarded as the main tax to support local governments, because it is conducive to mobilizing the enthusiasm of the local governments for collection, and because any change to land is easier to grasp, so it is easier to collect the tax in full. In the regulations on

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the budget management of land assignment income, the central government should normalize and improve the use efficiency of the land assignment income. By no means should it form an opportunity for the competent authorities to allocate local land income after ferreting out local properties. Second, begin a land property tax reform, so that city governments have a sustainable source of income. While blocking the land sales mechanism and strengthening the standardized management of land assignment income, we should learn from the experience of developed market economies and start a land property tax reform, so that local governments can obtain tax revenue from land use conversion and land transactions. At the same time, it would be best to do the easy operations first and the difficult ones later. Different taxes should be combined and uniformly collected, but the implementation should go step by step. It is suggested that the taxes and fees relating to land property should be collected by multiple departments instead of being collected only by the tax department; various land taxes and fees should be combined into three types of tax, namely, land occupation tax, land holding tax, and land transaction tax. Land occupation tax would be a tax on the conversion of land from agricultural to non-agricultural land and be combined and collected with the current cultivated land occupation tax, cultivated land reclamation fee, and paid use fee for newly added construction land; it would reflect the purpose of protecting cultivated land. The land holding tax would be a tax imposed on those who hold construction land. Based on the non-renewable nature of land and the inevitable appreciation of land value along with economic development, a neutral land appraisal agency can announce the land value of a certain area in a certain period, and as the land value increases, the tax department will increase the land holding tax on a commensurate percentage of the increase in land value. The land transaction tax would tax transactions on construction land, which not only would allow local governments to obtain a stable tax source, but also helps ensure that the land is transferred to the most valuable use. 4. Attempt to bring industrial land directly into the market and maintain the global advantage of China’s manufacturing industries. First, carefully evaluate the impact of industrial land assignment through public bidding, auction, and quotation under the government’s monopoly, and let farmers’ collective land directly enter the market. The introduction of the policy on industrial land assignment by public bidding, auction, and

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quotation may have curbed to a certain extent the local governments’ practice of lowering industrial land price to attract investment, but it will also increase the cost of industrial land. China is now in a critical stage of industrialization. The movement of the agricultural labor force to cities and the movement of industry to China’s central and western regions all depend on industrialization maintaining a certain growth rate. Local experience has shown that when farmers directly supplied collective construction land to businesses in the form of leases, assignments, transfers, etc., provided that planning and use controls are complied with, it not only greatly reduced the land use costs for businesses, but also ensured that farmers could have a share of the increased value of the land over the long term, while the local governments could collect corporate taxes and land-use fees. Expanding the direct market access of local farmers’ collective construction land would help a large number of small and medium-sized enterprises to settle in the vast central and western regions, promote the movement of manufacturing to those regions, and help to maintain the global competitive advantage of China’s manufacturing industries. Second, formulate laws to regulate the transfer of collective construction land as soon as possible to end the illegal transfer of large quantities of collective construction land: (1) Provided that planning is complied with, it should be possible for collective land to be leased, assigned, transferred, and mortgaged, just like state-owned land; it should also be possible to obtain a collective land use rights certificate for collective land as with stateowned land. Farmers would then be able to obtain most of the income from the circulation of their land. (2) Collective non-agricultural construction land must be in compliance with planning controls and be lawfully obtained. All arrangements for such land must be in conformance with the overall land use plan, and the conversion of agricultural land to non-agricultural construction land must be under planning control and carried out according to the annual land use plan. Registration of the land must be done in accordance with the law, and when the land is transferred, a transfer certificate should be obtained. It is necessary for each locality to conduct a serious inventory of the non-agricultural construction land in its jurisdiction and to formulate deadlines and penalties for any make-up procedures that must be done in

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its transfer, in order to ensure that all non-agricultural construction land can be lawfully obtained, and that the black market for privately transferred land is prohibited. (3) Establish a market for trading collective construction land use rights. Provided that planning and use controls are complied with, collective construction land use rights should be allowed to enter and be traded in the market in accordance with market principles. This process does not change the nature of collective land ownership, and any user of construction land can conduct an equivalent exchange with the collective land owner or other user of construction land, based on the principle of fair market transactions. The price of land use rights should be the market price. (4) Strengthen the management of collective land income to ensure that farmers become the main recipients of land transfer income. As for land property rights, the relationship between collective economic organizations and farmers in terms of land rights and the distribution of income from the circulation of those rights should be strictly defined. The collective economic organizations’ management of land income funds should be strengthened, so as to maximize the use of income from land circulation in farmers’ social security and ensure their long-term livelihoods. 5. Objectively examine the effectiveness of indicator management, and explore institutional arrangements for more effective protection of cultivated land. First, conduct a national inventory of the actual stock of basic farmland. Since the basic farmland protection system was implemented in 1997, ensuring that the amount of basic farmland does not decline has become an insurmountable political “red line.” To avoid the “red line,” some places have adopted various workarounds so that the gap between the actual quantity of collective-owned basic farmland and the reported amount has continued to widen, but no one can figure out how much high-quality basic farmland now remains. This presents a major hidden danger to China’s food security. For this reason, it is necessary to conduct an accurate, factual inventory on the actual ownership of basic farmland nationwide, which will serve as a basis for the next round of land use planning revision and the more effective protection of cultivated land. Second, establish a regional compensation mechanism for basic farmland protection. Considering inter- and intra-regional differences in the

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degree of industrialization and urbanization, the occupation of basic farmland in each locality differs, and each region can maintain the balance between land for economic development and basic farmland only through the exchange of basic farmland indicators within counties, districts, and provinces. This method of doing things has not been recognized by the central government. As the economy has developed, however, this practice will become more and more common, to the point that even cross-provincial balancing will appear. It is suggested that policies be issued concerning the principles, methods, and compensation mechanism for the exchange of basic farmland indicators in different places. This would not only solve the land use needs of rapidly urbanizing and industrializing areas, but also help the areas with large amounts of basic farmland to obtain certain monetary compensation. Third, organize a multidisciplinary force to conduct scientific research on the composition of industry by region, and on that basis, establish mechanisms to protect national food security and implement the link between national food security and regional farmland protection. Specifically, two mechanisms should be established to provide compensation for protecting food security areas—one from state finances and one from industrialized areas. This would define the purposes of food security and protecting cultivated land, clarify the responsibilities for fulfilling those tasks, and ensure that the compensation is fair and effective. 6. Increase the content of farmers’ land rights protections in the Property Rights Law, and begin amending the Law on Land Administration and other relevant laws. First, the protection of farmers’ land rights should be added to the Property Rights Law: (1) Since township (town) collective economic organizations exercise land ownership on behalf of the collectives, this provides the basis for town governments to occupy and operate collective land. It is suggested that the provision, “Township or town collective economic organizations represent the collectives in the exercise of ownership,” be rescinded. (2) When a villagers’ committee exercises land ownership on behalf of the collective, it easily leads to new problems, such as the villagers’ committee marking off and occupying the villagers’ group’s land. It is suggested that the relevant provision be changed to read, “The ownership of land collectively owned by the village farmers shall be collectively exercised on their behalf either by the village collective

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economic organization or by the villagers’ committee representatives,” and it should clearly specify, “The villagers’ group shall exercise collective land ownership.” (3) Since rural collective construction land accounts for half of the total construction land, it is suggested that the general provisions on the use rights of collective construction land be increased, allowing this land to be leased, assigned, and transferred, provided its compliance with planning and use controls. (4) Since farmers lease out house sites as an important income source in urban-rural junction areas and in developed regions, it is suggested that the provisions on the “right of use of the house site” be revised to allow the transfer and collateralization of house sites, in order to promote the commercialization of farmers’ house sites. Second, the revision of the Law on Land Administration should reflect the dual goals of safeguarding farmers’ land property and protecting farmland. After introducing the revision of the Property Rights Law, it is suggested that revision to the Law on Land Administration commence immediately. The provisions relating to the protection of farmers’ land rights and interests should be increased and enriched, so that they tally with the original spirit of the Property Rights Law and the Law on Land Contracts in Rural Areas regarding the protection of farmers’ land rights and interests. The micro-level work of land legislation with respect to the cadastral inventory and registration system of rural land, the unified land rights certificate, and so on, should be improved. It is suggested that the market be regulated with a view toward building farmers’ property rights, blocking the incentives for local governments to sell land, and protecting cultivated land effectively.

CHAPTER 16

Land Capitalization and Land Finance

In recent years, revenue from land assignments has grown swiftly. At the same time, the central government and relevant departments have continuously introduced policies to strengthen the management of land assignment expenditures and adjust the ways in which land assignment revenue is spent. Concerns about how the land assignment revenue is collected and spent have steadily increased throughout society and generated widespread debate. This chapter makes a comprehensive analysis of the changing growth trends in land assignment revenue and their causes, the costs and income of land assignments, the expenditure structure of land assignment revenue, policy on land assignment revenue, expenditure and distribution, and problems in managing land assignment revenue and expenditure. A relatively comprehensive analysis of policies relating to land assignment revenue and expenditure, their distribution, and management is conducted, and on this basis, policy recommendation for improving the management of land assignment revenue and expenditure is put forward.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_16

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1 Characteristics and Causes of Land Assignment Revenue Growth Land assignment revenue is the total land price obtained by the government for allocating the right to use state-owned land by way of assignment. This includes: (1) land assignment revenue obtained by bid tendering, auction, quotation, and agreement, and supplemental revenue obtained for changing the original land use; (2) land lease revenue collected from lessees of state-owned land that has been leased out according to law, as well as land revenue that should be paid for the houses on all leased and allocated land; and (3) compensation for land expropriation and demolition and other fees that are paid to municipal and county people’s governments in accordance to law by land users who obtain the right to use state-owned land by way of allocation. 1.1

Characteristics of Land Assignment Revenue Growth

1.1.1 Revenue from Land Assignments Has Changed in Stages With the deepening of social and economic development and the reform of the land use system, the supply of land has increased substantially. Moreover, land assignment revenue shows a phased characteristic, since three significant increases in land assignment revenue have occurred. The first phrase (1989–2000): The Constitution, amended in April 1988, and the subsequently revised Law on Land Administration added the article, “The right to use land may be transferred in accordance with the law.” Thus, the transfer and assignment of land use rights were launched nationwide. Revenue from land assignments increased from 447 million yuan in 1989 to 50 billion yuan in 1992, an increase of more than 100 times in only three years. From 1993 to 2000, however, it stabilized at around 50 billion yuan. During this period, the supply of land was mainly by allocation. For example, in 1992, land allocated for use accounted for 97.2% of the total land supply. However, the paid land supply was mainly based on contracts, and even in Shenzhen, which pioneered paid land assignments, the revenue from land auctions in 1998 accounted for only 3% of its revenue. The second phase (2001–2006): In 2001, the “Circular of the State Council on Strengthening the Management of State-owned Land

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Assets”1 proposed to “vigorously carry out bid invitation and auction,” and in 2002, the Ministry of Land and Resources issued its “Regulations on Bid Invitation, Auction, and Quotation for Assignments of Stateowned Land Use Rights,”2 which clearly specified four types of for-profit land use (commercial, tourism, entertainment, and real estate) for which the bid invitation, auction, and quotation (zhao pai gua 招拍挂) method would be adopted. Land assignment revenue then reached a new level, jumping from 59.5 billion yuan in 2000 to 542.1 billion yuan in 2003. From 2004 to 2006, it fluctuated around 600 billion yuan. During this period, the proportion of paid land supply increased steadily, and the proportion of land assigned through bid tendering and auction increased rapidly. For example, in 2004, the proportion of paid land assignments had already reached 70%, and 29% of that land area had been assigned through bid tendering, auction, and quotation, while the revenue from bid tendering, auction, and quotation accounted for 56% of the total revenue. The third phase (2006 to the present): In 2006, the “Notice of the State Council on Relevant Issues on Intensifying Land Control”3 required that “Industrial land must be assigned by means of bid invitation, auction, and quotation, and the price of land assignments shall not be lower than the published minimum price standard.” The Property Rights Law promulgated in March 2007 stipulated: “In the case of profit-oriented land having industrial, commercial, tourism, entertainment, and business residence use and in the case of a single land parcel having two or more entities that intend to use it, the land shall be assigned by means of public competition on price, such as bid invitation and auction.” The comprehensive deepening of the bid invitation, auction, and quotation system has significantly increased the marketized allocation of land resources. Land assignment revenue more than tripled, from 807.7 billion yuan in 2006 to 2.71 trillion yuan in 2010. During this period, the proportion of paid land use stabilized at around 70%, and the proportion handled by bid tendering, auction, and quotation further increased, so that in 2010, the 1 “Guowuyuan guanyu jiaqiang guoyou tudi zichan guanli de tongzhi” (国务院关于加 强国有土地资产管理的通知; Guofa 2001, no. 15). 2 “Zhaobiao paimai guapai churang guoyou tudi zichan guanli de tongzhi” (招标拍卖 挂牌出让国有土地使用权规定; Ministry of Land and Resources 2002, order no. 11). 3 “Guowuyuan guanyu jiaqiang tudi tiaokong youguan wenti de tongzhi” (国务院关于 加强土地调控有关问题的通知; Guofa 2006, no. 31).

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Table 1

Revenue from assignment of state-owned land nationwide, 2001–2010

Year

State-owned land assignment revenue (billions of yuan)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

129.589 241.679 542.131 641.218 588.381 807.764 1221.672 1025.98 1717.953 2710

Source Zhongguo guotu ziyuan tongji nianjian 中国国土资源统计年鉴 [China Land and Resources Statistical Yearbook]

proportion of paid land supply reached 68.2%, and of that, the bid invitation, auction, and quotation area accounted for 88.3% of the total area of land assigned nationwide. Bid invitation, auction, and quotation revenue accounted for 96% of total land assignment revenue. 1.1.2

Land Assignment Revenue Has Grown Swiftly in Recent Years From 2001 to 2010, revenue nationwide from the assignment of stateowned land increased from 129.589 billion yuan to 2.71 trillion yuan, an increase by a factor of 19.9. After it crossed the trillion yuan mark in 2007, revenue from land assignment has maintained high levels (see Table 1). In recent years, revenue from land assignment in the large cities has grown even more rapidly. In the three years from 2007 to 2009, the top twenty cities in terms of land assignment revenue earned a total of 570 billion yuan, 310 billion yuan and 860 billion yuan, making an average annual increase of 25.57% (see Table 2). 1.1.3

Land Assignment Revenue Levels Show Huge Regional Differences Due to developmental imbalance, the differences in land assignment revenue among the eastern, central, and western regions are rather large. In 2007, when the total land assignment revenue nationwide was 1.221672 trillion yuan, the 11 eastern provinces earned 815.33 billion

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Table 2

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Top twenty cities in terms of land assignment revenue in 2009

Rank City

Land assignment revenue in 2009 (billions of yuan)

Year-on-year Land growth, 2009 assignment over 2008 revenue in 2008 (billions of yuan)

Year-on-year Land growth, 2009 assignment over 2007 revenue in 2007 (billions of yuan)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

105.4 104.3 92.8 73.2 48.9 48.8 44.0 36.1 33.2 32.4 31.5 30.3 29.5 27.5 26.2 24.2 18.3 17.6 15.5 15.4

238% 172% 85% 67% 301% 617% 276% 345% 390% 389% 278% 475% 93% 326% 79% 66% 360% 262% 56% 137%

63% 30% 112% 89% 51% 841% 40% 35% 54% −18% 1869% −14% −6% −35% 455% −37% 515% 187% 47% 79%

Hangzhou Shanghai Beijing Tianjin Guangzhou Ningbo Chongqing Wuhan Foshan Chengdu Wuxi Xiamen Shenyang Suzhou Dalian Nanjing Jinan Changzhou Qingdao Hefei

31.2 38.2 50.3 43.9 12.2 6.8 11.7 8.1 6.8 6.6 8.3 5.3 15.3 6.5 14.6 14.6 4 4.8 9.9 6.5

64.6 80.3 43.8 38.8 32.3 5.2 31.4 26.7 21.6 39.6 1.6 35.2 31.3 42.2 4.7 38.3 3.0 6.1 10.5 8.6

Source Zhongguo fangdichan zhishu xitong shujuku 中国房地产指数系统数据库 [China Real Estate Index System Database]

yuan (66.74%), the 10 central provinces earned 231.837 billion yuan (18.98%), and the ten western provinces earned 174.502 billion yuan (14.28%). By 2009, the distribution pattern of land assignment revenue in the eastern, central, and western regions had not changed. Total national land assignment revenue amounted to 1.717953 trillion yuan, of which the 11 eastern provinces earned 1.258355 trillion yuan (73.25%), the central 10 provinces earned 277.269 billion yuan (16.14%), and the 12 western provinces earned 182.329 billion yuan (10.61%).

