Likely winners and losers in rural land reform

Factory owners and village bosses are clamoring over their field-tilling counterparts to get a listen inside the Zhongnanhai compound in Beijing for a definitive word on rural land reform.

Chinese media are alive with speculative stories on major changes to the way land in the countryside is transferred between farmers and investors.

For the farmers, it’s a question of market rights to the land they have occupied for decades. Their legal position has been ambiguous at best until now, but conditions are in fact getting better. Basic land-use rights are more clearly defined than ever before.

However, the farmers’ gain will likely be a loss for anyone looking to build a factory on cheap land. Bringing real market forces to rural land would likely end the huge discount at which companies have purchased rural plots to build industrial projects. It would also curb the development model that village officials have relied on for revenue for far too long.

That’s a good thing. Rural land has been converted into industrial building space at far below market price. The practice has led to superfluous industrial projects that neither benefited officials nor factory owners, while also penning a long list of grievances for rural residents. At this point, though, it’s hard to tell how close real change actually is.

Endless reportage

Early this month, China looked to be on the verge of unleashing an economic windfall through rural land reforms. Media reports said the Ministry of Land and Resources would open up pilot zones for land trading in more than half of China’s provinces and 28 smaller administrative regions.

The ministry shot down the rumor two days later, saying no plan had yet been approved. Still, newspapers continue to fuel the notion that a watershed for land policy is nearing, possibly at the Third Plenum, a high-level political meeting set for November.

Economic Observer, an independent weekly Chinese newspaper, on Saturday reported on groundbreaking land reforms underway in Henan province. Haining in Zhejiang province has also been marked as an experiment for some forms of rural land sales. In August, Guangdong launched the country’s first pilot to allow farmers to sell rural construction land, a small portion of overall farmland designated for building.

Free land forever

The primary reform on the table would give farmers more control over this kind of land. Currently, in the vast majority of the country, it can only be transferred via the state. The way this works isn’t ideal.

First, the government procures the land from villagers at a low price as there is no one else to sell to. For years, the world has watched footage of small town officials pulling tearful farmers from their homes as bulldozers move in. The process doesn’t always lead to such dramatic scenes but rural residents are often left under-compensated and worse off than before their homes are taken.

Next, if the land is converted to industrial space, the local government takes bids from companies wishing to build factories. However, instead of pushing prices upward to maximize sales revenue, officials try to attract the most profitable businesses onto the land by keeping the price low – or even giving it away. The hope is to collect taxes from the companies over a long period of time.

That hasn’t always gone so smoothly. The low price of industrial space has produced a glut of factories and underused industrial zones. With factories not running, government revenues suffer. Discontent among villages has also become a cause for tens of thousands of protests each year.

The pushback

Cutting out the government and introducing market forces to this land would revitalize a broken system. Farmers would, for once, likely be the winners in the new market.

If reforms are introduced soon, villagers would have greater say in the price that their land is sold for. Compensation would surely rise for the often-marginalized demographic.

Factory owners, on the other hand, would lose out on free land. The price of industrial land would probably climb, according to a report issued by Standard Chartered on Thursday. This, in turn, could lead to less idle plants and industrial projects.

Much of the pushback against such reform could come from policymakers afraid to abandon China’s traditional growth model. Removing local government hands from land transfers would hurt growth in smaller cities that have relied in part on industrial taxes. The change to the system would force local cadres to create other revenue streams.

The increasing buzz in the media is a signal that change is indeed on the horizon. The Third Plenum could be a venue where discussions could deepen, possibly with tangible results.

It’s also clear that opposition to such major changes will slow the process. Even if the topic is broached in November, Standard Chartered said not to expect radical reform anytime soon. Spotty experiments may multiply though a countrywide rollout is unlikely for some time.

Local officials and factory owners can take a deep breath for now. Villagers will have to wait a little bit longer before they can finally get a fair market rate for their land.