Two steps that would prove Beijing is serious about reform

Giving mainland peasants legal title to the land they farm and ending the household registration system will help to rebalance the economy

PUBLISHED : Monday, 17 December, 2012, 12:00am
UPDATED : Monday, 30 May, 2016, 5:01pm


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At their first Politburo meeting earlier this month, China's incoming leaders pledged to boost domestic consumer demand, promote urbanisation and enhance social welfare provision.

If they are serious, there are two key reforms they could make that would go a long way to achieving all three goals. They should give China's peasants legal title to the land they farm, and they should scrap the country's hukou system of household registration.

Granting farmers full title to their fields would be a logical progression from the measures introduced over recent years to strengthen land rights.

Between 1998 and 2007 Beijing passed a trio of laws giving farmers greater security of tenure. Today, in theory, they enjoy land-use rights for renewable 30-year periods with the ability to lease out their land if they choose.

And just last month, Beijing introduced new rules aimed at increasing compensation for farmers whose land is seized by local governments for property development.

But while these steps have encouraged investment in agriculture and boosted rural incomes, they fall far short of full ownership.

With legal title, farmers could sell their fields, allowing land holdings to be consolidated. What's more, they would be able to borrow against the value of their farmland, raising capital for investment in machinery, soil improvement and modern irrigation systems.

The result would be a more commercial agricultural sector, with fewer farmers making more money, which would both further urbanisation and boost consumption among the remaining rural population.

But by itself granting land title to farmers wouldn't be enough. Without further reform, many of those farmers who did sell up and move to the cities would find themselves second-class citizens in their new homes.

That's because of the hukou system, under which more than 200 million city-dwellers are still classed as rural residents. Because their documents classify them as living in another district, these migrants are limited in the employment they can get and in the pay they can expect to earn.

They have little job security. They are refused access to public housing. And they are denied pension and health-care benefits. Their children are often turned down by local schools, which means they score poorly in standard educational tests, reducing their later earning power.

As a result, migrants from the countryside not only earn less than their neighbours with urban registrations, they also tend to save a higher proportion of their income as a precaution against future hardships.

Because of the hukou system, about 30 per cent of the mainland's urban population are underpaid, deprived of social benefits and constrained in their ability to consume.

The economic damage this system inflicts is severe. According to one estimate, if migrants had earned as much and spent as much of their income as regular city-dwellers, consumer spending would have been higher last year by more than 500 billion yuan (HK$629.6 billion). That would have been enough to boost China's rate of gross domestic product by a whole percentage point.

The arguments are compelling. Together, granting farmers title to their land and scrapping the hukou system would significantly boost incomes for hundreds of millions of the mainland's poorest citizens, narrowing the wealth gap and helping to rebalance the economy more towards private consumption.

This is exactly what China's new leaders say they want to achieve. If they mean what they say about liberalisation, they should press ahead with both measures.

And if they don't, well, it will be hard to take them seriously when they talk about reform and rebalancing in the future.