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Table 3 Supply of state-owned construction land by payment, 2001–2010 (unit: hectares) Year

Total supply of construction land

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

178,678 235,437 286,437 257,920 244,269 306,806 341,974 234,185 361,649 432,561

Of which: Supply of land by allocation

Supply of land by payment

Proportion supplied by payment

73,980 88,052 65,258 62,054 64,623 63,791 76,088 62,381 122,288 138,267

104,699 147,385 221,179 195,866 179,646 243,015 265,886 171,804 239,361 294,294

58.6% 62.6% 77.2% 75.9% 73.5% 79.2% 77.8% 73.4% 66.2% 68.0%

Sources Data for 2001–2009 from Zhongguo guotu ziyuan tongji nianjian 中国国土资源年鉴 [China Land and Resources Statistical Yearbook]; 2010 data from Zhongguo guotu ziyuan gongbao 中国国土 资源公报 [Bulletin of China Land and Resources ]

1.2

Reasons for the Increase in Land Assignment Revenue

1.2.1 The Scale of Land Supply Has Substantially Increased The substantial increase in land assignment revenue begins with the continuous expansion in the scale of land assignments. In recent years, as the pace of economic development, industrialization, and urbanization has accelerated, the demand for land has grown rapidly. From 2001 to 2010, the total supply of construction-use land nationwide increased from 178,678 hectares to 432,561 hectares (see Table 3), i.e., it increased by 253,883 hectares, or an average of 28,209 hectares per year. Of this land, the proportion of land supplied through paid use increased from 58.6% in 2001 to 68% in 2010. 1.2.2

A Swift Increase in the Proportion of Land Assigned Through Bid Invitation, Auction and Quotation Among the factors contributing to the increase of land assignment revenue, the proportion of paid assignments, and especially the proportion of bid invitation, auction, and quotation, has been the main influence. Since 1999, China has constantly promoted reform of the system

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Table 4 Area of land assigned use via bid tendering, auction, and quotation as a share of total assigned land area, 2001–2010

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Year

Percentage of total area (%)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

7.3 14.6 27.9 29.2 34.6 28.5 50.9 83.9 85.3 88.3

Source Zhongguo guotu ziyuan tongji nianjian 中国国土资源统计年 鉴 [China Land and Resources Statistical Yearbook]

of paid use of land, reducing the proportion of land allocated for use and increasing the proportion of paid use. In particular, in May 2002, the Ministry of Land and Resources issued its no. 11 directive entitled “Regulations on Bid Invitation, Auction, and Quotation for Assignments of State-owned Land Use Rights,” which stipulated that land being used for various for-profit operations in commerce, tourism, entertainment, business residences, and so on had to assigned by means bid tendering, auction, and quotation. Furthermore, in 2004, the State Council issued its “Decision on Deepening the Reform of Strict Land Management,”4 which stipulated that industrial-use land must be assigned through bid tendering, auction, and quotation, so that the proportion of construction land assigned by this method rapidly increased. From 2001 to 2010, the area of land assigned use by this method as a share of total assigned land area increased from 7.3% to 88.3%. By 2010, the revenue from land assignment via bid tendering, auction, and quotation had reached 92.23% of the total land assignment revenue (see Table 4). 1.2.3 The Overall Level of Land Prices in the Country Has Risen Affected by factors such as rising demand for land, higher proportion of paid use of land, and higher land use costs, the national land price level continues to rise, so that an increase in land assignment revenue 4 “Guowuyuan guanyu shenhua gaige yange tudi guanli de jueding” (国务院关于深化 改革严格土地管理的决定; Guofa 2004, no. 28).

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becomes inevitable. From 2000 to 2010, the national comprehensive land price level and the price levels for commercial, residential, and industrial land increased respectively by 297.08%, 308.76%, 528.10%, and 71.18%. Since 2006 especially, the national comprehensive land price level has risen even faster. At the end of the fourth quarter of 2010, the overall level of land prices in the 105 major monitoring cities around the country was 2,881 yuan per square meter, an increase of 86.6% over 2006. In addition, the further strengthening of the collection and management of land assignment revenue had guaranteed an increase in land assignment revenue to a certain extent.

2

Costs, Benefits, and Expenditures of Land Assignments 2.1

Costs of Land Assignments

Two costs are incurred in land assignment: the compensatory cost from obtaining the land, and the development cost paid in the initial development of the land. 2.1.1 Compensatory Costs These consist mainly of compensation fees for land expropriation and demolition, subsidies for land-expropriated farmers, and resettlement fees for the employees of business enterprises. First, compensation fees for land expropriation and demolition. These fees include the expenditures by municipal and county governments in the process of land expropriation, demolition and acquisition, i.e., land compensation, resettlement subsidy, supplemental compensation for objects attached to the land, young crops, and so on. From 2008 to 2010, the expenditures for land expropriation and compensation for expropriation and demolition were equivalent on average to 36% of the land assignment revenue (see Table 5). Second is the subsidy paid to land-expropriated farmers. This is a social security expense paid by municipal and county governments to landexpropriated farmers and a subsidy paid out to keep them at their original standard of living. From 2008 to 2010, this expense was equivalent to 1.5% of the land assignment revenue. Third is the resettlement fee for business enterprise employees. These are paid by municipal and county governments to the employees

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Table 5

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Composition of land assignment costs (units: billion yuan, %) 2008

Percentage 2009

Land 994.21 – assignment revenue Compensation 366.213 0.368 fees for land requisition, and demolition Subsidy to 15.77 0.016 landless farmers Initial land 90.338 0.091 development Resettlement 78.241 0.079 of enterprise employees Operational 7.105 0.007 expenses of land assignments Subtotal of 557.667 0.561 costs

Percentage 2010

1423.97 –

498.567 0.35

Percentage Average percentage

2939.798 –

–

1067.7

0.36

0.363

19.491 0.014

44.966 0.015

0.015

132.246 0.093

256.115 0.087

0.09

106.648 0.075

333.663 0.113

0.089

8.689 0.006

15.745 0.005

0.006

765.641 0.538

1718.189 0.583

0.55

of bankrupt and restructured state-owned and collective enterprise employees. From 2008 to 2010, these costs were equivalent to 8.9% of the land assignment revenue. 2.1.2 Development Costs These consist mainly of the fees paid by municipal and county governments for initial development of the land. From 2008 to 2010, this expense was equivalent to about 9% of the land assignment revenue. In addition, operational costs relating to land assignments, such as land surveys, assessments, transaction services, announcements, site rentals, bidding agents, and bid evaluations are a part of these costs. From 2008 to 2010, these operational costs were equivalent to about 0.6% of the land assignment revenue. Taken together, in the three years from 2008 to 2010, when land assignment revenue nationwide, using the full numerical measure,

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amounted respectively to 994.21 billion yuan, 1.42397 trillion yuan, and 2.939798 trillion yuan, the cost expenditures were 557.667 billion yuan, 765.641 billion yuan, and 1.7118199 trillion yuan respectively. Thus, the land assignment costs were equivalent to 56.1%, 53.8%, and 58.4% respectively of the land assignment revenue, calculated with the full numerical measure. 2.2

Land Assignment Income

Land assignment income is the balance of total land assignment revenue minus the total land assignment costs. In the three years from 2008 to 2010, the income from land assignments amounted to 436.543 billion yuan, 658.329 billion yuan, and 1.221599 trillion yuan respectively, which was equivalent to 43.9%, 46.23%, and 41.55% of the total land assignment revenue for those years. The three-year average works out to 56.77%. From the financial perspective, it is only the income that becomes part of the local governments’ disposable financial resources; it is the only truly meaningful “land finance.” 2.3

Structure of Outlays from Land Assignment Income

Based on relevant laws and regulations, the income from land assignments is used mainly in the following eight areas: (1) Urban infrastructure construction. There is no regulatory provision on the proportion of funds used for urban infrastructure construction. As for actual expenditure, in 2010, land revenue expenditure nationwide amounted to 979.517 billion yuan, of which 753.167 billion yuan, or 76.89%, was spent on urban infrastructure. (2) Land use fees for additional land designated for construction projects. These are used in developing cultivated land and in land consolidation, and they are collected according to prescribed grade standards. In 2010, the amount of land use fees for newly added construction land amounted to approximately 9% of the net land assignment income. (3) The Agricultural Land Development Fund. This fund, the purpose of which is self-explanatory, is accrued at not less than 15% of the net income from land assignments. The actual amount collected follows prescribed level standards. In 2010, the amount paid into

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the Agricultural Land Development Fund was equivalent to about 2% of land assignment income. (4) The Fund for Urban Affordable Housing Projects (城镇保障性安居 工程资金). This is used for the construction of such housing, and it is to be paid at a rate not less than 10% of the net income from land assignments. In 2010, the actual expenditure for this fund was 46.362 billion yuan, which accounted for about 3% of the land assignment income. (5) The State Land Revenue Fund. This is earmarked for land acquisition and reserve. The specific amount paid into it is determined by each province, district, and municipality, and it is generally about 3–5% of the land assignment revenue. As it has been implemented in the past few years, though, the actual rate is about 8% of the land assignment income. (6) Expenditure for rural infrastructure construction. No regulatory provision has been stipulated for this, but in 2010, such expenditure was equivalent to 8.4% of land assignment revenue. (7) The Farmland Water Conservancy Fund (农田水利建设资金), accrued at 10% of land assignment income. This was first implemented in 2011. (8) The Education Fund. This is accrued based on 10% of the land assignment income, and it, too, was first implemented in 2011. Judging from the arrangements for the expenditure of land assignment income, most of that income, in the beginning, was used for urban construction, but it has been increasingly spent for the development of agriculture, villages, and people’s livelihoods. The policy orientation toward the more equitable and rational distribution and use of land value-added income is obvious.

3 Land Assignment Revenue and Expenditure Management Policy With the establishment and deepening of the reform of China’s paid land use system, land assignment revenue has grown rapidly, and the central government and relevant departments have also continuously strengthened the regulation and management of land assignment revenue collection and use.

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3.1

Policy on Obtaining Land Assignment Revenue

In May 1990, the State Council promulgated the “Provisional Regulations on the Assignment and Transfer of Urban State-owned Land Use Rights,”5 which clearly stated: “The assignment of the right to the use of the land refers to the act of the State as the owner of the land who, within the term of a certain number of years, assigns the right to the use of the land to land users, who shall in turn pay fees for the assignment thereof to the State.” In 1999, the Ministry of Finance and Ministry of Land and Resources issued the “Measures for the Administration of the Collection and Use of Compensated Land Use Fees for Newly Added Construction Land,”6 which clearly stipulated that when the State Council or a provincial-level people’s government approves the conversion or requisition of agricultural land, it will collect from the county and municipal people’s government the average net land income that the latter obtains by assignment and other compensated means of use on the newly added construction land. In 2003, the Ministry of Land and Resources issued the “Regulations on the Agreement-based Assignment of the Right to Use State-Owned Land.”7 Under these regulations, the state assigns, through agreement, to the land user the right to use state-owned land within a certain period, and the land user pays the assignment fee for the land use right to the state. 3.2

Policies on Managing Land Assignment Revenue and Expenditure

In 1993, the State Council issued the “Circular of the State Council Concerning Strengthening the Collection and Administration of Income from the Compensated Assignment of Rights to Use State-owned

5 “Chengzhen guoyou tudi shiyongquan churang he zhuanrang zhanxing tiaoil” (城镇 国有土地使用权出让和转让暂行条例; State Council 1990, order no. 55). 6 “Xinzeng jianshe yongdi tudi youchang shiyongfei shouji shiyong guanli banfa” (新 增建设用地土地有偿使用费收缴使用管理办法; Caizong 1999, no. 117). 7 “Xieyi churang guoyou tudi shiyongquan guiding” (协议出让国有土地使用权规定; Ministry of Land and Resources 2003, order no. 21).

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Land,”8 which stipulates that the revenue from the paid use of stateowned land use rights obtained by the people’s governments of provinces, autonomous regions, and municipalities directly under the central government must be included, according to the current fiscal system, in the fiscal budget management at all levels. In 1995, the Ministry of Finance and the State Land Administration issued the “Circular on Strengthening the Collection and Management of Land Use Right Assignment Fees,”9 which stipulated that all land use assignment fees should be turned over to the government financial authorities and be included in the budget, earmarked for special purposes, and used exclusively for urban infrastructure construction and land development. Since then, the total price of land assignments has been included in the management of local financial special accounts, and the net income has been included in the management of local treasuries. Land assignment revenue and expenditure are managed in two ways, inside and outside the budget. In 2006, the State Council issued the “Notice of the State Council on Relevant Issues on Intensifying Land Control,” which stipulated that the total price of the state-owned land use assignments shall be fully included in the local budget and handed over to the local treasury, and that management “by separate lines of revenue and expenditure” shall be implemented. Also in 2006, the Office of the State Council issued the “Notice of the General Office of the State Council on Standardizing the Management of Income and Expenditure from the Assignment of the Right to Use State-Owned Land,”10 which clearly specifies that the full amount of land assignment revenue and expenditure will be included in the budget, that the expenditure will be arranged through the budgeting of local funds, and that management “by separate lines of revenue and expenditure” will be implemented, so that land assignment revenue and expenditure will be put on the track of standardized management. In 2009, the Ministry of Finance, the Ministry of Land and Resources,

8 “Guowuyuan guanyu jinyibu jiaqiang guoyou tudi shiyongquan youchang shiyong shouru zhengshou guanli gongzuo de tongzhi” (国务院关于进一步加强国有土地使用权 有偿使用收入征收管理工作的通知; Guofa 1993, no. 75). 9 “Guanyu jiaqiang tudi shiyongquan churangjin zhengshou guanli de tongzhi” (关于 加强土地使用权出让金征收管理的通知; Caizong 1995, no. 10). 10 “Guowuyuan bangongting guanyu guifan guoyou tudi shiyongquan churang shouzhi guanli de tongzhi” (国务院办公厅关于规范国有土地使用权出让收支管理的通知; Guobanfa 2006, no. 100).

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and the People’s Bank of China jointly issued the “Notice on Further Strengthening the Management of Land Assignment Revenue and Expenditure.”11 This stipulated that the full amount of land assignment revenue and expenditure is incorporated into the budgetary management of local funds, that the management “by separate lines of revenue and expenditure” is thoroughly implemented, that the revenue collected is fully transferred to the local treasury in a timely manner, that the land assignment revenue information sharing system is improved, that budget preparation is improved, and that the latest reaffirmation and emphasis are made on the compilation of statistical reports, the accountability system, and so on. 3.3

Policies on the Distribution of Land Assignment Revenue

Since 1989, China’s policies on the distribution of land assignment revenue have gone through three stages: The first stage (1989–1993), characterized by shared central and local finances. After 20% of the state-owned land assignment revenue was deducted for urban development and construction costs, 40% was turned over to the central government, and the remaining 60% was retained as revenue for local governments. The outcome of this policy was that the percentage of land assignment revenue shared by the central government gradually decreased, from 40% in 1989 to 5% in 1992. The second stage (1994–1998), when all land assignment revenue went to the local government. In 1994, the fiscal tax-sharing system was implemented, and it was clearly stipulated that the income from paid use of land was to be included in the local governments’ fixed income—all of it was controlled and used by the local governments. The total price of land assignments was put under the exclusive fiscal management of local governments, net income was put under the management of the local state treasury, and land assignment revenue and expenditure were under both internal and external budgetary management. The third stage (1999 to the present), characterized by different management stages implemented for land assignment revenue based on additional land designated for construction projects or existing construction land. To put strict controls on the occupation of cultivated land and encourage 11 “Guanyu jinyibu jiaqiang tudi churang shouzhi guanli de tongzhi” (关于进一步加强 土地出让收支管理的通知; Caizong 2009, no. 74).

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localities to revitalize existing construction land, Article 55 of the Law on Land Administration, revised in 1998, stipulated that 30% of the land compensation fees for new construction land would be handed over to the financial authority of the central government, and 70% would be retained by the local people’s governments, to be used entirely for the development of land for cultivation. However, there are still a few problems in the management of land assignment revenue, its distribution, and its expenditure that urgently need to be solved.

4 The Main Problems in the Land Assignment System and the Management of Its Revenue and Expenditure 4.1

Local Development Is Overly Dependent on Land Assignments

In China’s rapid economic growth, land has played a very critical role: a broad supply and high land consumption ensured high investment; a low-cost land supply with low land prices ensured high exports, the use of land to attract businesses promoted high-speed industrialization, and revenue from land assignment and land mortgage financing boosted rapid urbanization. Under the traditional development model, a “land → public finance → finance” mechanism has gradually formed to accelerate growth. In this mechanism, land is the engine, finance is the lever, and increased fiscal revenue is the result. In recent years, the urban construction funds of local governments at all levels in China have mainly come from bank credit. Local governments borrow from commercial banks, relying first on capital funds, part of which comes from revenue-andexpenditure surplus, but mainly from land assignment income. They rely secondly on assets that serve as collateral. Land is the most reliable and predictable collateral, as expressed in the saying, “Food depends on public finance, and construction on land.” This has a strong incentive effect on land acquisition, development, and assignment. After the implementation of bid tendering, auction, and quotation on commercial land, the revenue from land assignment has increased significantly, which has formed land finance. This development mechanism has promoted high economic growth, increased local fiscal revenue, and created urban prosperity. However, its disadvantages are also obvious—mainly resulting in the impulse to expropriate more land, occupy more land, and sell more

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land, which leads to the wasting of land, the striking of the “red line” on cultivated land, and the increased difficulty of China’s macro-control. 4.2

Uneven Distribution of Land Assignment Revenue Between Urban and Rural Areas

4.2.1 Cities Still Use Most of It Currently, the expenditures used mostly in cities are for urban construction, the State-owned Land Revenue Fund, and affordable housing projects. The proportion of expenditure that went for urban construction in each of the three years from 2008 to 2010 was 66.26%, 48.64%, and 61.65% of the land assignment revenue, the proportion that went to State-owned Land Revenue Fund was 6.77%, 6.41%, and 8.25%, and the proportion that went for affordable housing projects was 3.19%, 2.72%, and 3.80%. Totals for the three items amounted to 76.23%, 57.78%, and 73.70%, respectively. 4.2.2

The Land Assignment Revenue Used for Rural Areas and Agriculture Still Tends to Be Low Among the expenditure items, those used for agriculture and rural areas are primarily the Agricultural Land Development Fund and rural infrastructure construction. The proportion of land assignment revenue that went to the Agricultural Land Development Fund in each of the three years from 2008 to 2010 was 2.76%, 2.08%, and 1.55% respectively, and the proportion that went for rural infrastructure construction was 7.41%, 6.31%, and 8.36%. Totals for the two items amounted to 10.17%, 8.39%, and 9.91% respectively. Therefore, the current trend in the actual expenditure of land assignment revenue is clearly “heavier in the cities and lighter in rural areas.” Following the implementation of relevant policies, such as increasing land assignment revenue support for agriculture and rural areas, accruing education funds, and farmland water conservancy infrastructure, the structure of land assignment revenue and expenditure will change accordingly, and the proportion of that revenue being spent on urban construction is expected to gradually decrease.

