China will allow farmers greater freedom in trading land to encourage economies of scale in agricultural production, which is still dominated by family farming.
The bold attempt to reform the Household Responsibility System (HRS) is aimed at increasing productivity and strengthening the competitiveness of the mainland's vast agricultural sector against the influx of cheaper foreign imports following Beijing's accession to the World Trade Organisation (WTO).
But rural experts warned the move would also carry enormous risks, as more farmers would swarm to the cities, where there are not enough jobs for them.
They called for a gradual approach to the reform and urged the Government to better protect the interests of farmers when tenure contracts for their land are transferred.
An official of the Ministry of Land and Natural Resources said the Government had yet to decide how farmland tenures could officially change hands. He said Beijing would consult local governments, as many had determined their own ways to sell the contracts without violating HRS rules.
The contracts give farmers the right to use farmland, since no individual is allowed to own land according to China's constitution.
Minister of State Development Commission Zeng Peiyan was quoted by Hong Kong-based Wen Wei Po as saying a mechanism to facilitate and standardise land contract transfer was necessary. But he hinted the Government would introduce the reform in selected areas only.
'On the basis of the HRS, the Government will encourage regions where conditions are ripe to actively explore ways to transfer land-use rights,' he said.
Beijing officially introduced the HRS in the early 1980s after communes were abolished. It allowed each farming household a plot of land with a lease of 30 years.
The term of the leases was extended until 2028 by a regulation promulgated three years ago, which also discouraged large-scale relocation of farmland, although adjustments could be made periodically in response to demographic changes. Through this system, the Government aims to provide every farmer with a plot of land to fall back on if they cannot find other sources of income.
But with industrialisation in full gear, the HRS is facing a two-pronged challenge: the increase in idle farmland and the pressing demand to convert farmland into large agricultural corporate holdings and township enterprises.
Many farmers have been forced to abandon their land and find jobs in cities as it is no longer possible to eke a living through farming with grain prices plummeting and government levies extortionate. According to a report by the State Council's Development Research Centre (DRC), the proportion of abandoned farmland in central Hubei province leapt from 3.4 per cent of the total in 1999 to 5.2 per cent last year.
Coastal regions are facing another problem: there is a huge demand to turn small farms into agricultural corporations and township enterprises. Although private businessmen have no right to lease rural land for industrial use, village committees are usually more than happy to lease the land to agricultural corporations for much better prices.
However, according to the DRC report, farmers were often not given appropriate compensation when they handed over their land contracts to the village committees. Cheating and coercion were also common.
The central Government is now in a dilemma. It has set a target of developing 500 large corporate agricultural holdings during the 10th Five Year Plan (2000-2005) to compete with the influx of cheap agricultural imports after its WTO entry. Local governments are eager to gain political brownie points by hatching large agricultural companies through radical acquisition of farmland and co-operation with large commercial enterprises.
However, Beijing is also aware of the urgent need to protect the rights of farmers as land contract transfers have become popular. A rise in the number of disgruntled and landless farmers is the last thing it wants to see.
'Labour-intensive farming will remain the mainstay of China's agriculture. China is short of farmland and that is the only way to provide a means of living for the rural population,' said Li Zhou, a rural expert with the China Academy of Social Sciences.
Experts said protection of farmers' rights should come first when drafting the regulations on land contract transfers.
'The most important principle is to respect the will of farmers. No administrative measures should be imposed to force farmers to hand over their land contracts,' said Han Jun, head of DRC's research department on the rural economy.
The Government is now drafting laws on property ownership and land contracts which will have significance for the HRS.
These will define the rights to use state and collective properties, including farmland, and ensure land contracts cannot be changed for 30 years.
A legal expert said the laws would at least allow farmers to sue the local government if their land was forcibly taken away.