Keeping the wolves away from the farm

PUBLISHED : Thursday, 16 October, 2008, 12:00am
UPDATED : Thursday, 16 October, 2008, 12:00am

In the end, there was no big bang, only promises of more gradual changes and small-step experimental reforms. Before its planning session last week, many specialists inside and outside China were speculating that the Communist Party's Central Committee was about to introduce far-reaching land reforms to unleash market-driven forces in rural areas. No doubt, to these people, Sunday's official communique was a disappointment. But to those who understand the complex nature of rural land reforms, and their associated perils, a gradualist approach is more justified.

There is no question that China's long-term future lies in closing the enormous wealth gap between the urban and rural populations. About 800 million farmers, who have largely been bypassed by the economic juggernaut of the past three decades, deserve social benefits such as education and medical services comparable to their urban counterparts. This is what Beijing has now dedicated itself to achieving as a medium-term goal. It is further committed to doubling rural income by 2020, based on the realistic, if somewhat conservative, estimate of 6 per cent growth per year.

But, on the bigger need to release market forces to spur growth and bring greater wealth to the countryside, it is clear that careful implementation of incremental changes is better suited in the rural context. There is no plan, at least in the foreseeable future, to allow land to be traded, sold and mortgaged as a national policy. On this, the central government is surely right. As always, China must reform according to its own needs and characteristics.

So, for the moment, farm land will remain unconvertible to non-agricultural land use. However, farmers may be able to convert such plots to other agricultural use, such as from growing vegetables to raising pigs. But, this has been going on among farmers on an informal and extra-legal basis for a long time. Now, the government will formalise these private arrangements. On this new basis, farmers may legally trade ownership shares in their own plots of farmland. With respect to residential and non-agricultural land, they may be able to trade them and use them as collateral, while the central government is likely to extend current land contracts for farmers for 70 years.

The dangers of abrupt large-scale land reforms are well understood. In many developing countries, the state has sponsored formalising land rights in the hope that the poor would own their land and homes, and use them as collateral to borrow money, extend farming or start businesses. By granting title deeds to poor farmers and shantytown dwellers, it is argued that their 'dead capital' is transformed into 'live capital', unleashing wealth hitherto trapped in an unproductive and non-tradeable form.

The most famous economist who has argued for this poverty-relief approach has been Peruvian Hernando de Soto. Such experiments have been tried in Peru, Turkey, Mexico, South Africa, Cambodia and Colombia, with varying degrees of success. But, most have been plagued by corruption: where land is valuable, venal officials and developers want to get their hands on it. Often, poor people sell their new titles for a pittance and end up without their land and having to work in cities as dispossessed unskilled workers. Where land is not valuable, few banks or other private enterprises are interested in making loans or doing business by using it as collateral. So the state often ends up being the lender, which it would have done anyway.

From its own experience, Beijing is surely aware of the risk of mass corruption in any land reform. Local party cadres and their business partners have often worked against central government policies and laws. Expropriating peasants' land and paying a pittance for their land rights has all too often been the case. Unless Beijing can enforce title deeds and protect farmers' rights, any large-scale reform will more likely expose them to abuse than benefit.

Alex Lo is a senior writer at the Post