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4.2.3

The Share of Land Compensation for Farmers from Land Assignment Revenue Has Not Increased, But Has Fallen Instead In the five years from 2006 to 2010, even though the compensation standards for expropriated land everywhere have generally increased by more than 30%, farmers’ share in the income from land assignments has not increased, but has decreased substantially. According to statistics on land expropriation compensation and land assignment revenue in Liaoning, Zhejiang, and Henan provinces, compensation fees for land expropriation as a share of land assignment revenue in the three provinces in 2007 accounted for 16.82%, 8.62%, and 19.58% respectively, but in 2010, the percentages had dropped by more than a third, to 10.37%, 2.91%, and 12.99%. The increase in land assignment revenue meant that more of the revenue from the land was being taken and dominated by the local governments. Such land revenue is attributed primarily to local governments’ interest distribution mechanisms, which make them keen to expropriate and use more and more land, at low cost and high yield, to “use land to generate wealth” (yi di sheng cai 以地生财). This has resulted in an excess of land being expropriated, and once expropriated, it is inefficiently used. This is not conducive to protecting farmland and using land sparingly and intensively, and it seriously damages farmers’ land property rights. 4.3 4.3.1

Problems in Land Assignment Revenue and Expenditure

Some Local Land Assignment Revenue Is Being Reduced or Deferred Nationwide surveys have shown that the widespread problem of direct reductions of land assignment revenue has been greatly reduced, but the problems of noncollectable levied fees, disguised reductions, and lowcost assignments are still conspicuous. These problems are manifested mainly by the practice in some localities of illegally reducing or deferring land assignment revenue. Some governments, seeking to attract investment, will return their land assignment revenue in the form of disguised reductions, artificially lowered assignment prices, omission of collection, deferred collection, collecting fees and returning them later, using awards in lieu of investment, paying subsidy, and other forms of returning what they collected in land assignment revenue. Some places will take profitoriented land, which should be assigned through bid tendering, auction,

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and quotation, and assign it instead through agreements. In a few places there exist problems such as setting up “transition accounts” (guodu hu 过 渡户) and using departments not responsible for financial administration, such as the local Development Zone Management Committee (开发区管 委会), to handle the land assignment revenue. Many places do not follow the requirements that the assigned land be already completely “cleared” before assignment, with the result that sometimes the demolition and resettlement fees are deferred or not collected, or agent construction fees are used to defray land assignment fees, or business enterprises delay payment of the land assignment price. 4.3.2

There Are Defects in the Policy and Implementation of Land Assignment Expenditure These appear in the following ways: First, regulations on land assignment expenditure are not clear. Since land assignment costs and revenue are not clearly defined, and no definite specifications have been set on scale, quantity, and use with regard to just how much of the land assignment revenue should be used for urban infrastructure, it is extremely easy for local governments to use the vast majority of the land assignment revenue on urban infrastructure. In 2009 and 2010, the proportion of land assignment expenditure that went for urban construction was 27.1% and 27.9% respectively. If costs are deducted, the proportion of land assignment revenue that was used on urban construction was as high as 77.6% and 76.9% respectively. Second, there are defects in the policy on the compensated use fee of additional land designated for construction projects. The standards on fee collection of additional land designated for construction projects and on the accrual of the Rural Land Development Fund have not been adjusted since 2006. However, the overall level of land prices in the 105 major cities monitored throughout the country at the end of 2010 had increased by 86.6% compared with 2006, so that the compensated use fee of additional land designated for construction projects has obviously become too low. In addition, according to the provisions of the Law on Land Administration, the compensated use fee of additional land designated for construction projects is to be used entirely for the development of cultivated land, but later on, the state successively introduced the Agricultural Land Development Fund, funds for low-rent subsidized housing, and other things calling for the regular accrual or outlay of revenue from additional land designated for construction projects. This resulted in an

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overlapping of policies on how the compensatory use fees for newly-added construction land would be spent. Third, expenditure from the land assignment revenue is not in line with regulations. In some places, the funds that are supposed to be used for urban infrastructure construction are only partly used for that purpose— they are also used to pay off government and corporate debts, build new buildings, supplement public funds, or illegally accrue debt repayment funds. Meanwhile, problems such as not allocating enough for the Agricultural Land Development Fund, the funds for low-rent subsidized housing, and the State Land Revenue Fund, or paying into them slowly, are widespread. The mismatch between the distribution and demand for special funds from land assignment revenue is another conspicuous problem. For example, in places like Shanghai and Beijing, there is no farmland in their city centers, so that when they put money into the Agricultural Land Development Fund, they have nowhere to use it, so they wind up with idle funds. The funding for the Education Fund and Water Conservancy Construction Fund from land assignment revenue will also encounter similar problems. Fourth, the management of the land reserve funds is not entirely reasonable. Judging from surveys, funding arrangements from the government and from the State-owned Land Revenue Fund are inadequate, but the financial authorities can disburse funds from land assignment revenue to defray the cost of purchasing reserves only after the land assignment occurs. Thus, the purchases by most land reserve institutions depend on large quantities of loans to acquire and maintain land reserves, which erodes the revenue from land. Meanwhile, many land purchase and reserve institutions have taken on the financing functions of local governments: the land reserve funds that they have acquired mainly through loans are used for stock and other investments, lending, construction of municipal facilities, and so on, and the debt repayment risk is rather high. A Ministry of Finance survey found that at the end of 2009, the loan balance of the Guangzhou Land Development Center (广州市土地开发 中心) was 38.633 billion yuan, which amounted to 119% of Guangzhou’s land assignment revenue for 2009. 4.3.3 The Growth of Land Revenue Is Unsustainable Since 2000, land assignment revenue experienced ten years of rapid growth. However, there were fluctuations in the land assignment revenue during the 2000–2010 period. As the compensated land use system

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improved and the level of land marketization increased, the cost of land, especially the cost of acquiring existing construction land, rose sharply, to the point that they approached or even equaled the land market price. At the same time, as the proportion of newly-added construction land in the land supply decreased and the proportion of existing construction land increased, it became impossible to reverse the steady rise of land acquisition costs. Hence the room for city governments to make revenue from land will inevitably narrow.

5

Policy Recommendations on Improving the Land Assignment Revenue System

The issue of land assignment revenue and expenditure involve the legitimacy of land value-added income, the fairness of land income distribution, and the normative nature of land revenue and expenditure. In recent years, as land assignment revenue as grown steadily, the state and relevant departments have introduced a series of policies to strictly control the collection of land assignment revenue, define the scope of expenditure, and better manage the use of land assignment revenue. However, the collection and distribution of land assignment revenue involves fundamental problems in the land management system as well as problems in the distribution of land value-added income. Even though the reform of the land income system and land system must proceed at the same time, the reform of the land system would be so complicated and difficult that I shall not touch on it in this study. I shall make a few suggestions mainly on how to improve the land assignment revenue distribution system. 5.1

Continuously Increase the Proportion of Land Assignment Revenue Used for Funding Compensation for Land-expropriated Farmers and Maintaining Their Long-term Standard of Living

The source of land assignment revenue is the land expropriated from farmers’ collectives. Under the current system, the compensation given by local governments to land-expropriated farmers is based on a multiple of their annual income from their original use of the land. In recent years, the government has explored ways of ensuring that the living standards of land-expropriated farmers do not decline. The first way has been increasing the compensation standard for land requisition, and

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the second has been urging local governments to establish social security systems for land-expropriated farmers. However, with land values constantly rising and land assignment revenue constantly climbing, these two approaches have not in any way changed the unfairness to farmers collectively in the matter of distributing income from land assignments. Even though the proportion of land requisition and demolition costs have now reached 37% of the land assignment revenue, the biggest increase in this proportion was due primarily to the large increase in the expenditures for demolition and compensation in urban-rural fringe. For most land-expropriated farmers, the compensation they receive is still quite low, the social security systems are uneven from place to place, and the level of protection is very low. To ensure that land-expropriated farmers enjoy a share of the land value-added income in the system, it is recommended that the land requisition compensation system be improved in the following ways: (1) Establish a mechanism for adjusting compensation standards for land-expropriated farmers. This would gradually increase the compensation standards for land expropriation as well as the share that land-expropriated farmers receive from land assignment revenue. (2) Effectively implement the social security system for land-expropriated farmers. This system should be established as soon as possible, in accordance with the requirements of the State Council, in places where it has not yet been established, and land-expropriated farmers should be included in the corresponding scope of protection. Where this system has been established, safeguard mechanisms should continue to be improved and the level of protection should be reasonably determined. It should be clearly stipulated that the funds needed for the social security of land-expropriated farmers be included in the cost of land assignments.

5.2

Optimize the Expenditure Structure and Guarantee a Proportion of Land Assignment Revenue for People’s Livelihoods and Rural Areas

In recent years, although the state and relevant departments have continuously introduced policies to adjust the proportion of land assignment

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revenue going to cities as opposed to rural areas, rural construction, and livelihoods, the proportion of that income going to cities and construction is too high, while the proportion being used for rural areas and people’s livelihoods is still too low. In the future, it will be necessary to substantially adjust the proportion of land assignment revenue going to cities as opposed to rural areas, and to ensure the adjustment of this pattern in the system. Useful approaches would include the following: (1) Reasonable determination of land assignment cost items with respect to land assignment cost expenditures. The direct costs of land assignments (compensation fees for land requisition, and demolition, expropriation and reservation expenses, and initial land development costs) and compensatory costs (social security fees for land-expropriated farmers, subsidies for maintaining the original living standards of land-expropriated farmers, and compensatory fees for employees of bankrupt or restructured business enterprises) should be clearly identified and defined. Moreover, full payment of these costs should be ensured and prioritized. (2) Clearly specify the proportion of land revenue to be used for urban construction, and increase the proportion of land assignment revenue used for rural areas and farmers. (3) Coordinate the use of land assignment revenue. At present, the “vegetarian meat-cutting” method applied on land assignment revenue has superficially increased the proportion going to rural areas and people’s livelihoods, but such expedient means cannot really guarantee that the increase will in fact reach its destination. The method of constantly cutting and extending things from the land assignment revenue should be changed. Instead, policies should be formulated to coordinate expenditures from land assignment revenue, so that the system will ensure that it clear proportions are used for rural construction, farmers’ social security funds, subsidized housing, water conservancy, and education.

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467

Raise the Standards of Paid Use Fees for Newly-added Construction Land, and Apply These Funds to Establish a National Cultivated Land Protection Fund

(1) Establish a mechanism for adjusting paid use fees and land prices for newly-added construction land. This mechanism would make timely adjustments to the standards of fees collected and their scope of use, based on changes in social economic development and land prices. (2) Establish a National Cultivated Land Protection Fund. In view of the fact that the land use fees for newly added construction land are used mainly for farmland protection and land consolidation, reclamation, and development, it is recommended that the central government set up a Cultivated Land Protection Fund for the protection of cultivated land and land remediation in key regions in order to ensure national food security.

5.4

Strengthen the Management of Land Assignment Revenue Collection to Ensure That All Receivables Are Collected

The timely, full payment of land assignment revenue into the local state treasuries are the basis for ensuring that land assignment revenue and expenditure are both included in the local budget management of the funds. Local people’s governments at all levels need to fully establish the system of bid invitation, auction, and quotation on profit-oriented land and strictly implement the state’s policy on regulating the management of land assignment revenue and expenditure. Except where clearly stipulated by the State Council, no department should be able to arbitrarily reduce, defer, or disguise reductions on land assignment revenue, and payments in kind of land assignment revenue are strictly forbidden. The following methods should be adopted: (1) Clearly specify and implement uniform management of land assignment. In agreements, bid invitation, auction, and quotation assignments on the use rights of state-owned land should be uniformly implemented by the competent department for state land in accordance with the requirements of urban planning, and any other units

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and organizations should be strictly prohibited from assigning the use rights on state-owned land. (2) Establish strict management of land assignment contracts. In stateowned land assignment contracts, lease contracts, and documents on allocation decisions, the total land assignment price, rent amount, and land allocation price, as well as the payment time and method, must be clarified. (3) Enforce the requirement that land be fully “cleared” before assignment. The practice of local governments of completing land assignments before the land is fully cleared must be eliminated, since this results in the loss of state-owned land revenue. Furthermore, all kinds of platform companies should be prohibited from acquiring land and then holding it in reserve. (4) Enhance the collection of land revenue. Establish a coordination mechanism between the state-owned land resources administration departments and branches of the People’s Bank of China in order to ensure that land assignment revenue is paid into local treasuries in full and on time. (5) Improve and refine the benchmark land price system. Municipal and county people’s governments should update benchmark land prices in a timely fashion—in principle, once every three years, and in line with market changes—in order to regulate the practice of assigning land at low price.

5.5

Formulate and Improve the Management Measures for the Use of Relevant Special Funds

To strengthen the use and management of each of the special funds effectively, it will be necessary to study and formulate as soon as possible legal management measures on the use of the land assignment revenue for the funds being used to invest in urban and rural infrastructure construction. The State-owned Land Revenue Fund system should be improved, with management measures on the use of that fund for the protection of cultivated land and for acquisition and reservation of land. The management of reserve funds should be improved, the scale of reserve loans limited, and the dependence on loans for reserving lands reduced. It should be further clarified that after reserved lands are realized, the local finance departments should allocate the land acquisition and reserve cost

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in a timely fashion to the Land Revenue Fund, to ensure that the Fund continues to grow steadily and be used. 5.6

Strengthen Supervision and Inspection, Implement Policy Strictly

A long-term mechanism for the supervision of land assignment revenue and expenditure should be established and improved, with strengthened supervision and inspection of municipal and county-level implementation of management policy on land assignment revenue and expenditure. The supervision should combine regular inspections with special inspections, and combine comprehensiveness with professionalism, making sure that the management policy is in fact implemented thoroughly. If an inspection turns up any behavior in violation of the regulations (e.g., the local government reduces, exempts, defers, or accepts payment in kind in land, or collects fees and then returns them, or postpones depositing land assignment revenue in the treasury in a timely fashion, or does not apply the revenue to various funds), then the persons responsible will be identified, their administrative responsibilities clarified, and their punishments handled according to relevant provisions of the law. Meanwhile, efforts should be made to promote budget disclosure, increase budget transparency, report to peers in the Standing Committee of the National People’s Congress, and accept supervision from society.

CHAPTER 17

Bidding Farewell to “Land-driven Development”

During the last strategic opportunity period, China used its unique land system to drive high economic growth and rapid industrialization and urbanization. The process was manifested in the following specific ways. First, the ample supply of land guaranteed high economic growth. From 2003 to 2012, the total annual supply of state-owned construction land increased from 286,400 hectares to 690,400 hectares, at an average annual growth rate of 10.27%. Second, the low cost of industrial land guaranteed the rapid advancement of industrialization. From 2000 to 2012, the average annual increases in the national comprehensive land price level, commercial land price level, and residential land price level were 10.04%, 11.40%, and 14.42%, respectively, but for industrial land the price level increased by an average of only 3.35% per year—far lower than the commercial and residential land price increases. Third, urban land expansion and land capitalization have promoted urbanization. Between 2000 and 2012, China’s urban built-up area more than doubled, and land assignment revenue has increased by a factor of more than 45. In 2012, land mortgage loans in 84 key cities reached 5.95 trillion yuan, making it an important source of funding for urban infrastructure construction. However, the model of “land-driven development” (yi di mou fa zhan以地谋发展) has also exposed many problems, especially after the

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_17

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revenue from land assignment dropped off in 2012, and its unsustainability and risks were exposed. Finding a source to power the next round of development through reform has become an urgent matter.

