China in Transition

Rural Land Reform Tops the Agenda at Third Plenum of the 17th Central Committee

Chi Hung KWAN
Consulting Fellow, RIETI

The leading players in China's socialist revolution were not industrial workers as Karl Marx assumed they would be, but instead farmers who sought "the ownership of land by its cultivators." Regrettably, farmers in China have been forced to remain in the position of second-class citizens since the successful revolution of 1949. Under strict restrictions enforced via the family register system, farmers have been unable to relocate freely, let alone become owners of the land they cultivate. This situation remains basically unchanged nearly 30 years since the announcement of China's open-door policy signaled the beginning of the country's reforms and abandonment of the traditional system of economic planning. Acknowledging farmers' rights to land and eradicating discrimination based on the family register system are the keys to solving China's three agriculture-related problems of agriculture, rural areas and farmers.

The Hu Jintao and Wen Jiabao administration has adopted the development of a "harmonious society" as its goal. As part of its efforts toward achieving this goal, the government has sought to solve the three agriculture-related problems proactively. The promotion of rural reforms, particularly those related to agricultural land, dominated the agenda at the Third Plenary Session of the 17th Central Committee of the Communist Party of China (CPC) held on Oct. 9-12, 2008.(note 1)

Existing agricultural land ownership system and its problems

In China, a country advocating the cause of socialism, all land is publicly owned, and no private land ownership is allowed. The public land ownership system takes the form of state ownership in urban areas and collective ownership in rural districts. The term "collective" in this context refers to a group organization, such as a village or an organization of villagers. This "collective" owns land on behalf of farmers. However, farmers have not taken part in the "collective" voluntarily, nor are they free to leave it.

Furthermore, farmers have no right of ownership to the land that has been "contracted" to them. They are granted with only the right to use the land. In urban areas, the right to use is valid for 70 years for residential land, 50 years for industrial land, and 40 years for commercial land. On the other hand, the contract term for agricultural land has been set comparatively short at 30 years.

Under a collective landownership system of this type, rights to land expire without compensation of any kind supplied to farmers when they lose their registration as farmers through actions on their own behalf, such as migration to urban areas. Today, there are many young workers from agricultural communities working far from home in urban areas. The agricultural land that they once contracted is now left deserted because it cannot be sold.

Economizing scale through the concentration of agricultural land is necessary for raising agricultural productivity. However, such economization has been hard to realize because resale of agricultural land is heavily restricted.

The conditions under which local governments apply for compensation when they expropriate land for "public interest" are far inferior in rural districts compared to urban areas. Moreover, the laws governing such compensation plans are vague. In fact, agricultural land expropriation by governments has become a huge social issue that has been on display in sporadic outbreaks of riots by farmers across China.

The need to privatize agricultural land

The only way to solve these problems is to allow privatization of agricultural land. In other words, to award rights over agricultural land, including rights of ownership, to farmers. Once this is done, farmers will be able to sell agricultural land at their own free will. Farmers will also become able to relocate to urban areas with their family members by using funds obtained from the land they sell. Like other production factors such as labor and capital, a free market for agricultural land will also contribute to productivity improvement.

However, strong voices remain opposed to agricultural land privatization in China, citing "special conditions of the country" as their primary reasons. To begin with, privatization will shake-up the system of public land ownership that forms the basis of socialism. When privatization of agricultural land is advanced, the landowning class comes back to life and farmers "freed" at long last may once again become targets of exploitation.

Second, strengthening the "collective ownership system" and uniting farmers will function as a relatively effective means of curbing the violations against farmers' rights. These violations include the forcible expropriation of agricultural land, which occurs under the current situation due to farmers' inability to rely on local governments or laws for protection.

Third, agricultural land provides security for the livelihood of farmers. When farmers sell their land after privatization, they will effectively lose this security (known as "land security theory"). As a result, farmers who have lost land ("landless farmers") will grow in number, and public anxiety will rise.

Finally, opponents say agricultural land privatization will force governments to pay higher prices for expropriation, and the increased prices will lower the international competitiveness of Chinese products when higher land prices eventually work their way into product prices.

Against such opinions, advocates of agrarian reform are making the following counter-arguments.

