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China's urbanisation push needs land reform, freer residency rights in cities

PUBLISHED : Monday, 11 November, 2013, 10:20am
UPDATED : Monday, 11 November, 2013, 11:18am

Tan Yingyu is one of China’s 200 million migrant workers, and like many he is stuck: he does not want to return to his village but also cannot become a legal resident in the city of Chengdu, where he has worked for nearly 20 years.

His dilemma highlights a key issue for China’s reformist leaders as they look for ways to encourage more people to move to cities to help turn a credit- and investment-driven economy into a consumer-powered one.

If rural Chinese are given formal rights to their land, they could cash in its value and feel more secure about moving to work in cities.

If they are given residency status in cities, rather than having it tied to their home village, they would have access to social welfare, making it more likely they would spend more or move their family to live in the cities too.

Without reform of land and residency rights, a government urbanisation drive may fall behind, endangering broader economic reform and even risking social unrest.

“I won’t go back to work the land, but I cannot afford to buy a property here – prices are too high,” said Tan, pointing to towering apartment blocks in Chengdu, the capital of Sichuan province.

Top leaders are meeting in secret in Beijing to plot an economic agenda for the next decade and will be looking at pilot schemes in Chengdu and elsewhere that are testing land and residency reform for clues on what changes to make.

It’s not an ideological problem but a problem of interests. Local governments still want to monopolise land sales and repay their debt
Tao Ran, Renmin University

But the Chengdu pilot programme and others that allow farmers to lease or sell their land have shown the process is slow and tangled with problems, raising questions about how quickly they could be scaled up nationally.

Reforms in the 1980s assigned farmland to households but reserved formal ownership to the village collective. Land certificates are imprecise at best, and many rural households lack documentation, although Beijing has tasked the provinces with registering title to land nationwide over the next five years.

The lack of clear land rights makes many farmers vulnerable to land grabs by local administrations for development, a major source of government revenue and a major source of discontent among farmers, who say they are not compensated fairly.

“Pilots in Chongqing and Chengdu are slow,” said Tao Ran, an economist at Renmin University in Beijing.

“It’s not an ideological problem but a problem of interests. Local governments still want to monopolise land sales and repay their debt.”

Closely tied to land reform is a need to relax a rigid household registration system, which means Tan has no access to social welfare, such as medical care, outside his home village. The lack of status reduces the incentive for rural Chinese to move to urban areas.

Tan does not want to formally cut his ties with his village 90 kilometres away, because he cannot sell the fifth of a hectare of land his family has tended for more than 50 years. It is now looked after by a relative.

But until he cuts his ties, he cannot register as a resident of Chengdu, where he trades in second-hand furniture and appliances.

His wife also works in Chengdu, while his daughter and son work elsewhere in China. Only his mother remains in the village.

Land reform and household registration are two key issues if China is to succeed in its plan to persuade 390 million rural dwellers – equivalent to the US population – to migrate to urban areas.

That itself is central to the broader plan to develop an economy led more by domestic consumption as Beijing looks for new economic drivers after three decades of double-digit percentage growth.

The steps cannot be too big. Land reforms are very complicated
Hou Peng, Chengdu Agriculture Equity Exchange

Even if farmers or rural households do not want to lease or sell their land, the lack of recognised legal rights reduces their incentive to develop businesses where they live.

The pilot programmes in Chengdu and other cities have been testing reforms of the established land rules, rooted in Chinese communist ideology, and the household registration system, which dates back to 1958.

The project in Chengdu allows farmers or village landholders to sell their land rights on an exchange, getting cash in return. But the watchword is caution.

“The steps cannot be too big,” said Hou Peng, a senior official at the Chengdu Agriculture Equity Exchange.

“Land reforms are very complicated. The interests of many people will be affected,” Hou said in an interview inside the exchange’s new building, where big electronic screens display land deals.

Hou said land reform has to be gradual to maintain social stability by ensuring farmers do not rush to sell their land before they have secured long-term jobs in cities. The last thing that the central government would want is cities filling rapidly with unemployed migrants.

Although Chengdu’s model and others offer farmers a cash-out option, they still have their limitations.

First, only the state can designate farmland for construction use, which is where big profits lie, under a national policy to ensure a minimum of 120 million hectares is put aside for farmland.

Transferring farming rights to someone else is more likely to generate an income stream than big profits.

One option being considered by policymakers is to allow farmers to use land rights to secure bank loans, or turn them into shares in large-scale farming companies, government economists say.

Possibly the biggest difficulty reformers have to overcome is an inherent conflict of interest on the part of local authorities where migrants are registered.

Compensating them fairly for land sales would help achieve national urbanisation goals. But seizure of farmland by local governments, with little or no compensation, is widespread and sparks tens of thousands of protests a year.

Local authorities want to monopolise land supply through requisition. Allowing rural collective land to enter the market will break that monopoly
Shi Xiaomin, China Society of Economic Reform

So local authorities will be reluctant to support changes that might mean they can profit less from land sales, unless they are allowed to raise revenues in other ways or the distribution of revenues between local and central government is shifted in their favour.

Such changes would require major fiscal and tax reforms.

“Local authorities want to monopolise land supply through requisition. Allowing rural collective land to enter the market will break that monopoly,” said Shi Xiaomin, vice-head of the China Society of Economic Reform, a government think tank.

Even so, in the case of Chengdu, government revenue from land sales still far outstrips land sales by farmers in the exchange scheme.

Chengdu government land sales were 36.7 billion yuan (HK$46.4 billion) in just the first eight months of this year, local media reports said.

Land transactions on the exchange since 2008 have totalled 20-30 billion yuan, Hou’s figures show.

A Tsinghua University survey showed that 64 million Chinese households have had their land seized or homes demolished over decades of rapid urbanisation, leaving many feeling disaffected.

“The government says it is building the new countryside, but the purpose is to appropriate our land for their own development,” said Li, 62, in Xinfu village, part of Chengdu, who gave only his surname.

His house was demolished earlier this year and he has been promised a new home in two or three years.

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