1 The Land Sales Model: Frustrated in the East, Spreading in the West and Center 1.1

The Predicament of the Land Sales Model in the Eastern Coastal Region

First, land assignment revenue in the East has dropped significantly. In 2012, land assignment revenue nationwide decreased by 13.7% from the previous year, and in the East it decreased by 20.7% (see Table 1). As for cities in 2012, even though the East had the most cities (37) among the country’s top 50 cities in terms of land assignment revenue, and the most (6) among the top 10 (see Table 2), the land assignment revenue of the four first-tier cities of Beijing, Shanghai, Guangzhou, and Shenzhen decreased by 38.60%, 23.10%, 22.02%, and 50.13% respectively from the previous year. In addition, among the top 50 cities, of the 18 cities that posted a year-on-year increase in land assignment revenue only 8 were in the East. Of the 20 cities with the largest year-on-year decreases, 18 were eastern cities. Second, the growth of land area assigned in the East has slowed down. In recent years, land-dependent growth in the East has slowed down. From Table 1 Land assignment revenue and growth in the East, Center, and West (units: billion yuan, %) 2009 Revenue East 1258.3 Center 277.2 West 182.3 Nation 1717.9

2010

2011

2012

Increase (%)

Revenue

Increase (%)

Revenue

Increase (%)

Revenue

Increase (%)

83.9 25.8 44.9 67.4

1927.6 566.2 447.5 2941.4

53.2 104.2 145.4 71.2

1964.2 756.5 626.9 3347.8

1.9 33.6 40.1 13.8

1557.9 711.9 618.8 2888.6

−20.7 −5.9 −1.3 −13.7

Note Land assignment revenue in the table is based on the actual income entering the treasury, based on Ministry of Finance statistics Source Quanguo tudi churang shouzhi qingkuang 全国土地出让收支情况 [Status of National Land Assignment Revenue and Expenditure], an annual published by the Ministry of Finance

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BIDDING FAREWELL TO “LAND-DRIVEN DEVELOPMENT”

Table 2 Top 10 cities in 2012 for land assignment revenue (units: billion yuan, %)

Shanghai Wuhan Chongqing Suzhou Hangzhou Beijing Tianjin Chengdu Shenyang Ningbo

473

2012

2011

Year-on-year growth (%)

99.09 94.99 89.75 72.44 68.84 64.79 64.14 63.53 56.26 49.28

128.9 58.95 102.65 87.75 76.83 105.51 82.75 43.67 64.89 43.03

−23.10 61.20 −12.60 −17.50 −10.40 −38.60 −22.50 45.50 −13.30 14.50

Source compiled by author from each city’s statistics bureau

2000 to 2007, the average annual increase of land area sold was 25.2%, and from 2008 to 2012, the average annual increase fell back to 9.06%. In 2012, 122,700 hectares of land was assigned (see Table 3), representing a decrease of 21% from the previous year. The proportion of land supply in the three major regions, the East, Center, and West, was 52:25:23 in 2008, but in 2012 it had changed to 38:27:35. The proportion of land supply in the East declined for four consecutive years. Third, the price of land assignments in the East has risen persistently, bidding farewell to the era of low-cost land supply. From 2008 to 2012, the unit price of land assignments (total price of land assigned / total area of land assigned) in eastern China increased each year by 10.65% on average, to 3.93 million yuan per hectare. In 2009, the unit price Table 3 Area of land assigned and prices in the three regions (units: 10,000 ha, 10,000 yuan/ha) 2008

East Center West Nation

2009

2011

2012

Area assigned

Unit price

Area assigned

Unit price

Area assigned

Unit price

Area assigned

Unit price

8.67 4.15 3.76 16.58

789 449 412 618

12.51 4.76 4.81 22.08

1006 493 467 778

15.62 9.85 8.25 33.72

1184 723 716 944

12.27 8.72 11.30 32.28

1182 760 510 833

Source Quanguo tudi churang shouzhi qingkuang (see Table 1)

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of land assignment in the East started to exceed 10 million yuan per hectare, and by 2012, despite the overall downturn in the land market, the unit price of land assignments there was still as high as 11.82 million yuan per hectare. Among all types of land, the cost of industrial land rose particularly sharply. From 2010 to 2012, the average annual increase in industrial land prices in the Yangtze River Delta, Bohai Rim, and Pearl River Delta reached 8.75%, 7.19%, and 10.53% respectively. It has already become difficult to rely on government-subsidized land prices to maintain low-cost industrialization. 1.2

The Land Sales Model is Replicating and Spreading in the Central and Western Regions

In recent years, industrialization and urbanization in the central and western regions have accelerated, but the replication of the “development by land” model in the East is quite obvious. First, the growth in the rate of land assignment revenue in the central and western regions has accelerated. Before 2010, the increase of land assignment revenue in the East was always much higher than in the Center and the West. In 2009, for example, land assignment revenue in the East increased by 83.89%, while in the Center and West it increased by 25.84% and 44.92% respectively. In 2010, the growth rate of land assignment revenue in the Center and West began to exceed that of the East, having reached 102.24% and 145.44% respectively, while in the East it grew only 53.19%. In 2011, land assignment revenue in the Center and West increased by 33.6% and 40.1% respectively from 2010, in stark contrast to the increase of only 1.9% in the East. In 2012, with the land market in an overall decline, land assignment revenue in the Center and West fell by 5.9% and 1.3% from 2011, but that is far less than the 20.7% decline in the East (see Table 1). As for the cities, in 2012, among the top 10 cities for land assignment revenue, the two with the highest year-on-year growth were Wuhan and Chengdu, which were as high as 61.2% and 45.5% respectively (see Table 2). Among the top 50 cities for land assignment revenue, there were 18 cities showing positive year-on-year growth, and of these, the central and western regions each had five, and the eastern region had eight. Among the 20 cities with the largest decline in land assignment revenue, the central and western regions had only one each, and the eastern region had 18.

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Second, the increase in land assignment revenue in the central and western regions depends mainly on the expansion of land area sold, and there is a clear tendency to consume land. From 2008 to 2012, the area of land assigned in the Center increased from 41,500 hectares to 87,200 hectares, an average annual increase of 20.38%, while in the West the area of land assigned increased from 37,600 hectares to 113,000 hectares, an average annual increase of 31.66%. The unit price of land assignments in the West rose much less than that of the East and Center. During that period, the unit price in the Center and West increased by 3.11 million yuan per hectare and 980,000 yuan per hectare respectively, with an average annual increase of 14.08% and 5.48%, while in the East it was 10.65%. In 2012, the unit prices for land assignments in the East, Center, and West were respectively 11.827 million yuan per hectare, 7.6 million yuan per hectare, and 5.1 million yuan per hectare. The unit prices in the Center and West were respectively only 64% and 43% that of the East (see Table 3). Third, industrialization in the central and western regions is driven by low-cost land. Results of monitoring by the former Ministry of Land and Resources in 105 key cities show that from 2000 to the third quarter of 2012, the average annual increase in industrial land prices in the northwest and southwest regions was only 2.91% and 2.92% respectively, which were lower than those in the eastern region (5.63%) and northern region (5.33%). As of the third quarter of 2012, the price of industrial land in the northwest, southwest and mid-south regions were only 586 yuan/ m2 , 585yuan/m2 , and 838 yuan/m2 respectively, far lower than the 1,086 yuan/m2 and 931 yuan/m2 in the eastern and northern regions respectively.

2 2.1

Why the Land Sales Model is Unsustainable As the Volatility of Land Assignment Revenue Increases, So Does Instability

From 2000 to 2012, the total contract price of land assignments in China each year increased from 59.6 billion yuan to 2.69 trillion yuan, with an average annual growth rate of 37.4%, which was much higher than the average annual increases of the GDP (14.8%) and fiscal revenue (21%). However, land assignment revenue fluctuates greatly from year to year. From 2000 to 2012, it fluctuated by more than 50% annually. Since 2010, the volatility of land assignment revenue has clearly increased, as

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it has been significantly affected by the macroeconomic situation and especially by the real estate market. From 2010 to 2012, land assignment revenue increased year-to-year by 59.87%, 14.69%, and −14.60% respectively, and in 2011 and 2012, it decreased year-to-year by 45.18 and 29.29 percentage points respectively. 2.2

As Compensatory Expenditures Rise, So Does the Cost of Urbanization

In recent years, as urbanization has accelerated, land values have risen sharply, farmers’ rights awareness has been awakened, and in some areas, land use by cities and towns has gradually shifted from newly-added land to land held in reserve. The costs of land expropriation and demolition have risen swiftly, and the proportion of land assignment revenue going to compensate landless farmers and resettled residents is rising significantly. The proportion of total land assignment revenue going for compensatory expenditures such as compensation for land expropriation and demolition, subsidies for land-expropriated farmers, enterprise employees’ resettlement fees, and operational fees in land assignments in 2008, 2010 and 2012 can be seen in Table 4, with the total costs growing. Table 4

Land assignment costs as a share of revenue (units: billion yuan, %)

Land assignment revenue Land expropriation and demolition fees Subsidies for land-expropriated farmers Enterprise employees’ resettlement fees Operational fees in land assignments Initial land development expenditure Total Costs

2008

Share (%)

2010

Share (%)

2012

Share (%)

994.21

–

2939.8

–

2888.63

–

366.21

36.8

1067.7

36.3

1740.16

60.2

15.77

1.6

44.97

1.5

78.24

7.9

333.66

11.3

7.11

0.7

15.75

0.5

90.34

9.1

256.12

8.7

522.33

18.1

557.68

56.1

58.4

2262.49

78.3

1718.2

Source Quanguo tudi churang shouzhi qingkuang (see Table 1)

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In 2012 especially, due to the influence of the Regulations on the Expropriation of Housing on State-owned Land and Compensation (国有土地上 房屋征收与补偿条例), the increase in compensation for land expropriation and demolition became more obvious, so that it reached 60.2% of the total land assignment revenue. As we may have anticipated, the government, while continuing to promote urbanization and following the provisions of the current Law on Land Administration, is already having difficulty expropriating land by compensating farmers based on the original use of their land, since the compensation for the farmers’ land and houses was bound to increase substantially. This situation is quite obvious in urbanized regions (including the urban–rural fringes and urban expansion zones). At present, China’s urbanization is bidding farewell to the low-cost era when the compensation for land expropriation was low. 2.3

As Local Governments’ Land Revenue Decreases, Their Social Spending Faces a Challenge

In recent years, as the costs of land expropriation and demolition have increased, the actual disposable land income (what is called “land finance”) of local governments has contracted rapidly, so that the yearon-year growth rate of that income has been declining. From 2008 to 2012, the actual disposable land assignment income of local governments accounted for 36.32% of annual land assignment revenue, on average. In 2008, the local governments’ actual disposable land assignment income amounted to 456.308 billion yuan, which accounted for 43.9% of the land assignment revenue. In 2012, however, when the local governments’ actual disposable land assignment revenue amounted to 626.8 billion yuan, it was a year-on-year decrease of 317.2 billion yuan, and the proportion of income from that year’s assignments was only 21.7%. The local governments’ fiscal revenue was also affected as the proportion contributed by “land finance” declined. From 2008 to 2012, the average proportion of land assignment income in local governments’ fiscal revenue was only 18.75%, and in 2011 and 2011, it had declined further, to 17.97% and 10.26% respectively. Since 2008, China has successively introduced relevant policies to adjust the structure of land assignment income and expenditure, tending to put more of the land assignment income into rural construction, education, water conservancy, affordable housing projects, and other

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areas relating to people’s livelihoods. In 2012, the proportion of land assignment income used for spending on education, farmland water conservancy construction, rural infrastructure building, and affordable housing projects were, in order, 4.66%, 3.87%, 8.42%, and 10.23% (see Table 5). However, this sort of institutional arrangement, which relies on “land finance” to pay for the cost of protecting people’s livelihoods and other expenses, faces the problem of sustainability. First, land assignment income is quite volatile, but social spending is rigid. Once land assignment income falls sharply, local governments will have difficulty fulfilling their commitments on social spending. Second, the various types of cost expenditures in the land expropriation process have risen rapidly, and in the future, this will result in a continuing decline in the proportion of land assignment income to total revenue. This will directly affect the ability of land assignment income to defray the cost of protecting people’s livelihoods. 2.4

Shrinking Land Assignment Revenue Means Less Funding for Urban Construction

In recent years, China has made great achievements in urban infrastructure building, and land assignment revenue has been an important source of funding for it. Between 2000 and 2012, there was a significant positive correlation between the increase in land assignment revenue and the increase in the completed volume of investment in urban service facilities construction, and the fluctuations were relatively close (see Fig. 1). We can view this in stages. From 2000 to 2003, the annual growth rate of completed volume of investment in urban service facilities construction continued to increase, with an average annual growth rate of nearly 30%. The average annual growth rate of land assignment revenue during that period was 86%, the highest increase since 1998. From 2008 to 2012, the year-on-year growth rate of land assignment revenue showed an inverted U-shape of “first rise, then fall.” In 2009, land assignment revenue increased by 67.45% from the previous year, then it continued to drop until 2012, when it hit -14.6%. During the same period, the yearon-year increase in the completed volume of investment in urban service facilities was entirely in line with the growth trend in land assignment revenue. In 2009, the completed volume of investment grew 44.42% from

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Table 5 Amount and proportion of land assignment income used for various expenditures (units: billion yuan, %) 2008 Land 456.308 assignment income Education Fund – Farmland water – conservancy construction State-owned 30.891 Land Revenue Fund Agricultural 12.607 land development Land use fees 63.871 for additional land designated for construction projects Affordable 14.557 housing projects Urban 302.402 construction Rural 33.83 infrastructure construction Land 458.158 assignment income used for expenditures subtotal Land −1.85 assignment income balance

Proportion (%)

2010

Proportion (%)

2012

Proportion (%)

–

1221.599

–

626.141

–

– –

-

– –

26.995 22.459

4.66 3.87

101.717

17.55

6.74

100.789

9.00

2.75

18.887

1.69

13.94

98.373

8.79

3.18

46.362

4.14

59.301

10.23

753.167

67.26

320.415

56.27

102.168

9.12

48.808

8.42

66.0 7.38

-

1119.746

–

579.695

–

-

101.853

–

46.446

–

Notes (1) Land assignment income is the balance of the current year’s land assignment revenue after deducting cost expenditures (see Table 4) (2) Expenditure on education, farmland water conservancy construction, the State-owned Land Revenue Fund, and agricultural land development are all special funds, with the balance carried over for the next year’s use, according to regulations. Therefore, the listed figures are that year’s actual accruals. (3) Land assignment income balance is the difference between the land assignment income and listed categories of expenditure from that income. (4) Expenditure for education and farmland water conservancy construction was money accrued from 2011. Source The annual Quanguo tudi churang shouzhi qingkuang (see Table 1)

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the previous year, which was the highest point in recent years, but since 2010, the year-on-year growth rate has gradually declined (rose in 2012). With the slowdown in land assignment revenue growth and the reduction in land assignment income from rising cost expenditures, the urban infrastructure-building model that relies heavily on land assignment income will face severe challenges in the future. In the current land income/expenditure structure, there are two main funding sources for urban construction: the first is expenditure from land assignment revenue under the heading of initial land development, and the other is expenditure from land assignment income under the heading of urban

% 50 45 40 35 30

140 % 120 100 80 60

25 20 15 10 5

40 20 0 -20

-40 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Increase in the complete volume of investment in municipal service facilities construction (left) Increase in the total contract price of land assignments nationwide (right)

Fig. 1 Relationship between increase in land assignment revenue and increase in the completed volume of investment in urban service facilities construction, 2000–2012 (Source The annual Zhongguo guotu ziyuan gongbao [China National Land Resources Bulletin] and Zhongguo chengshi jianshe tongji nianjian [China Urban Construction Statistical Yearbook])

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construction. From 2008 to 2012, an average of 12.3% of land assignment revenue went to initial land development, and more than 55% of land assignment income each year went to urban construction. In recent years, the growth trends of the two proportions have differed. On the one hand, the proportion of initial land development expenditure to land assignment revenue has been rising steadily. In 2012, that proportion was 18.1% (compared with 9.1% in 2008). On the other hand, the proportion of urban construction expenditure to land assignment income is declining. In 2012, 320.415 billion yuan from land assignment income was spent for urban construction—a decrease of 236 billion yuan from the previous year. It accounted for 55.3% of the actual land assignment income that year, down 10.7 percentage points from the previous year. In the future, if this model of relying on land assignments to promote urban construction is not changed, urban construction and maintenance will face financial sustainability problems. 2.5

As Land Mortgage Loans and Illegal Mortgage Financing Increase, So Does Risk to Local Governments

In recent years, both the land area in China that has been used as collateral for loans and the volume of the loans have continued to rise rapidly, and the volume of these loans as a share of RMB loans from financial institutions nationwide has also gradually increased. From 2007 to 2012, the area of land collateralized in 84 key cities increased from 128,400 hectares to 349,000 hectares, with an average annual increase of 44,100 hectares. The volume of land mortgage loans taken out increased from 1.33 trillion yuan to 5.95 trillion yuan, with an average annual increase of 34.8% (see Fig. 2). From January 2008 to November 2012, the proportion of land mortgage loans to RMB loans of financial institutions nationwide increased from 4.94% to 9.29%. In 2012, various ministries and commissions successively issued several policies to prevent financing platform risks. As a result, the collateralized land area and loan growth rate that year decreased to 15.7% and 23.2% respectively from the previous year, which was the lowest growth rate since 2007. Let us examine the regional differences. In 2012, most of the 5.95 trillion yuan that the 84 key cities borrowed, using land as collateral, were concentrated in 30 cities in the East (4.02 trillion) and 14 cities in the West (1.08 trillion), followed by 21 cities in the Center (610 billion), and finally 19 cities in the Northeast (240 billion). These

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7

40 Area of land use as collateral (left) 35

Loan volume of land used as collateral (right)

6

5

25 4 20 3 15

Unit: trillion yuan

Unit: ten thousand ha

30

2

10

1

5 0 2007

2008

2009

2010

2011

0 2012

Fig. 2 Area of land used as collateral and loan volume in 84 key cities, 2007– 2012 (Source The annual Zhongguo guotu ziyuan tongji gongbao [China National Land Resources Bulletin] https://www.mnr.gov.cn/sj/tjgb/)

accounted for 67.56%, 18.15%, 10.25%, and 4.03% respectively. As for the cities themselves, the three cities with the largest land mortgage loans were Beijing (1.4194 trillion), Shanghai (562.4 billion), and Chongqing (478.3 billion); accounting for 23.8%, 9.4%, and 8%, respectively, of the land mortgage loans to the 84 key cities (see Fig. 3). The risk on land mortgage loans first appears as local government debt risk. According to National Audit Office reports, at the end of 2010, local governments had pledged to use land assignment revenue to repay their debt balance of 2.5 trillion yuan, which is 81.2% of the outstanding debt balance for which they are responsible for repaying. If we look at debt repayment year, we find that the debts repaid in the three years from 2013 to 2015 accounted for 11.37%, 9.28%, and 7.48% respectively, and 30.21% were due during and after 2016. Due to the increased instability of land assignment revenue in recent years and expected future volatility, and the declining actual land-based disposable revenue that local governments are receiving, the potential debt risk of local governments

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80 70

67.56 Proportion of regional land mortgage loans to those in 84 key cities

60 50 40 30

23.80 18.15

20

10.25

10

9.40

8.00

Shanghai

Chongqing

4.03

0 30 cities in the East

14 cities in the West

21 cities in 19 cities in the Center the Northeast

Beijing

Fig. 3 Regional analysis of land mortgage loans in 84 key cities in 2012 (Source The annual Zhongguo guotu ziyuan gongbao [Bulletin of China Land and Resources])

(especially county and city governments) will significantly increase if they use land assignment revenue as the major source of repayment. In comparison with local governments’ debt risk, though, what needs to draw more attention is the financial risk of land mortgage loans. At the end of 2010, the government debt balance of the financing platform companies was 4.97 trillion yuan, which accounted for 46.38% of the balance of local government debt. The most important collateral that the financing platform companies use is the various kinds of reserved land. If someday the land market were to have a large fluctuation, then, by affecting the value of the collateralized land, the financial risks of the various banks may accumulate rapidly. A number of classic surveys have shown that in land-collateralized financing there have been extremely opaque financing processes and a large number of illegal operations, e.g., changing the type of land use rights and ownership registration, putting a false use registration on land whose value would otherwise be difficult to realize (such as public facilities land or public interest land), illegally reserving land or acting as third-party guarantor, registering land and using it as collateral even

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though the legal use right for it has not been obtained, duplicate registrations, using the same land twice as collateral for loan financing, using falsely high valuations to increase the volume of loan financing, and so on. If this situation is not regulated as soon as possible, the potential risk from these land mortgage loans is very large.

