The Next Step in Chinese Land Reform

Yesterday, China took an important step toward the liberalization of rural land rights. In a document entitled “Opinion of the State Council Secretariat on Guiding the Healthy Development of Markets for the Transfer and Exchange of Rural Property Rights,” which was finalized in late December but only released yesterday, China’s central government set out the first official guidelines for the establishment of rural land markets.

This is a highly anticipated move. As early as 2008, much excitement greeted the announcement of a similar reform program. But the celebration was premature, as implementation of the program ground to a halt amidst the resistance of party hardliners. China’s new leadership repeated the call for reform in 2013, but implementation was again delayed. Over the years, a number of local governments have set up experimental markets for the exchange of rural land rights, including Chongqing’s widely acclaimed land ticket market and Chengdu’s land use rights exchange. But broad-based national reform remained out-of-reach. The release of the new document suggests that Xi Jinping’s anti-corruption drive has begun to bear fruit, allowing him to consolidate power and advance more aggressive policy.  

While yesterday’s announcement is therefore an important landmark, the reform program it lays out is also incomplete and flawed. Before delving into some of the details, let me first quickly explain the context of China’s rural land rights (China hands can skip to the next paragraph):

Chinese land is divided into two separate urban and rural land regimes, granting ownership rights over urban land to the state, while rural land is collectively owned. Use rights to urban land can be alienated and, subject to planning restrictions, developed for industrial, commercial, residential, and other uses. Collective ownership of rural land is substantially more constrained. This land is divided into construction land, agricultural land, resource land (including forest and water resources), and wasteland. Construction land includes land used for village infrastructure and services as well as housing construction land, which is allocated to each village household. Agricultural land is also allocated to village households for subsistence or on a contract basis, as governed by the Rural Land Contracting Law. The alienation and development of this land is strictly circumscribed. While villagers’ use rights can be transferred to other village households or leased to non-village households, they may not be directly exchanged in China’s land markets, which are limited to urban land. Neither can collectives lease or transfer land to outside investors, though black market transfers are widespread. Moreover, agricultural land cannot be converted to non-agricultural purposes without the permission of the state. By contrast, the state, as represented by local governments, has the power to unilaterally expropriate rural land, convert it to urban construction land, and sell its use rights to developers. This creates an effective state monopoly over the rural land market.

The first thing to observe about the State Council document is that it does not call for the establishment of a market in rural land rights—it calls for the establishment of many such markets. While the State Council has laid out general guidelines and limits for these markets, it calls for local governments to tailor them to suit local conditions. In the short term, this means that existing experiments will continue and new experiments will be started “where appropriate.” The document also proposes that these markets should primarily be confined within counties and towns, though it allows for the establishment of larger markets (at the level of the municipality or the province) if necessary. Like many reform efforts, the policy is explicitly incremental. In the words of the State Council: “Don’t be impatient for quick results. Don’t unilaterally pursue speed and scale.”

The majority of the three-page document is devoted to what can and cannot be traded on these markets. The State Council is unequivocal: collective “ownership” (suoyou quan) of land is not eligible for exchange. Instead, the reform is primarily aimed at the “management rights” (jingying quan) held by rural households and collectives over contracted agricultural land and forest land. The document enumerates eight categories of rights that will be considered tradable during the initial phase of implementation:

  1. Households’ management rights over contracted agricultural land
  2. Collectives’ management rights over forest land and ownership and use rights over timber
  3. Use rights to collectively owned wasteland (including beaches, ravines, etc.)
  4. Ownership and use rights to collectively managed real assets, excluding land
  5. Use rights to agricultural infrastructure
  6. Use rights to irrigation infrastructure
  7. Intellectual property related to agricultural operations, including brands, trademarks, and technologies
  8. “Other,” including village construction projects, which can be bid out, and industrial projects which can be sold or made available for investment

This list notably omits rural construction land of any kind, though the document does not exclude the possibility that construction land might be included in subsequent phases. Indeed, another portion of the document places restrictions on the parties who are qualified to purchase rights to housing construction land and housing, suggesting that these assets may eventually be eligible for transfer.

In general, the State Council’s announcement uses an expansive definition of the actors who are eligible to participate in these markets, extending beyond village households, cooperatives, and collectives to include agro-businesses and investors. It even explicitly mentions the inclusion of joint ventures and foreign corporations. This suggests that China is serious about following up on its promise, articulated in the national urbanization plan, to grant equal status to rural and urban land markets.

All in all, the reform program announced by the State Council is consistent with China's efforts at marketization. That is to say, this is not marketization in the sense of a transition to a free market system as defined by the liberal principles of the Washington Consensus. Rather, directional liberalization is mobilized instrumentally as a tool of economic and political discipline. This is made evident by the State Council's insistence that the establishment of these markets is intended to serve the development of agriculture and the protection of the public interest, not the pursuit of profit.

Moreover, it warns that all transactions of collective assets above a certain (though unspecified) value must be exchanged on the open market. And it directs local governments not to confuse matters by creatively interpreting its guidelines. Finally, the announcement explicitly forbids any changes in land use, meaning that the state will retain its monopoly over rural development capacity and its right to appropriate the land rent increment. These admonishments and caveats suggest that the establishment of rural land markets is as much about the central government's desire to rein in black market land transactions and the discretionary development initiatives of local governments as it is about a commitment to liberalization. In China, marketization is used to exert state control, not to relinquish it.