The National Development and Reform Commission of China released its five-year plan (2016-20) for rural economic development in November 2016. In this plan, rising costs in agricultural production have been highlighted as a major challenge. For some major agricultural products, domestic prices are now significantly higher than world prices. For example, it is reported by Outlook Weekly in September 2016 that rice prices imported from Vietnam is about 15 percent lower than that of domestically produced rice in China. Upgrading agricultural infrastructure and accumulating capital and labor inputs are considered as major policy interventions to reduce agricultural production costs. However, the policy makers must consider land reform seriously since the allocation of land use rights will be pivotal for implementing the policy interventions to reduce production costs.
The allocation of land is highly correlated with the effectiveness of community level irrigation and agricultural productivity. In rural China, since the implementation of the Household Responsibility System in the 1980s, land distribution has been rather egalitarian. Under the Household Responsibility System, the average plot size was only about 0.3-1 mu (0.02-0.07 hectares) and a family may own several plots which are located with some distance (Ye, 2015). Therefore, economies of scale in agricultural production cannot be exploited fully under land fragmentation.
Moreover, while the state has invested in large-scale irrigation infrastructure, local community-level institutional arrangements for utilizing the irrigation infrastructure are essential. For example, farmers can collaborate in constructing, maintaining, and repairing field channels at the community level. They can also be involved in managing water allocation from public tubewells and controlling overuse of water resources at the local level (Bardhan, 2005). Many of these local contributions to irrigation projects are complementary to large-scale irrigation projects built by the state and are also relevant for the sustainability of water resources. Usually, the smaller size of community- and connected-land makes it easier to achieve community-level coordination with lower transaction costs. Given the above principle, in China, to have effective coordination for local community irrigation projects and water management has been very difficult (e.g. see Huang, 2015). Most farmers in China have small plots of land which are likely to be distributed in a fragmentary manner.
Recent Developments in Usage Rights Transfer
However, since the 1990s, with large-scale migration from rural to urban areas, there are many households who do not have enough family members working as farmers. In this context, land transfers between farmers as well as transfers between farmers and firms have taken place. In 2003, the Law of the People’s Republic of China on the Contracting of Rural Land was enacted and the transfer of usage rights of arable land was mentioned in this law. In 2004, the State Council released a document to reregulate the transfer of usage rights of rural collective construction land. Since then, there have been a series of government documents to relax regulations over transfers of usage rights of arable land.
In 2013, the total area of transferred land reached 340 million mu or 26 percent of total arable land (Yan and Chen, 2015). Among these, 30 percent was transferred between farmers and firms/rural co-operatives and about 62 percent was transferred between farmers. In 2016, the total area of transferred land reached 460 million mu or one third of total arable land.
Increasing the amount of land transfers may reduce the costs of community-level coordination for irrigation and water management.
Given the very large amount of land that has been transferred, many economic and social changes may follow this reallocation of land property and usage rights in rural China. First, economics of scale may improve. After allowing transfers of land, entities which can produce with lower costs are more likely to demand for usage rights to arable land. In other words, land transfers will lead to a concentration of land under these new entities. New types of agricultural business entities including family farms, rural cooperatives and firms which can operate with large scales of land have been highlighted in the 13th five-year plan. It was also reported by the Xinhua News Agency that the total number of these new types of agricultural business entities was over 2.7 million in 2016.
Second, increasing the amount of land transfers may reduce the costs of community-level coordination for irrigation and water management for two reasons. The number of people making contributions for community level cooperation is likely to be smaller. Also, the distribution of arable land could be less fragmentary.
Initiatives for Land Transfer
However, there are some issues to be addressed. First, land titles are not well defined in China, which discourages transfers of land use rights (Li, 2012). For example, the boundaries of the land sometimes are not clearly registered and there are many disputes between farmers and the new entities regarding the validity of the transfer transactions. Second, there is significant uncertainty regarding the long-term outlook of land use rights. The validity of land use rights is dependent on the expiration date of the land contractor system, which is set to be sometime in the 2020s. In this case, long-term investment on land will be discouraged given the uncertainty.
In the five-year plan released in November 2016, the transfer of usage rights of rural land will be supported by a public registration system for land titles. According to a speech by the Minister of Agriculture in November 2016, about 60 percent of arable land has been registered for land titles. Also, according to the five-year plan, a bundle of rights for rural land will be defined more clearly, such as transferring, leasing, shareholding, etc. All these property rights reforms may be helpful to address the concerns over uncertainty.
While the five-year plan has highlighted some policy initiatives for land transfers, some problems have also been raised about the process of land transfers. First, in some cases, usage rights of land were transferred by local officials but the farmers who actually held the contractual rights were not willing to transfer the land. Second, since public services in urban China are still provided largely on the basis of the status of household registration (i.e. “hukou”), many farmers are not willing to contract out their land since they may not enjoy social protections even if they have jobs in urban areas. Third, firms or other entities which have usage rights over arable land may not use the land for agricultural purposes. For example, some arable land has been used for real estate development.
Fourth, in the long run, increasing amounts of land transfer may lead to a more unequal rural community with a higher concentration of land. For example, the ratio of the income of the top 10 percent to the bottom 10 percent in rural China has increased from about 15.7 in 1991 to 31.5 in 2010. The recent literature also shows that, with increasing inequality, the poorer members of a local community may not be willing to contribute to community-level irrigation projects (Baland, Bardhan and Bowles, 2006).
Baland, J.-M., Bardhan, P. K. and Bowles, S. (2007). Inequality, Cooperation, and Environmental Sustainability. Princeton University Press.
Bardhan, P. K. (2005). Scarcity, Conflicts, and Cooperation: Essays in the Political and Institutional Economics of Development. MIT Press.
Huang, Y. (2015). Can capitalist farms defeat family farms? The dynamics of capitalist accumulation in shrimp aquaculture in south China. Journal of Agrarian Change, 15(3), 392-412.
Li, L. (2012). Land titling in China: Chengdu experiment and its consequences. China Economic Journal, 5(1), 47-64.
Yan, H. and Chen, Y. (2015). Features and direction of agricultural capitalization in China: Driving forces both top-down and bottom-up of capital. Open Times, 5, 49-69.
Ye, J. (2015). Land transfer and the pursuit of agricultural modernization in China. Journal of Agrarian Change, 15(3), 314-337.