3

Reform Strategies

In the next strategic opportunity period, China will bear the historical task of carrying out industrialization, urbanization, and agricultural modernization simultaneously. To this end, it will be necessary to build a new relationship between land and the economy, promote a transformation in land use through reform of the land system, optimize land use structure, promote land use efficiency, protect farmers’ land rights and interests, balance the interests of all parties, and provide a reasonable amount of land and financing for sustainable urbanization. 3.1

Optimizing Land Structure, with Reform of the Land System as the Core

First, in view of the excessive amount of industrial land in China, we should formulate planning adjustments to convert that land from industrial use, handle the ownership and interest distribution issues, and innovatively switch industrial land to the service industry, residential land, or high-end manufacturing, to optimize the structure of urban land use, restructure industry, and achieve sustainable urban development. Second, considering that the government’s land use ratio is too high, and that its land is not intensively used, rules for allocating land by government and administrative units to the market and methods for disposing value-added income from the land should be formulated. Land for industrial development and livable space for urban use should be increased. Gains from increased land values, brought about by use conversion, should be better used for urban development. Third, considering the extra-legal, low-end uses to which farmers’ land in the urban–rural fringes are being put currently, a pilot project to integrate collective construction land into the market should be carried out on a selection of such areas from different types of cities. This would release a huge amount of land for urban development and industrial upgrading.

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Fourth, pilot projects should be carried out in a selection of different types of areas wherein a mechanism is set up to grant permanent urban residency to the migrant population and guarantee paid exits of rural households’ homesteads. This would bring about a win–win situation in terms of rural household’s homestead usufruct and the optimization of urban–rural land use. Fifth, considering that in the eastern coastal areas, future industrial upgrading and urbanization will switch to using mostly land held in stock, it is recommended to focus on carrying out pilot programs and innovations in systemic reform to optimize the land structure in these areas. 3.2

Promoting State-owned Land Asset Management and Financial System Reform, to Provide Sustainable Funding for Urbanization

First, modes of state-owned land asset management should be explored. The government’s land administration function should be separate from profit-oriented land management, and the profit-oriented management function of state-owned land should be separated from the work of current government agencies. On the basis of clarified status quo and details on state-owned land, land asset management companies managing state-owned land should be established, and they should be engaged in managing, preserving the value of, and increasing the value of stateowned land. It should be clearly specified that the business income of such companies enters the local treasury, and that the use of the funds should be decided and monitored by the local people’s congress. Second, the state-owned land financing system should be refined. Certificates on state-owned land rights should be strictly managed, categories of loans using state-owned land as collateral should be clarified, the independence of third-party assessments of land value should be enhanced, punitive measures for violations of regulations on land mortgage loans should be instituted, and the security of loans with state-owned land as collateral should be guaranteed. Third, with reference to the Enforcement Rules on the Implementation of Zone Expropriation (区段征收实施办法) in the Taiwan region, the land use model should be reformed so as to reduce the dependency of various levels of government on land assignment mechanisms and on financing through financial platforms.

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Fourth, the pilot land property tax system should be differentiated. For reserved land, land held in store by real estate businesses, and rural collective construction land entering the market, collection of the pilot land value-added tax should be implemented first.

CHAPTER 18

Thoughts on China’s Land System Reform and How to Promote It

1 The Characteristics and Problems of China’s Land System In comparison with other countries and regions around the world, China’s land system is unique. 1.1

A Land Rights System in which Ownership and Use Rights are Separated on the Basis of Socialist Public Ownership

China’s land rights system is built upon four elements: First, the implementation of socialist public ownership of land. No organization or individual may misappropriate, buy, sell, or otherwise illegally transfer land. Second, the system of state ownership of land and the system of collective ownership of land coexist. Urban land and natural resources such as mineral deposits, water currents, sea areas, forests, mountains, grasslands, wastelands, and tidal flats are owned by the state. Rural land and land in suburban areas of cities, house sites, self-reserved land, and self-reserved mountains, except where laws and regulations stipulate state ownership, are owned by collectives; where laws and regulations stipulate collective ownership, land, forests, mountains, grasslands, wastelands, and tidal flats, are owned by collectives. Third, land ownership is separate from land use rights. On rural land, the Family Contracting System has been adopted, and it gives farmers long-term and guaranteed land © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9_18

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use rights. As for state-owned land, the land-use rights holders ave the right to legally occupy, use, derive income from, transfer, lease out, and use as collateral their land use rights, under the premise of state ownership. Fourth, land property rights are respected and protected. The state regulates and protects land rights in accordance with the Constitution, Property Rights Law, Law on Land Administration, and Law on Land Contracts in Rural Areas. Provided that the ownership of the land does not change, the land rights of land users are protected, with focus on improving and strengthening usufruct of land. 1.2

A Land Administration that Aims to Protect Arable Land and is Centered on Use Regulation

Because of its high population density, China gives first place to food security and the protection of farmland. When the Law on Land Administration was amended in 1998, the effective use regulation systems of foreign countries were introduced and written into the law, and it was proposed that “to cherish and rationally use land and effectively protect cultivated land are the basic state policies of China.” The most stringent farmland protection system was implemented through a series of institutional arrangements. Through the preparation of master planning of land use, the delineation of land use areas and the determination of land use restrictions, the conversion of agricultural land, especially cultivated land for construction, are strictly restricted. 1.3

A Government-Guided Land Resource Allocation Method that Mainly Follows Market Mechanisms

The content of China’s land resource allocation system includes the following: First, for state-owned land, a dual-track system has been instituted that supplies land via planning or by paid use. Apart from land used by government agencies, the military, urban infrastructure, public utilities, and major state-supported projects for energy, transportation, hydrology, and other infrastructure, for which land is supplied via planning, all other types of construction land are supplied via different forms of paid use, i.e., sale, leasing, price contribution, or shareholding. Second, land used for profit-oriented operation is subject to market allocation under the government’s exclusive monopoly. For profit-oriented land—that is, industrial, commercial, tourism, entertainment, commercial residential land, and so

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on—and for land parcels having two or more parties that are willing to use them, the government sell the use right of land by means of land bid invitation, auction and listing, open competitive bidding, etc. Third, land use rights holders on state-owned land can lease out the land, arrange for shareholding in it, transfer it, or use it as collateral. 1.4

A Land Administration System Based on Centralized and Unified Management

Before 1986, the administration of land in China was decentralized, managed by many departments. In 1986, as a response to problems arising from the “block-based” land administration system, a unified management system for urban and rural land administration was established. In 1998, the system whereby different levels of the government had quotas within which they had authority to review, approve, and administer (including expropriate) land was replaced by land use regulation. That is, the authority to review and approve conversion of the use of agricultural land and to expropriate land were limited to the State Council and provincial-level governments. In 2004, the state-owned land administration system below provincial-level governments was further put into order. In 2006, the National Land Supervision System (国家 土地督察制度) was established. By this point, the unified land administration model for the relatively centralized management and top-down supervision of land had basically taken shape. That is, an administrative department of land and resources under the State Council is responsible for the overall management and supervision of land throughout the country, and it implements four levels of management (central, provincial, municipal, county). Under a team leadership management system, it practices a double-level of management (central and provincial), with vertical management below the provincial level. With economic and social development, however, this land system showed the following major drawbacks: (1) In the property rights arrangement, there exists a duality of rights and an impairment of powers. Under the socialist public ownership system, collective ownership of rural land and state ownership of urban land was established, and within that system, rural collective members only have the right to use, derive income from, and transfer the contracted land for agricultural purposes. When

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agricultural land is converted into urban land, the expropriation, transfer, and assignment of that land is handled by the municipal and county governments, and the various land-using units (local governments, business enterprises, units, etc.) have the right of management, usufruct and transfer under the control of the planning once they had obtained the right to use land. Thus, the two types of land ownership entail two completely different kinds of land rights, which are governed by different legal systems, and the government in particular became the owner and property controller of cities. (2) There is inequality of access to the land market for different entities. Since the land market has an urban–rural division, and rural collective land is bordered by village communities, collective members may access it. Agricultural land circulates mainly through informal transactions without any price, and different types of agricultural land (contracted land, house sites, collective construction land, non-cultivated land) enter the market according to different rules of access. The supply, transfer, and recovery of urban land, meanwhile, is monopolized by local governments. Land transactions are subject to competition among buyers, under the seller’s monopoly, and different types of land (public purpose land, industrial land, profit-oriented land) are assigned in different ways. This results in land price distortions and inefficient resource allocation. (3) Gains and losses in land value-added income are unfairly distributed among relevant stakeholders. The principle of land value-added income distribution is such that land-expropriated farmers receive compensation based on multiples of income from the land’s agricultural use; the land value-added income is obtained, used, and controlled by local governments when the land use is converted; and future land value-added income returns mainly to the land occupiers and partly to the local governments. As a consequence, the compensation legally received by the original collective owners is too low, and the compensation received by urbanized farmers is non-standardized, opaque, and unprincipled. Meanwhile, the one-time land value-added income that the government gets from the land is too high, but the future land value-added income is lost. The one-time land assignment fees paid by real estate businesses and homebuyers is too high, but the future land value-added income that they will derive from it is also too high. This is one

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of the institutional factors that contribute to the current unfair distribution of income. (4) There are conflicting goals and functions within the land administration system. Despite the use controls and planning controls in the land administration system, under the specific implementation measures that apply, land use is controlled through a master plan, annual plan quotas, and approval management. However, due to defects in the planning system and excessively strong government administrative leadership, there is a conflict between the goals of protecting arable land and promoting development, and there is gamesmanship between the central and local levels. Use regulations give way to planning regulations, and planning regulations plus the land expropriation and conversion system lead to ownership controls. The system of review and approval and annual planning management shows inefficiency, disconnection from development needs, and rent-seeking, corrupt behavior in connection with land.

Box 1: The Main Features of Land Use Zoning Regulation in the West The basic idea behind land use zoning control is to “divide land into areas of different use, stipulate different land regulation rules for different areas, and implement identical regulation rules within each area.” The zoning regulation system for land use was first established in 1692, and since the 1940s and 1950s, it has become an increasingly popular means of planning and managing land in most countries and regions. The main purposes for implementing zoning controls on land include the following: (1) Excluding improper land use and avoiding “external diseconomic” land use. Zoning controls on land use eliminates misallocation of land resources or “external diseconomic” effects caused by private tenure of land. Furthermore, it protects and improves people’s living environments by separating them from inappropriate forms of land use; it also protects existing buildings, the natural heritage, and rural landscapes, thereby improving the environmental standards of where people live and ensuring the realization of health and safety goals. (2) Controlling land use and speed of development effectively and systematically, and ensuring the maintenance of public facilities and services. Zoning regulation of land not only regulates location and

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type of land use and development activity but also limits the scale, intensity, and population density of land use, so that overall land use and economic development are effectively controlled, and a certain service level of public facilities can be effectively guaranteed. (3) Economizing on government spending. Zoning on land use can control land development by designating development areas and guide necessary construction of housing, factories, service facilities, schools, and so on into the appropriate places, thus ensuring that land may be used to full effect, the cost of public services may be reduced, and the government may economize on its expenditures. A common type of land use control is the planning unit development system, which is a zoning system closely related to average density; it is also a zoning system for comprehensive development or clustering. Developers can mix different types of building uses and building densities, as long as they follow certain regulations on overall density and land use.

2 China’s Current Land System and the Transformation of Development Methods During the most recent golden opportunity for economic development, China used its unique land system to ensure rapid economic growth, industrialization, and urbanization. However, this system also shaped a land-supported economic development model that was uncoordinated, unhealthy, and unsustainable. (1) Land became a tool for sustaining traditional forms of development. China’s economic growth has depended on an ample land supply. From 2003 to 2012, the total supply of state-owned construction land increased from 286,400 hectares to 690,400 hectares, with an average annual growth rate of 10.27%, and the GDP growth rate was highly correlated with the land supply. Highspeed industrialization relied on the maintenance of industrial land at low cost. Rapid urbanization was driven by land expansion and land capitalization. From 2000 to 2012, the built-up area of the city has expanded by more than 1 times, and the revenue from land assignments has increased by more than 45 times. Between 2000 and 2012, the built-up area of cities more than doubled, and land

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assignment revenue increased by more than 45 times. In 2012, the balance of loans in 84 key cities that had used land as collateral reached 5.95 trillion yuan, so land became an important source of funding for urban infrastructure building. (2) “Land-driven development” has latent economic and social risks. First, the repayment of debt by local governments is rather highly dependent on land assignment revenue. The second is bank financial risk. Banks are the largest providers of funds for local government debt. At the end of 2010, bank loans accounted for 79.01% of local government debt funding, and of this amount, 74.84% were bank loans with debt repayment obligations. The government debt balance of financing platform companies accounted for 46.38% of local government debt balance. The main way for local governments to obtain loans has been to use land as collateral. The third is social risk. Each year, there are many disputes caused by land expropriation and housing demolition. (3) Compensatory expenditures for land expropriation, house demolition, and so on have increased substantially, and urbanization costs have risen. In recent years, land values have risen sharply, farmers have become more aware of their rights, and in some areas urban land use is shifting gradually from newly-added urban land to land held in store. The cost of land expropriation and demolition has increased rapidly, and the proportion of land assignment revenue that goes to compensate land-expropriated farmers and those whose houses have been demolished are increasing rapidly. The government follows the provisions of the current Law on Land Administration (and is expected to do so in the future), but it has already become difficult to expropriate land while offering compensation based on the land’s original use. China’s economic development is bidding farewell to the era of low-cost compensation for land expropriation. (4) Scarce land resources are not being used intensively and economically. First, with regard to urban expansion, from 2000 to 2011, the total urban built-up area in the country increased from 22,439 square kilometers to 43,603 square kilometers, with an average annual growth rate of 6.225%. From 2000 to 2010, the average urban population growth rate was 35.31%, while the growth rate of the urban built-up area over the same period was 99.29%. In other words, the urban built-up area was growing 2.81 times faster than

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the urban population. Second, the land is being used too freely and extensively. For many years, more than 40% of the construction land nationwide has been used for industry, mining, and warehousing, thus “crowding out” residential and living space, but the plot ratio of industrial projects has ranged between only 0.3 and 0.6. Third, the non-market allocation of urban land leads to the creation of image projects. Fourth, rural–urban fringe in different kinds of cities occupy a great deal of land, but because they exist in a situation of extrajudiciality, they are put only to inefficient use. Fifth, rural construction land occupies too much space, and the area of land designated for rural residents’ use is as much as 170,000 square kilometers. (5) Much high-quality arable land is being occupied, which endangers national food security. The accelerated pace of the last round of industrialization and urbanization in coastal areas led to the loss of a lot of cultivated land. From 1996 to 2008, a total of 2,703,700 hectares of cultivated land was occupied by construction, and the net area of cultivated land decreased by 831.71 million hectares. The traditional pattern of “grain from the south is transported north” has changed to “grain from the north is transported south.” Since the mid-1990s, China’s grain supply has basically been dependent on the north. Half of the 13 major grainproducing areas have been unable to allocate food out, and five of the seven main sales areas are in the south. As industrialization accelerates in the central and western regions, the trend of occupying the high-quality cultivated land continues to spread. If the land use pattern of industrialization and urbanization is not changed, the supply and demand pattern for food in China will further reverse, and the threat to national food security cannot be ignored. Clearly, China’s traditional development model is highly dependent on land. The high-input, high-consumption factor input methods are mainly seen in the ample supply and high level of consumption of land. Competition among local governments depends mainly on their use of land to attract business investment. Rapid industrialization depends on the supply of low-cost land, at distorted prices; rapid urbanization depends on the capitalization of land under the government’s exclusive monopoly.

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To change the traditional methods of economic development, we must change the way land is used.