First of all, the private ownership that Marx was opposed to is limited to ownership by capitalists. Marx was not against private ownership of the means of production that are in the hands of workers. There is an opinion that public anxiety will mount with the return of the landowning class, but the rights of farmers are more vulnerable to violations under the present situation because the farmers are currently granted only land-lease rights. Ironically, rather than members of the landowning class, the violators of the farmers' rights are actually government bureaucrats who flaunt their privilege in the name of public interest.

Voluntary "grouping" by farmers based on their own intentions should be welcomed, but the policy of forced "grouping" in place today infringes on the rights of farmers instead of protecting them. Privatization of agricultural land would grant farmers with the right to leave a "group" without giving up the rights to their land.

With respect to the land security theory, the rights of farmers and the security of their livelihood are both reinforced when land becomes the private property of farmers. When compared to the current situation in which farmers constantly face the risk of losing their land in exchange for trifling compensation, landownership is better because it allows farmers to sell their land at market prices and gives them the freedom of deciding on their own whether or not to sell. Land is the last refuge for farmers. For this reason, farmers will not give up their land unless they are presented with exceptionally attractive conditions. Thus opposing privatization of agricultural land amounts to continued endorsement of the deprivation of farmers' rights, rather than protection of their rights.

Lastly, the cost of land expropriation will certainly rise with privatization, but indefinitely imposing the cost of industrialization exclusively on farmers is not fair. Like residents of urban areas, farmers should be granted the right to gain from the sale of land when it appreciates in value. Privatization of agricultural land will support economic growth not only by enhancing productivity of the land on the supply side, but also by raising consumption by farmers on the demand side. In this way, it can contribute to the shift from growth based on external demand to growth driven by domestic demand.

A big step toward privatization

A "resolution on a few important issues for promoting reforms and development of agricultural communities" (the "resolution"), which presents the future direction of Chinese agricultural community reforms, was formally adopted last October at the Third Plenum of the 17th Central Committee amid heated debate on privatization of agricultural land. The resolution is receiving a considerable amount of attention because it contains the Chinese government's new policy of allowing the transfer of land-use rights landing rural areas.

The resolution states that "a market for the transfer of the rights to use contracted land will be developed. Transfer of such rights by farmers in forms including subcontracting, leasing, exchanging, selling, and forming joint-stock cooperatives based on the principles of compliance, free will, and fare payment will be permitted, subject to (1) no change being made to the system of collective land ownership, (2) no change made to the use of agricultural land, and (3) no harm imposed on the interest of contracted farming households, for developing appropriate, large-scale farming of various forms.” The statements mean that in addition to cultivating the contracted land by themselves, farmers may also choose to transfer land-use rights to others by renting or selling. As a result of the new resolution, more farmers are expected to give up agricultural land contracted to them and resettle in urban areas.

In the resolution, the principle governing the term for land contract (the right to use land) is changed from the previous "long-term" to "long-lasting" to emphasize stability of the system. Specific contents of the changes being made to the system have not been announced, but the contract term is expected to be extended from the current 30 years to 50-70 years in accordance with the new policy. As the contract period grows longer, the disparity between the rights to use land and landownership rights becomes smaller and the value of land will increase. When the "permanent contract system" is implemented, as proposed by certain scholars, land will become the private property of farmers, in practice, while public ownership of land will be maintained as the official position.

Moreover, the resolution contains the policy that the Chinese government will "reform the land expropriation system, strictly distinguish building lots for public use from lots for commercial use, gradually downscale the scope of land expropriation, and improve the mechanism for expropriation compensations." The resolution also states that the government will "compensate farmers and groups representing them fully and reasonably without delay, based on the principles of the same price for the same land, and resolve problems related to the employment, housing, and social security of farmers subject to land expropriation in a proper manner when collectively owned land in rural areas is expropriated in accordance with the law."

Allowing farmers to sell contracted land, extending the right-to-use period, and improving compensation for land expropriation do not exactly mean privatization. However, these changes should be seen as a big step toward privatization in the sense that they will greatly strengthen farmers' rights to land.

December 8, 2008
  1. Held every five years, the Third Plenary Session of the Central Committee (or the "Third Plenum of the 17th Central Committee") is the most important meeting for making decisions on the direction of China's economic policies. In fact, the Third Plenums of the 11th Central Committee held in December 1978 under the leadership of Deng Xiaoping marked the beginning of the era of reform and the open-door policy. This year represents the 30th anniversary of that policy turnaround.

December 8, 2008