Guangdong relaxes its grip on rural land

PUBLISHED : Saturday, 01 October, 2005, 12:00am
UPDATED : Saturday, 01 October, 2005, 12:00am

Since Beijing embarked on the policy of reform and 'opening up', local governments have shortchanged farmers of hundreds of billions of yuan by requisitioning land and selling rights to its use.

Conservative estimates put the amount at 200 billion yuan, but some say the losses could amount to a trillion yuan.

From today, Guangdong will stop milking this cash cow when it puts into effect an administrative rule allowing farmers themselves to conduct transactions on collectively owned non-arable land.

Academics say the rule will free up more land for development and improve investor confidence because it provides a mechanism for recognising all land contracts entered into in the past 25 years - which, technically, are illegal under the Land Management Law.

The law states clearly that all land is state-owned but makes a distinction between urban land and rural land, which can be owned collectively. Rural land has to be converted from its 'arable' status in order for it to be used for other purposes, and while conversions have gone on for years, the law protects no one in a dispute over land-use rights.

'They [Measures for the Administration of Collectively Owned Land for Construction Purposes] are a major breakthrough in China's land reform in that they break the government's stranglehold on rural land transactions,' said Li Ping , who represents the Seattle-based Rural Development Institute in China. 'We all know that local government buys land at a low price and sells it at a high price to make huge profits. This [right] is now taken away. In principle, the profits go back to farmers.'

However, he does not think the Guangdong government is motivated by the interests of the disadvantaged. 'Guangdong had no choice,' he said. Land transactions had been widespread and farmers had built factories to rent out to textile companies and toymakers. But such deals were illegal and the government had to do something to legalise them to minimise disputes.

'There are Taiwanese investors who don't pay rent and yet you cannot boot them out. You can't sue them under the law because the deal is illegal. This is a double-edged sword because investors are also at risk,' Mr Li said.

The backdrop to the reform is the dwindling land supply that threatens to derail Guangdong's growth. Drafters say the policy was drawn up two years ago and tested in Shunde , Nanhai and Huizhou .

The policy is also expected to defuse rural discontent by allowing farmers to participate in land transactions when in the past such decisions were taken by the township government and then presented to villagers as done deals.

It also allows investors to negotiate directly with villages. In the past they needed to get the government to requisition farmland and turn it into state-owned land with the same status as urban land so that it could be leased for industrial and other uses.

What is significant about the policy is that it allows villages to do interesting things with land, like mortgaging it and creating a new impetus for growth, said Hong Kai , an associate professor at Jinan University's Department of Administrative Management.

The measures allow farmers to lease their land for up to 50 years, transfer the leases, rent the land for shorter periods or mortgage the land to the banks.

Professor Hong said Guangdong had not reached the end of its growth potential even though it was short of capital, land and other resources, because it could count on internal factors to propel growth.

'The Yangtze River Delta is growing fast and people are advocating self-innovation and internally driven growth, but to do this you need capital. Where does capital come from? It comes from turning dead assets into cash,' Professor Hong said.

Scholars pointed out that in exchange for its share of land transaction proceeds, the government would now get its revenue in the form of taxes. However, the new rules do not spell out the rate of taxation. In Shunde, the government levies a 3 per cent tax on land leases and collects one yuan per square metre annually from rented land.

A land reform expert at the Hong Kong University of Science and Technology, associate professor James Kung Kai-sing, said legalising land deals would allow the true value of land to be reflected. 'Only those who can afford [to do so] will buy land, and that might intensify restructuring in the Pearl River Delta.'

However, while saluting the policy for being innovative, Cai Lihui, a Sun Yat-sen University school of government professor, said it did not address the core problems of protecting arable land, which runs counter to development, and inequitable compensation for farmers.

'The spirit of the measure is good in that it wants to protect farmers, but in reality it cannot be implemented,' he said. 'It's good that you regulate land transactions but you must also control land supply to rein in runaway growth.'

As for compensation, there were no measures to guarantee that proceeds would not be siphoned off at each level of government as before.

Mr Li, of the Rural Development Institute, said that even at the collective level, funds had been diverted from farmers.

The measures were still in conflict with the law, but because the Ministry of Land and Natural Resources was allowing the reform to be tried out in Guangdong, the provisions would stand up in a court of law, said Xian Pin, a vice-director of Guangdong's Development Research Centre.