3

The General Idea and Main Content of Reform (1) Direction of reform. Reform of the land system will determine the success or failure of the transformation of the methods of land use and economic development. It will also be the key to whether we can make good use of the next round of development opportunities and promote national strength to a higher level. The fundamental goal of the land system reform would be to provide institutional guarantees for transformed economic development and sustainable urbanization. The basic direction would be to establish the following: (a) a land property rights system wherein the rights appertaining to urban state-owned land and rural collective land are equal, in line with the spirit of the equal property rights protections in joint development under many kinds of ownership systems under the Constitution; (b) a land market with equal access and fair trade in both urban and rural land; (c) a fair, shared land value-added income distribution system; (d) a land property tax system that befits modern social development; (e) open, transparent, and standardized systems for state-owned land asset management and for land financing; (f) a modern land administration system centered on ownership management and planning and use control. (2) The general idea. The general idea would be to consider reform of the land system, i.e., eliminating the dual system of urban versus rural land, as a breakthrough, then: (a) promote the optimal allocation and flow of production factors in urban and rural areas, so as to realize the integration of urban and rural development and realize sustainable urbanization; (b) build a property rights system wherein the rights appertaining to ownership of the two kinds of land are equal, so as to achieve equal participation and sharing of economic development opportunities for different ownership entities; (c) implement confirmation and registration of real property rights, so as to provide basic institutional guarantees for safeguarding rights and interests on land, for agricultural modernization, and for urbanization of the population; (d) promote reform of the land expropriation system and of the land use means, promote the fairer distribution of land income, and realize the sharing of land

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value-added income by all of society; (e) bring collective construction land into the market and expand the marketized allocation of land in urbanized areas, so as to realize equal market access by different ownership entities and make more economic, intensive use of scarce land resources; (f) improve land management, financing and taxation systems so as to provide financial support for sustainable urbanization. (3) The main content of reform. The main drawbacks of the currant land system are the duality of rights, market access inequality, price distortions, and unfair distribution of value-added income. The fundamental goals of the land system reform will focus on equal rights, open access, and fair sharing. A land system with equal rights appertaining to the two types of land ownership, a unified market, and fair sharing of value-added income should be established, through which the transformation of land use patterns and economic development patterns are to be promoted. First, improving the rural land property rights system. A long-term, unchanging system for land contracting relationships should be implemented, with the starting point of collective land contracting clearly specified, and a system for the long-term contracting of land use to farmers should be clearly defined. We should improve policies and relevant laws in a way to establish a system in which land contracting rights and land management rights can be separated, and in which land contracting rights and management rights are equally protected. The land transfer system and the methods used should be improved, so that the principles of voluntary action, legality, and compensation are followed; land rents should return to the original farmers holding the land-contracting rights, and in any land transfer, a contract must be signed with the original contracting farmer. For improved land use rights, establish the right of disposal of land contract, and contract right and management right can be used as collateral. Box 2: “Over a Long Term without Change” in Wayao Village (瓦 瓦窑 村) After the Third Plenary Session of the 17th Central Committee (October 2008), Wayao Village (瓦窑村) in Shuangliu District, Chengdu City (成

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都市双流区), Sichuan Province, took the lead in implementing the “over a long term without change” clause in rural land contractual management rights, thus creating a “national precedent.” The specific practices of Wayao Village were to organize and set up a village council and form relevant system regulations. These included: (1) Solidifying membership of the collective economic organization. This occurred in three steps. First, the members of the collective economic organization used the community (she 社) as a unit, and the households that confirmed their rights in the community in 2008 were taken as the standard by which those households, as units, enjoyed rural land contractual management rights in their community/rural village. Second, new persons in the community unit who confirmed their rights in the community during a oneyear solidification period from 2008 to 2009 were recognized as special members of the collective economic organization, and they could only enjoy a distribution of collective asset income. Third, the solidification period was separately determined, with the community as unit. New persons who arrived in the community after the solidification period were no longer recognized as members of the collective economic organization. (2) Implementation of rural land contractual management rights “over a long term without change.” First, based on the starting time of the long-term, unchanging land contractual management rights as determined by the various communities, no further adjustment to land contractual management rights was to be carried out. Farmers had the right to mortgage, transfer, and handle other such aspects of land contractual management rights. Second, if the contracted land was damaged by a natural disaster (floods, mudslides, etc.), the community-collective would no longer make an adjustment and allocate land to the affected contractor. Third, if a farmer had built a new house on contracted land before the confirmation of rights, then, after his original house site was restored to cultivation, an area equivalent to the new house would be contracted to the farmer’s household; any excess area would then become collective construction land, and any shortfall would be deducted from the household’s contracted land area. (3) Clarifying the way land income was distributed. First, income from land such as the raised paths between rice paddies, riverbanks, barren slopeland, and so on, that had not been distributed to any

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household, would revert to collective ownership and be distributed by community unit shares to the people. Such shares could be inherited, transferred, donated, etc. Second, when the contracted land of a community member needed to be used for collective public welfare undertakings, the method of deciding “who benefits and who pays” was adopted, and then the beneficiary households would have to compensate the “losing” households according to the national standards for compensation in land expropriation. The third concerns the handling of land contractual management rights and land income rights after the death of a farmer of a “fiveguarantee household” (wubaohu 五保户). After the consent of the village committee is obtained and the matter is reported to the relevant departments of the town and county-level governments, the method of deciding “who will be supported, and who will benefit” was adopted. Fourth, the average contracted area per capita in each community was calculated. Any excess in the difference between the actual measured area per household and the area of the second round contracted accounts would be cultivated by the original contracting household, and any shortfall would be made up by way of agreement by the original contractor. The end date of cultivation would be determined either by the date the land was expropriated by the state or the date the project was transferred of the land. Income from cultivation would return to the farmer. Any income produced at the time the land is expropriated by the state or at the time the project was transferred of the land would return to the persons holding the contracting management rights at the time when their rights had been confirmed. Various subsidies, like money from the Farmland Protection Fund (gengbao jijin耕保基金) and state subsidies, that are paid to farmers based on a calculation of their land area, would be enjoyed by the contractual management rights holders as determined at the time of confirmation.

Second, providing the institutional infrastructure to protect land property rights. China’s current land property rights guarantees have major flaws. The ownership entities in land collectives are unclear, powers are not clearly demarcated, and the rights protections are not strong enough. The registration and ownership management of land, housing and natural resources are still handled in separate departments, and since the registration authorities are not uniform, the certificates do not match one another, and this is not conducive to the protection of land rights,

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nor to the management of land. The central government must resolve to complete the identification, registration, and certification of all land resources in rural areas, ensure that confirmation of land rights to rural land resources reaches the hands of each farmer, and that basic institutional services are provided in readiness for the next stage of agricultural transformation and population urbanization. Laws and regulations on such unified registration of real estate should be promulgated as soon as possible, in line with the requirements of the Property Rights Law. Then the unified land-based registration system for real estate can be implemented, with uniform legal basis, registration authority, and ownership certificates. Box 3: Land Registration Systems around the World Basically, there are three different types of land registration system in the various countries and regions around the world: the deed registration system, rights registration system, and Torrens registration system. (1) The deed registration system. Under this system, as long as the two parties to a change of land rights have expressed agreement and have concluded a contract, then the legal consequences of the change of land rights occurs. The contract is the essential, effective element. The land registration is only an essential element in confrontation with third parties, i.e., unregistered land rights cannot be used in opposition to any third party. The land registration authority does not conduct substantive examination of the land registration application—only a formal one, in full accordance with the documents submitted by the land registration applicant— it does not ask whether the land rights are real or not. Whether the change of land rights is registered or not, it occurs in line with the intentions of the two parties, and the government places no mandatory requirement on them. The land registration authority only registers the deed and does not issue a certificate of rights to the landowner. (2) The rights registration system. Land registration under this system is an effective, essential requirement in any change of land rights, and any acquisition or change of land rights is ineffective without registration. The land registration authority not only examines whether the documentary materials submitted by the applicants meet the formal requirements, but also conducts a substantive examination on the reasons and facts of the change in land rights and whether

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it complies with relevant laws and regulations. The rights to land become effective as soon as they are registered. All occurrences and changes in land rights must be registered. The registration authority records these things only in the register and does not issue land rights certificates to those having rights to the land. (3) The Torrens registration system. Under this system, it is not mandatory to have all land registered, but once a parcel of land is registered for the first time, then each subsequent transfer or change of land rights to that parcel of land must be registered and will not be effective unless it is registered. Once the land rights are registered, they cannot be overturned—an effect that is guaranteed by the state. The state specifically draws a certain percentage of the collected land registration fees as a security deposit, which is used to compensate landowners for losses caused by faulty registration. Two copies of the land register are filled, with the original retained by the registration authority and a copy obtained by the rights holder. The contents of the original and the copy are identical, and the copy serves as the land rights certificate held by the landowner.

Third, building a land market with equal access and fair trade. (a) The first thing to do would be to build a system in which the rights appertaining to land ownership of both kinds are equal. It is necessary to change the current system in which the rights appertaining to ownership of the same parcel of land differ depending on which ownership system is being used, and to extend the same rights of occupation, use, income and disposal to land whether it is under state or collective ownership. By giving equal rights protections for both kinds of land ownership, provisions of the Constitution and relevant laws guaranteeing the same rights for the same land would be realized. The use regulation system should be the only control on access. Under the use regulation system, farmers’ collective land and land under other entities would enjoy an equal right to access non-agricultural-use and an equal right to the value-added income of the land. The main function of a clear and definite plan is to bring into reality certain spatial and functional layouts. We need to change the pattern in which local governments use planning revisions to convert farmers’ collectively owned land into state-owned land and governmentmanaged land. We also need to do away with the current policy in which a line is drawn to divide the city from the village, as a result of which there are different kinds of access for land inside and outside the city circle,

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depending on their ownership. Excluding land outside the circle that may be used for non-profit, non-agricultural construction, land within the city circle that is owned by farmers’ collectives should also be used for non-agricultural construction without having to change the nature of its ownership, provided that the construction is in compliance with use controls. (b) It will be necessary to clearly limit state ownership of urban land to land held in store in built-up areas. It should be possible for collective ownership to be retained where newly-added construction land is being used for non-agricultural economic construction; land expropriation is to be the exception, where its purpose is for the public interest. As for collectively-owned land in built-up areas, the methods of “protecting rights and distributing the interests” or “transferring rights and protecting the interests” may be adopted to protect farmer’s land property rights. (c) The land market should be rebuilt to handle equal transactions. This would involve establishing an open, fair, equitable, and unified trading platform and trading rules that would bring such a market into reality—a market where the participating entities are treated equally and where their transactions determine supply, demand, and price. We must break the current pattern in which local governments have an exclusive monopoly of the land supply. As long as the participating entities— whether they are the government, farmers’ collectives, or units using state-owned land—comply with the relevant laws and trading rules, they should be able to engage in land transactions in a unified market. The market allocation of state-owned land should be increased further through reform—gradually reducing the planned allocation portion, constantly expanding the paid use portion, and ultimately eliminating the “dual track system” of land supply. Paid use should be implemented first for land under profit-oriented management—where the infrastructure and municipal facilities exist, and there are various types of social enterprises that are competitive, income-producing, and have conditions ripe for reform. Under the unified land system, a land price system should be established, with improved secondary markets for land leasing, transfer, and mortgaging. Under the framework of collective construction land entering the market, “houses with limited property rights” (xiao chanquan fang 小产权房) that have already been formed should also be paid a certain amount of subsidy, according to their different situations, to properly resolve this problem that history has left us.

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Fourth, accelerating the reform of the land expropriation system. The current system whereby compensation for land expropriation is calculated by multiples of income from original use should be corrected in a way that the compensation is fair. The resettlement system should be improved, so that land-expropriated farmers’ houses within urban areas should be compensated for at market price, land-expropriated farmers’ houses outside of urban areas should be compensated for at the local market price, and the farmers should be included in the urban social security systems. Various modes of resettlement with land retainment and land shareholding should be explored in order to ensure farmers’ longterm livelihood. Finally, the dispute resolution system with regard to land expropriations should be improved, with relief channels smoothed out and the legitimate rights and interests of farmers with respect to their land should be safeguarded. Fifth, establishing a system to fairly distribute land value-added income. The issue of distributing land value-added income relates to social equity, urban sustainable development, and the transformation of the usual mode of development, and it must be given top priority in land system reform. Based on the principles of generating land value-added income, we should learn from international experience and formulate principles on the rational distribution of that income. We should fundamentally reform the current situation, in which that income all goes to the government, by establishing a mechanism by which that income goes to society, i.e., the original land owners are guaranteed fair compensation and differential rent on the land, cities are guaranteed the land and funds they need for urban infrastructure, and the public at large benefits. Secondly, we should make a distinction between “returning price increases to the public” and “returning price increases to the government,” and prevent “the public” from becoming “the government” whenever the benefits of land addedvalue income appear, and even to prevent some local government officials from using it as “extra income.” “Returning price increases to the public” must be guaranteed, so that the benefits of that income go back to society. Thirdly, we should learn from the experiences of Taiwan and other places in China and implement “zone expropriation,” in order to promote the rational distribution of land appreciation income through land use reform. Fourthly, a land fund system should be established, wherein a certain proportion of land value-added income is collected in order to make adjustments for shortfalls and surplus, smooth out the effects of

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market volatility on local finances, and realize an “interannual” rational distribution of land income. Box 4: Western Theory of Land Value Restoration In modern times, Western scholars have done much research on the appreciation of land values. A basic consensus is that land value appreciation is highly correlated with location. In other words, the value of a parcel of land in an urbanized area is not comparable to the value of a parcel of land in a traditional agricultural area. Therefore, when a parcel of land in a traditional agricultural area is expropriated, compensation can only be made at the market price when the piece of land is being used for agriculture. Likewise, when a parcel of land in an urbanized area is expropriated, compensation must be made according to the market price of urban land. The sources of land appreciation and the distribution of land appreciation income are focuses of Western scholars’ research. The sources of land appreciation can be attributed to the following factors: (1) land ownership gains; (2) changes in the position of land relative to expanding towns; (3) increases in land value caused by population increase; (4) changes in land use conditions, such as volume rate increases, etc.; (5) public infrastructure building. Theoretically speaking, land appreciation income should be distributed according to its source, i.e., the land owner reaps the income derived from land ownership through land appreciation, and the government and society reap the income from land appreciation caused by the expansion of towns and cities and by public facilities investment. But in fact, determining how to separate land value-added income based on its causes and how to distribute that income fairly among relevant stakeholders has become a difficult problem in Western theories on land value-added income distribution. In Western society, because of its system of private land ownership, part of the land value-added income obtained by land owners is guaranteed by law. The difficulty lies in determining how to realize that part of land value-added income that belongs to society. To prevent that portion of land appreciation that was contributed by society from being enjoyed at no cost by landowners, and to return society’s contribution back to society, Western scholars put forward the theory of land value capture, based on the ideas of Henry George (1839–1897). This theory holds that, although some private land owners’ direct actions can also increase land value, in general, most of the value-added of land comes from the behavior of the public sector (as opposed to the private sector), for instance, through the

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granting of land use and plot ratio development permits, through investment in infrastructure, or through increases in urban population. In each of the above situations, the real estate owner clearly did not contribute to the appreciation of the value of the land. Therefore, the recovery by the public sector of all or part of the appreciated value of the land is a social necessity, and such recovery can also provide a source of funding for urban renewal, infrastructure building, and environmental improvements. These scholars have also developed a set of policy tools that use land value-added income capture for urban construction and the provision of public goods. That is, under statutory planning, a part of the land under private ownership is used for the provision of related public goods, and another part of it, at a premium, as used for infrastructure building, and the land remaining with the landowner benefits from urban renewal and land value enhancement. Joseph Stiglitz, the Nobel Laureate in Economics, has summarized this as “the Henry George Theorem.” As urban planning took hold, its impact on land values and land valueadded benefits increased. Urban planning means not only establishing a public order for land development by restricting the free exercise of individual property rights, but also means realizing the basic pursuit of the public interest by adjusting and redistributing the benefits of land development. To realize his “Garden City” concept, Ebenezer Howard (1850–1928) proposed that the government restrict the transfer of land use rights and retain part of the income from development as a social development fund. The well-known (in Britain) “Uthwatt Report” (1942) proposed that while urban planning will add value to some land, the interests of landowners of other land might also suffer a loss as a result, due to a loss of planning control, which would necessitate the establishment of a compensation mechanism and an interest-balancing mechanism between the two. The solution it proposed was that the government would pay the compensation amount to existing landowners, and after that the land development rights would be requisitioned uniformly. The compensation amount would be formulated by the government in order to control land speculation and reduce conflicts of interest between the government and the public. Since the beginning of the twentieth century, due to rapid urbanization and increasing demand for public services, urban planning has had a more significant impact on the formation and distribution of development benefits, so the issue of social equity in the distribution of those development benefits has become more prominent. Western scholars have proposed a

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theory of Public Redistribution of Development Benefits. The term “development benefits” refers to the land value-added income caused by public investment and construction. Determining how to reasonably distribute this part of value-added income and reasonably compensate those whose interests have been harmed is at the core of the development of this theory. Its policy tool is the “beneficiary burden” (i.e., the beneficiary pays) of public projects. That is, the reasonable sharing of the cost of public investment projects and the fair distribution of benefits are linked, and the costs to be borne by the property owner are based on the extent to which he or she benefits, to realize the social restoration of development benefits.

Sixth, establishing a land property tax system befitting the development of a modern society. Land-based property tax is a kind of tax commonly levied in developed market economies that provides an important and stable source of fiscal revenue for local governments. To levy property tax on land in China would be in line with international experience; the conditions are right for it, and at the same time, it would provide a realistic basis for the reform of land finance. There are obvious shortcomings in the current land tax system. First, with regard to acquisition and tenure, because the Urban Land Use Tax ( 城镇土地使用税) and Farmland Occupation Tax (耕地占用税) are levied on a quantitative basis, and the ad valorem portion of the House Property Tax (房产税) is based on a property’s historical cost, the flexibility of tax collection with regard to tenure is inadequate. Furthermore, the scope of the taxation is too narrow, while the scope of exemptions and preferential treatment is too broad, so their subjective position among real estate taxes is declining. Second, with regard to land transfer, the overall tax rate of the Deed Tax (契税), Business Tax (营业税), Stamp Tax (印花税), plus taxes such as the Urban Maintenance and Construction Tax (城市维护建 设税) and Educational Surcharge (教育费附加), taken together, are too high, and they inhibit regular real estate transactions and transfers. Third, even though the Land Appreciation Tax (土地增值税) and Income Tax levied on land transfer income have shown an upward trend in recent years, they have always accounted for a very low proportion of real estate taxes, so they have failed to effectively play a role in cracking down on land speculation and improving the efficiency of the real estate market. We propose to draw from the experiences of market economies and establish a new form of land real estate tax system that is suited to China’s

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national resources condition. The tax system for land tenure, transfer, and income should be restructured and reformed systematically. First, with regard to land tenure, the main tasks would be to change from a unit tax to full implementation of ad valorem collection, increase the flexibility of taxation, and let real estate taxes on land fulfill their role in raising local government fiscal revenue. Second, with regard to land transfer, the overall tax rates of the various applicable taxes should be reduced, since this would help allocate resources and improve efficiency. Third, tax revenue collection and management should be strengthened, so they can fulfill their role in promoting the fair distribution of social wealth. Seventh, establishing a state-owned land asset management system and land financing system. Government land assignments should be changed to state-owned land assets management; as the owner of state-owned land, the government acquires the rights and interests to land, so it should set up a state-owned land assets company to engage in stateowned land management. Government land reserve institutions should be restructured, and a market for trading state-owned land assets should be established. The system for managing use of state-owned land assets’ operating income should be improved, with clarification that such operating income cannot be used in the current period, and that its use and performance are to be monitored and reviewed by the National People’s Congress. The financing system for state-owned land should also be improved, with clear warrants and terms regarding the use of land as collateral, with third-party asset assessment, and strict investigations of violations, in accordance with the law. Eighth, establishing a modern land administration system, centered on tenure management and use regulation. A system for planning stateowned land spaces should be developed. The rigor of overall land use planning should be enhanced, and use controls should be implemented in accordance with the law. Land tenure management should be strengthened, and a unified cadastral management system established. The land index approval and annual plan management arrangement should be gradually eliminated, and in its place, central and local land management responsibility systems with equal rights and responsibilities should be established.

