China reforms rural land use, mindful of the risks to ecology and social stability
Dan Wang says China continues to relax rules on the renting out and use of rural land to boost living standards outside cities. Full privatisation, however, is not on the cards due to the need for a safety net for the non-urban population, and well-founded concerns over environmental degradation
On February 4, China’s State Council and the party’s Central Committee jointly released a document signalling more flexibility for rural land use rights. It will moderately relax controls on rights for rural land allocated for villagers to build homes and for houses left vacant by migrant workers. Rural residents will have more options to rent out land and to use land use rights as collateral to borrow from banks. Companies are also encouraged to invest in rural land and housing.
Prior to this announcement, pilot programmes had been rolled out for several years. Results were mixed. Land transfers in these pilot areas increased significantly, and urbanisation accelerated. Companies’ investment in rural land also increased moderately. However, bank lending did not pick up as fast as had been hoped. Banks have been reluctant to take farmland as collateral. Separating property rights into three categories – collective ownership, contractual rights and tradeable land use rights – has rendered the resale of land practically impossible in cases of default.
Nonetheless, land reform is now being pushed nationwide, incorporating new elements, such as rural tourism, ecological growth and environmental protection. This signals an important shift in government priorities. Previously, the top priority for agriculture was food security to ensure self-sufficiency for key grains, but the focus has now moved towards improving income and the quality of rural life. Rigid land rights, along with weaknesses in the financial market for rural areas, have made it difficult to set up a business in the countryside. Authorities want to let farmers derive benefits from their land and housing assets, just like their urban counterparts.
Diluting collective ownership, however, has downsides. It increases the risk that farmland may be appropriated for commercial use, and land designated for key grains may instead be used to cultivate more profitable crops. The reform could also have a negative impact on the environment. A recent study by the Chinese Academy of Sciences found that, in pilot areas of Inner Mongolia, trading in grassland rights had led to predatory land use by tenants, causing severe degradation in the ecosystem.
Despite the liberalisation of land use rights unveiled this month, authorities are not looking to privatisation as the next step, and with good reason. Land remains the main social safety net for farmers, as rural social security system is far from sufficient. For villagers who lack the necessary skills to thrive in the city, land is their only productive asset.
Social stability is another concern. In the aftermath of the 2008-09 global financial crisis, many unemployed migrant workers returned to farming on the land they still held. This served as a buffer against rising urban unemployment. By contrast, in other countries such as India and the Philippines, the migration of landless farmers to cities has led to the rise of slums and high levels of urban poverty. At the end of 2016, China still had 210 million farmers. The slowing urban economy is unlikely to be able to absorb such an enormous workforce in a short time.
Estimates by the Food and Agriculture Organisation in 2016 suggested that 75 per cent of world arable land is managed by family farms. In China, too, the future for agriculture will still be dominated by family farms, but corporate farming will account for a growing share of output. Flat areas where large-scale farming is practised, such as Heilongjiang and Xinjiang, have attracted significant corporate investment. However, small farms remain the norm.
In 2016, an average Chinese farm was 0.6 hectares, among the lowest in the world according to estimates by Peking University. Companies can find it hard to farm such scattered plots cost-effectively. In many western and southern areas of China, family farms may remain the best option. The latest reforms will accelerate land consolidation, but the process will most likely be led by larger family farms and rural co-operatives, rather than companies.
Dan Wang is a China analyst at the Economist Intelligence Unit