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Breakthroughs and Priorities in Land System Reform 4.1

Reform Breakthroughs

In the next round of development, we cannot continue to follow the old path of outward expansion and wasteful use of land. We must instead achieve a transformation away from the total-land-supply-driven growth of the past to development through structural adjustment. Through innovations to the land system, the land use structure may be optimized, the stock of land revitalized, and the reasonable, efficient use of land ensured for the next strategic opportunity period. Through expanded pilot programs, experience for the comprehensive reform of the land system can be provided. Specific measures would include the following: (1) Formulating measures on converting industrial land to commercial land, dealing with ownership management, and distributing valueadded income. Industrial land should be proportionally reduced and urban residential land increased, the urban land structure should be optimized, and industrial transformation and sustainable urban development should be promoted. (2) Formulating measures on land income distribution and ownership management in the conversion of public-use land to industrial land. The proportion of public-use and especially government-use land should be reduced, and land for industrial development and livable space increased. (3) Formulating rules and measures on the inclusion of collective land within rural–urban fringe into the urban construction system. Incorporating such collective land within these areas into urban planning will free up urban development space. (4) Formulating measures on making rural migrants into full urban residents and on the disposal of rural house sites. The structure of urban and rural construction land should be optimized. The collective construction land belonging to the rural migrant population landed in the city should be converted, gradually changing the situation of land tenure on both of the urban and the rural.

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Box 5: “Revolution of the Three Olds” and Experimenting with the Land System in Guangdong Province After rapid industrialization and urbanization, Guangdong Province has also accumulated a large amount of large amount of existing or inefficiently used for construction in store. Preliminary investigation has shown that the province has a total of 4.1 million mu of land for the “Revolution of the Three Olds” (i.e., redevelopment of old cities, villages, and factories). In recent years, as Guangdong has been carrying out this “Revolution of the Three Olds,” it has been conducting a series of experiments to test innovations to the land system, all centering on the differences between existing and newly-added construction land in terms of occupation, development, disposal, income, and so on. To promote the desired transformation, the Guangdong Provincial Government formulated and issued “Several Opinions on Implementing ‘Revolution of the Three Olds’ to Promote Economical and Intensive Utilization of Land.”1 This embodied policy innovations and breakthroughs in five main areas: (a) Since the cost of completing procedures for existing construction land, for which there is no legal procedure, is rather high, and the current users of that land generally lack enthusiasm for any change, we should permit the expropriation procedures of such land to be handled based on its current condition, after it has been handled (with punishments for violations) in accordance with the land management laws and policies in effect when use was granted. (b) Because of problems such as the high cost of “Revolution of the Three Olds,” the comparatively prolonged development cycle, the current single method toward rebuilding, and the difficulty of mobilizing the enthusiasm of the original land-use rights holders, the government permits negotiated sale of the land of the “three olds” as a supplementary procedure after the completion of formalities (with the exception of land being resupplied by the government after it has purchased it and held it in reserve).

1 “Guanyu tuijin ‘sanjiu’ gaizao cujin jieyue yongdi de ruogan yijian” (关于推进 “三 旧”改造促进节约集约用地的若干意见; Yuefu 2000, no. 78).

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(c) To protect the development income of the original land users and to mobilize their enthusiasm for supporting and participating in the rebuilding, when the government, in accordance with law, assigns construction land that it has reclaimed from business enterprises or has expropriated from collectives, in its reconstruction of old factories and villages, it gives a subsidy of no more than 60% of the net revenue of land assignments to the original business enterprises or collectives that had used the land; these business enterprises or collectives then use the subsidy specifically, in accordance with relevant regulations, to support their development. (d) To address the problems presented by urban corners (chengshi bianjiao di 城市边角地), urban enclaves (chahua di 插花地), and sandwiched parcels ( jiaxin di 夹心地), which affect the overall rebuilding and development of a land parcel, the government allows the inclusion of such corners, enclaves, and sandwiched parcels within the scope of rebuilding the “three olds,” and there is no longer any need to go through the relevant approval procedures in accordance with existing laws and policies. (e) In the process of rebuilding urban villages, rural collectives are willing to have their collective land converted into state-owned land, but the current expropriation process is complicated, and the approval process is drawn-out. Thus, the government allows village collective economic organizations to voluntarily apply to the Provincial People’s Government have their construction land converted to state-owned construction land. The above policies effectively protected the rights and interests of the original land users, fully mobilized their enthusiasm for rebuilding, and promoted the smooth progress of “Revolution of the Three Olds.” On this basis, a series of policy documents were issued and a set of supporting local policies were formulated that center on specific procedures and prices for purchasing land use rights, standards for reimbursed land prices, controls on the allocation and use of land assignment revenue, and review and approval procedures for rebuilding projects. Together these have formed a policy system for “Revolution of the Three Olds.” The “Revolution of the Three Olds” achieved remarkable results. From 2008 to the end of 2012, 2,851 reconstruction projects over a total area of 150,000 mu were completed province-wide, and currently 2,920 projects are under way over an area of 200,000 mu. “Revolution of the Three Olds” has effectively developed the existing store of construction land; the recycling of such land was promoted, land use layout was optimized, and

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land use efficiency was improved. In the 150,000 mu of land where reconstruction has been completed, the average plot ratio has been increased from 0.66 to 1.5, and building area has increased from 66.012 million square meters before rebuilding to 153.6527 million square meters—an increase by a factor of approximately 2.3. The area of usable land increased by making room accounts for 44.65% of the area where rebuilding has been completed, saving approximately 67,300 mu of usable land. Based on this ratio, we can estimate that after the 4.14 million mu of land used by the “three olds” throughout the province has been rebuilt, more than 1 million mu of land can be saved, which effectively guarantees enough land to meet the needs of economic and social development. The “Revolution of the Three Olds” has also driven social capital investment, expanded urban and rural employment, and stimulated consumer demand. Since 2008, the province has invested a total of 424.29 billion yuan in reconstruction funds, accounting for approximately 5.39% of the provinces total fixed asset investment over the same period. Of this amount, social investment accounted for 74%. As more and more social and private capital has been invested with enthusiasm into the work of rebuilding, it gradually became the predominant force for the “Revolution of the Three Olds.” The “Revolution of the Three Olds” has also led to the cumulative increase of 1.99 million jobs over the past three years. The process of rebuilding and optimizing the layout of land use also promoted the adjustment of the industrial structure—it eliminated obsolete production capacity, “cleared the cage while changing the birds” (teng long huan niao 腾笼换鸟), and promoted the development of strategic emerging industries and the expansion and strengthening of existing pillar industries. Statistics show that among the reconstruction projects, 1,898 projects involve industrial structural adjustments, accounting for 66.6% of the total. Of these, 416 belonged to the phase-out or the “two highs and one resources” (两高一资; that is, high energy-consumption, high polluting, and resource-intensive) industrial categories; at the same time, 386 projects introducing modern service industries and high-tech industries were carried out, and 298 projects involved investment of more than 100 million yuan. Realized output value (operating income) after these projects were carried out increased by a factor of 1.22 over what it had been before. The transformation of old villages also promoted rural infrastructure building, thus changing the villages’ dirty, shabby condition, backward infrastructure, and building safety issues. Statistics reveal that 866 of the completed rebuilding projects were to build urban infrastructure and

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public facilities, involving 42,000 mu of land. More than 6,600 mu of public green space was also added. During the rebuilding process, the land that was freed up was used to develop the collective economy, which increased rural collectives’ income. According to statistics, the old villages’ collective income has grown by a factor of 2.5 from the time before reconstruction.

4.2

Reform Priorities

Considering how even a single reform in the land system eventually affects the whole, we recommend that a few typical regions be selected first for experimentation, and upon summarizing the results of these experiments, the reforms may be elevated to national policy. At the same time, it will be necessary to develop a reform agenda and sequence of priorities. In the first stage (2013–2014), on the basis of a summary of existing pilot projects in land reform, the scope of the pilots should be expanded. Registration and the issuance of certificates confirming rights to contracted land, house sites, forest land, and so on should be completed. Reforms to optimize land use structure and promote market entry of existing construction land should be advanced, as well as a reform of the land expropriation system that has fair compensation at its core. Local financing platforms should be regulated and the scope of local bond issuance expanded. In the second stage (2015–2017), the focus should be on forming a unified urban and rural land market, exploring the state-owned land capitalized management model, establishing a land property tax system, forming a new land value-added income distribution mechanism, and forming local government financing system with diverse revenue streams. In the third stage (2018–2020), a modern land system, wherein ownership of the two kinds of land entails the same rights, and which is managed through planning and use regulations, should be basically established.

Index

A Administrative allocation, 23, 315, 420, 424 Agricultural land, 5, 14, 19, 21, 62, 66, 68–70, 73, 74, 78, 81, 98, 117, 118, 123–125, 129, 130, 136, 137, 142, 143, 146, 148, 149, 177, 198, 199, 204, 260, 261, 290, 291, 311–313, 330, 333, 334, 338, 361–364, 366–368, 370, 371, 377, 381, 384, 386, 394, 395, 401, 433, 440, 456, 479, 488–490 Agricultural land contract structure, 166 Agricultural modernization, 80, 177, 265, 484, 495 Agriculture, rural areas, and rural people (sannong 三农), 53, 54, 57 Allocation of indicators, 335 Arable land, 5, 19, 26, 30, 62, 127, 156, 157, 165–167, 198, 199, 201, 202, 217, 247, 260–262,

265, 287, 289, 296, 306, 309–311, 313, 315, 317, 318, 349, 366, 433, 491, 494

B Bid tendering, 24, 25, 31–33, 46, 316, 317, 403, 407, 408, 420, 424, 426, 446, 447, 451, 459, 461 Big specialized household, 220 Bottom-up exploration, 359

C Capitalization of land, 42, 109, 201, 391, 414, 494 Catch-up strategy, 62 Central committee of the CPC, 9, 19–22, 47, 111, 133, 134, 143, 145, 147, 217, 220, 251, 252, 263, 264, 306, 367, 397 Central document no. 1, 215, 216, 263, 363 Chinese miracle, 3, 391

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Liu, Land System Reform and China’s Economic Development, https://doi.org/10.1007/978-981-99-6733-9

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514

INDEX

Civil law system, 109 Collective construction land, 15–17, 30, 39, 46, 47, 70, 76, 78, 80, 108, 114, 142, 175, 204–212, 304, 305, 311, 314, 319, 320, 368, 396, 440, 441, 443, 484, 486, 490, 496, 497, 501, 507 Collective economic organization, 10, 11, 13, 15, 16, 48, 61, 70, 71, 80, 138, 144, 145, 178, 179, 197, 200, 204, 212, 217, 218, 230, 246, 249–251, 253, 257, 258, 263, 305, 307, 309, 313, 319, 385, 432, 437, 441–443, 497, 509 Collective economy, 71, 130, 176, 206, 511 Collective interest, 159, 168, 170 Collective land, 6–8, 12, 13, 15, 16, 21, 22, 28–30, 39, 47, 61, 67, 76, 80, 123, 126–128, 141, 160, 161, 173, 182, 185, 195, 196, 198, 206, 209, 210, 212, 258, 263, 264, 304, 313, 318, 320, 332, 346, 348, 363, 364, 368–372, 377, 397–399, 401, 427, 434, 435, 439–442, 490, 495, 496, 500, 507, 509 Collective land owner, 257, 371, 441 Collective land ownership, 5, 37, 125, 126, 128, 130, 217, 251, 257, 283, 441, 443 Collective members, 7, 38, 48, 68, 69, 72, 74, 81, 82, 108, 139, 158, 182, 489, 490 Collective membership rights, 248 Collective ownership, 5–8, 12, 37, 47, 48, 61, 68, 69, 74, 81, 109, 111, 114, 117, 124–126, 128, 135–138, 141–143, 145, 146, 148–150, 158, 161, 164, 173, 183–185, 189, 191, 194, 195,

199, 209, 217, 218, 220, 248, 251, 253, 255, 283–285, 288, 304, 308, 320, 326, 334, 337, 356, 385, 487, 489, 498, 500, 501 Collective ownership unit, 329 Collective property right, 61, 161 Collective public fund, 159, 160 Collective system, 75, 158, 160 Collectivization, 7, 11, 62, 68–70, 125, 156–158, 163, 176, 185, 186, 297, 397 Commercial land, 31, 32, 315–318, 338, 344, 396, 403, 420, 426, 427, 433, 459, 471 Common ownership, 158 Community enterprise, 159 Community orientation, 164, 165 Compensation and resettlement system, 378, 380, 383 Compensation for land, 335, 336, 352, 358, 360, 361, 365, 366, 372, 373, 377, 378, 384, 431, 432, 437, 446, 476, 477, 493, 502 Compensation standards, 19, 20, 318, 336, 351, 360, 361, 363, 364, 366, 372, 432, 461, 465 Compensatory costs, 452, 466 Comprehensive land price, 19, 344, 360–362, 365, 366, 437, 452, 471 Constitution, 17, 23, 146, 178, 191, 194, 283–285, 287, 289, 325–327, 331, 333, 399, 434, 435, 446, 495, 500 Construction land, 14–19, 21, 29–31, 34, 38, 39, 41, 44, 46, 47, 72, 78, 144, 146, 149, 194, 196–198, 201–206, 285, 286, 289, 290, 304, 314–318, 330, 334, 338, 340, 342, 343, 348,

INDEX

350, 361–364, 366, 367, 369, 370, 377, 401, 406, 413, 418–420, 423–427, 430, 433–436, 439–441, 443, 451, 454, 456, 458, 463, 464, 467, 471, 488, 492, 494, 501, 507–509, 511 Contracted land, 4, 5, 7–10, 28, 48, 69, 81, 108, 114, 136, 140, 143, 145, 148, 159, 160, 168, 169, 179–182, 184, 188–190, 194, 199, 202, 203, 218, 219, 221–223, 225, 229–231, 234, 236, 242, 245, 248–256, 261, 267, 306–309, 489, 490, 497, 498, 511 Contracted management system, 5 Contracting of agricultural production to households, 303 Contracting of production to households, 6, 109, 117, 153, 163–166, 176, 215, 305 Contracting of wide-ranging output quotas to peasant households, 176 Contracting period, 138, 139, 180, 186, 187, 189, 217, 249, 255 Contracting right, 8, 37, 38, 47, 48, 61, 69, 70, 81, 111, 142, 143, 148, 167, 170, 180, 181, 187–189, 220, 230, 234, 237, 238, 248, 252, 263, 309, 320, 496 Contract period, 8, 9, 106, 126, 138, 170, 177, 178, 180, 185, 211, 215, 218, 225, 234, 253, 259, 260, 306–309 Contract structure, 123, 125, 128, 166, 304 Contractual arrangement, 93, 97 Contractual management rights, 8, 139, 140, 142, 143, 148, 180,

515

182–184, 188–190, 217–220, 222, 223, 234–236, 241, 242, 245, 246, 248–254, 261–264, 276, 305–310, 319, 497, 498 Control rights, 111 Conversion to non-grain crops, 276 Cost of land expropriation, 208, 349, 385, 407, 437, 493 Costs of land assignments, 407, 452, 466 Cultivated land, 12, 14, 28, 71, 72, 154, 155, 178, 181, 192, 197, 201–204, 216–218, 242, 265–269, 272, 286, 288–291, 304, 311, 314, 318, 328–330, 334, 336, 340, 349, 350, 362, 371, 380, 381, 424–426, 432–434, 439, 441–443, 454, 458, 460, 462, 468, 488, 490, 494 D Definition of property rights, 93, 99–101 Development costs, 349, 419, 452, 453, 466 Development driven by land, 344 Development zones, 27, 349, 351, 372, 398, 400, 418 Different systems, 323, 333 Dual land ownership systems, 356, 370, 395 Dual land rights system, 303 Dual land system, 42, 66, 303, 320, 339 Dual system of urban versus rural land, 495 E Economic growth, 3, 14, 24–27, 34, 35, 40, 41, 44, 45, 57, 58, 89,

516

INDEX

92, 98, 102, 103, 119, 121, 207, 303, 304, 323, 324, 338–340, 344, 380, 391–393, 396, 400, 411, 412, 417, 423, 433, 459, 471, 492 Economic performance, 89, 101, 104, 118, 119, 121 Economic structure, 40, 45, 74, 153, 166, 173, 303, 392, 412 Economic transformation, 3, 26, 44 Effects of property rights, 89 Egalitarianism, 163, 177, 304 Enforcement of property rights, 89, 103, 185 Enlivening industry (huoye 活业), 72, 79 Enlivening the people (huoren 活人), 72, 77, 79 Enlivening the villages (huocun 活村), 72, 79 Equal field system, 294 Equity participation, 204, 217 Exclusive right of income, 120 Expenditure structure of land assignments, 445 Export-oriented strategy, 304 Expropriation, 15, 17–22, 36, 45, 47, 66, 76, 79, 110, 146, 150, 197, 204, 209, 249, 261, 284, 290, 305, 311, 313, 314, 317, 318, 323–332, 335–340, 342, 343, 346, 348, 351, 352, 356, 358–370, 372–375, 377–388, 395, 401, 417, 430–432, 435, 437, 446, 452, 461, 465, 466, 476–478, 490, 491, 493, 495, 498, 501, 502, 508, 509, 511 Externality, 93

Farmers’ collectives, 8, 16, 48, 178, 179, 204, 205, 210, 288, 313, 314, 330, 333, 335, 369, 396, 464, 501 Farmers’ professional cooperative, 183, 271–274 Farm household, 8, 12, 48, 68, 71, 81, 82, 106, 117, 124–128, 139, 140, 161–165, 168, 177, 217, 219–221, 223, 225, 226, 229, 232, 235, 236, 238, 241–247, 249, 250, 252–254, 258, 259, 264, 265, 269, 271–277, 304–308, 310, 319, 320, 432 Farmland contractual management rights, 307 Farmland system, 69, 125, 130, 165 Financial risk, 36, 320, 352, 412, 428, 436, 483, 493 Financing platform, 32, 147, 348, 353–355, 404, 406, 407, 409, 481, 483, 493, 511 Five levies , 227 Five small industries, 397 Five-year plan, 64, 325 Free distribution, 72, 149 Full ownership, 109, 110 Full property rights, 120, 121

F Family farm, 183, 184, 216, 220, 297 Family management, 61, 125, 186

H Homestead, 38, 326, 485 Homestead system, 70

G Government land management structures, 375 Government land reserves, 428, 435, 506 Government-run land, 403 Grain ration field, 161

INDEX

Household contract responsibility system, 124–127, 176, 177, 215, 235, 238, 253, 295, 305 Household Joint Production Contract Responsibility System ( jiating lianchan chengbao zeren zhi) 家庭 联产承包责任制, 123, 124, 126, 128, 129 House site system, 200 House site system, 11, 12, 38, 39, 48, 62, 70, 71, 73, 76, 82, 136, 143–145, 148, 149, 190, 193, 196, 200

I Improved ordinary housing, 409 Incomplete land market, 303 Incomplete property rights, 103, 121, 123 Industrialization in industrial parks, 30 Industrialization rate, 323 Industrial land, 22, 24, 26, 28, 31, 32, 35, 41, 45, 46, 79, 317, 343–345, 396, 402, 411, 413, 418, 419, 425–428, 439, 440, 447, 452, 471, 474, 475, 484, 490, 492, 507 Industrial parks, 26, 28, 30, 35, 41, 42, 45, 46, 63, 211, 323, 398–401, 403, 412, 418, 419, 422, 426, 427, 431 Institutional arrangement, 4, 11, 24, 25, 34, 44, 46, 68–70, 94, 99, 103, 119, 123, 127, 130, 134, 138, 139, 146, 148, 158, 164, 165, 173, 185, 190, 192, 320, 326, 331, 333, 338, 343, 394, 399, 400, 403, 405, 412, 433, 478, 488 Institutional provisions, 72

517

L Labor settlement, 336 Land administration, 66, 282–287, 289–291, 295, 331, 366, 375, 376, 485, 489, 491, 495 Land administration system, 279, 280, 282, 287, 289, 290, 295, 296, 489 Land allocation, 26, 41, 47, 74, 78, 79, 249, 370, 394, 412, 468 Land allotment system, 292 Land appreciation income, 502, 503 Land asset management, 485, 495 Land assignment income, 32, 36, 356, 376, 403, 407, 412, 421, 427, 438, 439, 454, 455, 459, 477–481 Land assignment revenue, 32, 34, 36, 37, 147, 348, 353, 357, 358, 376–378, 403, 404, 407–409, 421, 422, 445–460, 462–469, 472, 474–483, 493, 509 Land capitalization, 26, 31, 33, 146, 394, 396, 408, 411, 471, 492 Land circulation, 223–225, 234, 247, 249–252, 265, 267–269, 306, 307, 441 Land contract management right, 179, 187, 220, 236 Land contract period, 9, 126, 178, 218, 306 Land conversion, 4, 17, 46, 146, 147, 286, 312, 313, 334, 371, 372, 395 Land development right, 19, 47, 337, 362, 373, 374, 504 Land distribution, 127, 162, 163, 257 Land-driven development model, 3, 24, 34, 44, 391, 392, 403 Land-expropriated farmers, 20–22, 45, 329, 337, 343, 351, 359–365, 372, 373, 377, 378,

518

INDEX

381, 383–385, 388, 395, 420, 431, 432, 436, 452, 464–466, 476, 490, 493, 502 Land expropriation, 17–22, 36, 45, 47, 79, 150, 204, 209, 249, 261, 284, 290, 305, 317, 318, 327, 331, 336, 342, 351, 358, 360–364, 366, 368, 369, 375, 379–381, 383, 384, 386, 387, 401, 431, 432, 452, 476–478, 491, 493, 495, 501, 502, 511 Land expropriation system, 323–325, 331, 338, 358, 368, 378–380, 502 Land finance, 375, 454, 459, 477, 478, 505 Land financing system, 485 Land functions, 40, 323, 412 Land interests, 31, 107, 108, 112, 160, 294, 303, 351, 436 Land lease agreements, 231, 232, 324 Land leaseback after subcontracting, 230, 232–234 Land management business, 375, 376 Land membership right, 166–168, 173 Land mortgage financing, 32, 34, 35, 146, 351, 396, 407, 412, 428, 459 Land mortgage loans, 471, 481–485 Land operation, 269, 348 Land ownership, 5, 48, 79, 106, 109, 114, 123, 158, 159, 173, 176, 185, 190, 191, 193, 238, 257, 258, 280–284, 307, 325, 326, 333, 335, 359, 371, 379, 396, 399, 434, 442, 487, 490, 496, 500, 503 Land ownership structure, 17, 164 Land possession, 279, 306 Land productivity, 28, 29, 68, 183, 277

Land property right, 8, 60, 61, 105, 107, 108, 115, 123, 125, 141, 168, 170, 173, 185, 186, 189, 255, 256, 279, 295, 296, 303, 308–310, 319, 320, 332, 360, 364, 381, 394, 430, 437, 441, 461, 488, 495, 498, 501 Land property tax system, 486, 495, 511 Land reforms, 63, 137, 293 Land reserve centers, 348, 404, 422, 427, 428, 435, 436 Land resource, 31, 153, 156, 157, 163, 165, 166, 177, 205, 243, 244, 289, 290, 339, 342, 343, 377, 381, 393, 394, 426, 447, 468, 488, 491, 493, 496, 499 Land rights, 9–11, 28, 48, 68, 69, 106–113, 115, 126, 160–162, 165, 170, 173, 186, 188, 217, 263, 264, 281, 287–289, 293, 306, 309, 313, 320, 371, 396, 399, 430, 431, 436, 437, 441–443, 484, 485, 487, 488, 490, 498–500 Land share cooperative, 236, 240 Land share cooperative system, 238 Land shareholding system, 234, 238, 241, 242 Land subcontracting, 124, 225, 229, 245 Land supply, 19, 23, 26, 32, 35, 41, 42, 45, 46, 66, 244, 321, 339, 340, 342–344, 360–362, 370, 396, 399, 406, 411–413, 426, 446–448, 450, 459, 464, 473, 492, 501 Land system, 3–5, 12, 24–28, 34, 37, 40, 41, 47, 62, 67, 68, 70, 78, 79, 123, 125, 133–135, 138, 139, 150, 153, 157, 163–166, 168, 173, 189, 190, 206, 255,

INDEX

279, 280, 282, 287, 288, 291–295, 303, 304, 307, 319, 333, 337–339, 343, 370, 375, 377, 391, 392, 395, 396, 406, 410, 411, 417, 418, 420, 434, 464, 471, 487, 489, 492, 496, 501, 507, 508, 511 Land system reform, 4, 6, 11, 46, 48, 78, 133, 135, 157, 303, 308, 392, 399, 403, 412, 495, 496, 502 Land transfer, 28, 82, 140, 147, 170, 172, 181, 184, 186, 215, 217, 219–222, 224, 230, 231, 234, 244–247, 249, 251–254, 265–267, 269, 270, 275, 276, 308, 330, 333, 334, 346, 349, 427, 441, 496, 505, 506 Land transfer assignment contact, 229 Land transfer trust, 242, 243, 245, 246 Land-use assignment, 24, 25 Land use regulation, 146, 290, 330, 335, 489 Land use right, 9, 16, 23, 24, 31, 66, 70, 126, 129, 136, 163, 168, 180, 183, 195, 198, 204, 210, 217–219, 224, 225, 234, 244, 245, 252, 256, 288, 306, 308, 314–317, 331, 335, 348, 349, 396, 399, 402, 438, 441, 446, 456, 457, 483, 487–489, 496, 504, 509 Land value-added income, 150, 294, 356, 374, 376–378, 395, 455, 464, 465, 490, 495, 496, 502–505, 511 Land value increases, 148, 229, 439 Large-scale household, 254, 277 Law on land administration, 13, 15–17, 23, 29, 30, 47, 71, 144, 179, 194, 197, 198, 204, 210,

519

284, 285, 289–291, 304, 309–313, 315, 325–334, 336, 365, 369, 371, 377, 379, 380, 382, 387, 401, 412, 413, 430–432, 435, 443, 446, 459, 462, 477, 488, 493 Leasing, 22, 30, 47, 48, 96, 183, 191, 193, 194, 200, 219, 225, 234, 245–247, 266–268, 285, 308, 438, 488, 501 Legitimacy, 133, 134, 159, 185, 382, 387, 464 Limited rights ( fen xiang quan li 分 项权利), 112 Local government debt risk, 352, 482 Local governments, 24, 26, 32, 35, 37, 44, 45, 54, 64, 108, 129, 147, 148, 150, 208, 217, 245–247, 251, 253, 254, 309, 310, 314, 319, 320, 323, 335, 337–339, 343, 346, 348, 349, 351, 353, 354, 356, 358, 359, 364, 366, 377, 378, 380, 385, 386, 391, 395, 396, 399–404, 406, 407, 409–412, 417–421, 423–426, 428, 431–434, 438–440, 443, 454, 458, 459, 461–465, 468, 477, 478, 482, 483, 490, 493, 494, 500, 501, 505 M Main entities, 221, 270, 271 Management right, 5, 37, 38, 47, 48, 62, 69, 70, 74, 81, 82, 111, 114, 142, 143, 175, 180, 182, 183, 185, 187–189, 220, 226, 242, 245, 254, 263, 276, 306, 310, 380, 496, 498 Marketization, 63, 82, 204, 242, 319, 320, 335, 375, 405, 464 Material right, 245

520

INDEX

Measurement ability, 122 Measures on Land Expropriation for State-led Construction, 325, 327, 328, 331, 332, 336, 379 Minimum price standard, 317, 447 Ministry of land and resources, 18, 21, 24, 195, 198, 263, 264, 315–317, 337, 359–361, 363, 364, 384, 447, 451, 456, 457, 475 Moderately-scaled operation, 183 Modernization, 47, 48, 53, 54, 56, 61, 63, 73, 75, 135, 136, 147, 176, 281, 297, 381, 382, 413 Modern land administration system, 287, 506 Mortgage, 31–34, 36, 37, 143, 145, 147, 149, 189, 191, 194, 200, 205, 210, 285, 320, 324, 354, 396, 407, 427, 429, 430, 436, 497

N National food security, 26, 329, 351, 442, 467, 494 National Land Supervision System, 489 Non-agricultural land, 27, 29, 78, 136, 142, 242, 304, 311–313, 318, 334, 338, 368, 370, 371, 395, 439 Non-agricultural use, 14, 17, 179, 209, 319, 323, 333, 334, 338, 371, 395, 398 Non-exclusive property rights arrangements, 98–101, 103

O Overall planning of urban and rural areas, 58, 59

Over a long term without change, 9, 106, 138, 139, 141, 148, 178, 189, 255, 497 Ownership rights, 5, 9, 12, 48, 109, 111, 143, 395

P Park industrialization, 397–399 Personal-use commercial housing, 409 Pilot projects, 148, 359, 361, 363, 364, 366, 485 Planning controls, 44, 49, 114, 115, 150, 312, 338, 346, 370, 371, 434, 440, 491 Platform companies, 468 Price increments belonging to the government, 378 Price increments belonging to the public, 377, 378 Price scissors, 56, 57, 395 Private land ownership, 280, 283, 295, 503 Production responsibility system, 176 Production team, 6, 7, 12, 123, 124, 126, 128, 137, 158, 161, 163, 176, 177, 185, 186, 192, 193, 197, 202, 203, 215, 228, 233, 251, 255–259, 304, 308 Professional cooperatives, 220, 273 Property tax system, 376 Public interest, 17, 18, 47, 79, 284, 324–327, 329, 331, 332, 355, 367, 369, 370, 379, 381, 382, 386, 427, 430, 431, 435, 436, 483, 501, 504 Public ownership, 5, 6, 68, 134, 135, 148, 176, 177, 287–289, 323, 395, 487, 489

INDEX

Q Quotation, 24, 25, 31–33, 46, 316, 317, 403, 407, 408, 420, 424, 426–428, 439, 440, 446–448, 450, 451, 459, 462, 467 R Real estate land, 35, 46, 412 Real Right Law, 289 Real rights, 310, 320 Recognition and protection, 108 Reform and opening up, 3, 28, 40, 175, 194, 202, 206, 288, 295, 297, 303, 323, 326, 338, 391, 396, 397, 411 Reform of agricultural taxes, 224 Reform of the land system, 3, 22, 40, 134, 136, 281, 363, 396, 414, 417, 464, 484, 495, 507 Relationship between rights and interests, 108 Release of collective construction land into the market, 311, 486, 490, 496, 501 Remuneration, 103, 119, 122, 124, 130, 297 Resettlement, 18–21, 36, 147, 192, 197, 284, 318, 326, 328, 329, 336, 337, 343, 351, 359, 361, 363, 364, 378–380, 383–387, 431, 432, 452, 453, 462, 476, 502 Residential land, 22, 31, 46, 205, 288, 341, 344, 410, 471, 484, 488, 507 Resource endowment, 153, 159, 161, 165–167 Responsibilities and obligations, 114, 116 Returning price increases to the public, 502 Right of exclusive use, 120, 252

521

Right of free transfer, 97, 120 Rights bundle, 110, 112, 113, 120 Rights systems, 48, 89, 94, 106, 107, 110, 149, 173, 194, 315, 423, 495 Rights to the city, 64 Rural development rights, 55, 62, 78 Rural industrialization, 28–30, 63, 206, 304, 397 Rural land contracting system, 175 Rural land conversion system, 146, 303 Rural land non-agriculturalization, 310, 311, 319 Rural land property rights system, 496 Rural modernization, 53, 54, 61, 63 Rural Revitalization Strategy, 53–55, 59–61, 67, 72, 79 Rural transformation, 3, 73 S Scale management, 62, 218, 220, 221, 254 Separating the two rights, 136, 140 Separation of the three rights (sanquan fenzhi 三权分置), 61, 73, 74, 111 Size of the organization, 122 Small-scale household, 277, 278 Socialist collectivization, 176 Socialist public ownership, 287, 289, 395, 487, 489 Socialist public ownership of land, 287 Stability, 5, 10, 28, 61, 69, 94, 100, 107, 138, 167, 178, 218, 248, 279, 282, 292–294, 296, 309, 352, 381, 399, 428, 429 State Council, 13, 16, 17, 22, 23, 180, 192, 194, 203, 216, 217, 261, 284, 291, 309, 311–313, 315, 316, 328, 330, 360, 362, 363, 377, 386, 395, 399, 404,

522

INDEX

406, 410, 451, 456, 457, 465, 467, 489 State functions, 99, 101 State-owned construction land, 16, 78, 206, 210, 304, 315, 317, 367, 450, 471, 492, 509 State-owned economy, 304 State-owned land, 16, 18, 22–24, 45, 66, 76, 78, 204, 210, 282, 285, 288, 290, 313, 315, 316, 320, 326, 327, 330–333, 338, 340, 346, 353, 356, 357, 369–372, 375–377, 383, 395, 399, 402, 424, 426, 434–436, 438, 440, 446, 448, 456, 457, 467, 468, 485, 488, 489, 495, 500, 501, 506, 509, 511 Structural transformation, 24, 40, 77, 371, 392, 394, 396, 397, 400, 401 Subcontracting, 6, 7, 48, 139–141, 180, 183, 185, 186, 217–220, 225, 234, 246, 247, 266, 268, 308 Subsidized housing, 409, 462, 463, 466 System constraint, 134

T Target constraint, 134 Tax collection contract responsibility system, 399 Tenure management, 506 Third plenary session of the 11th CPC central committee of 1978, 133, 203, 326 Three deductions , 227 Three layers of control, 146, 334, 395 Top-down reform, 359 Traditional development model, 26, 459, 494

Transaction costs, 92, 93, 99, 100, 102, 161, 221 Transfer right, 96, 370 Transition accounts, 462 Trials, 133 Two-field system, 216–219, 222 Two-tier management system, 10, 11, 178, 179, 305, 306

U Unused land, 14, 199, 290, 330 Urban built-up areas, 327, 347, 370, 371 Urban districts, 327, 419 Urban land, 3, 4, 17, 23, 24, 66, 79, 134–136, 146, 149, 284, 288, 303, 314, 315, 325–327, 334, 335, 338, 356, 371, 373, 375, 395, 419, 420, 423, 471, 484, 487, 489, 490, 493, 494, 501, 503, 507 Urban-oriented policies, 57, 58 Urban planning areas, 327 Urban-rural China, 47, 68–70, 74, 391, 413, 414 Urban-rural governance, 327, 371 Urban-rural inequality, 339, 371 Urban-rural interaction, 40, 42, 61, 76, 78, 79, 82, 413 Urban-rural relations, 40, 42, 55, 63 Use land to generate wealth, 403, 461 Use rights, 7, 30, 47, 48, 61, 96, 109, 111, 135–137, 140, 145, 146, 192–194, 196, 198–200, 211, 242, 285, 307, 315–317, 320, 331, 333, 380, 399, 402, 436, 440, 441, 443, 467, 468, 488, 508 Usufructuary right(s), 8, 38, 48, 69, 145, 148, 149, 196, 200, 251, 380

INDEX

V Village and township enterprise, 202–204, 222, 400

Village consolidation, 256 Villagers’ committee, 442, 443 Village transformation, 75

523