China’s elusive land reform

December 29, 2008

It is ironic that 30 years after they gave birth to the reforms that transformed China into an economic powerhouse, the country’s vast hinterlands are still dogged by poverty.

The breathtaking growth of the economy since the pro-market reforms launched by Deng Xiaoping has led to an extraordinary increase in real living standards and an unprecedented decline in poverty. According to World Bank estimates, more than 60 percent of the population lived under the $1 per day poverty line at the beginning of economic reform. This had fallen to 10 percent by 2004, so – on this narrow measure at least – about 500 million people were lifted out of poverty in a single generation.

“Only development makes hard sense,” said President Hu Jintao in a December 18 speech to mark the anniversary of reform, reviving a slogan that Deng used to spur on investment and spending. 

And yet vast swathes of China’s countryside were bypassed by the economic boom that transformed its cities and eastern seaboard. Agriculture now accounts for only about one-tenth of China’s GDP even though it supports more than half the population.

Much of the rural poverty problem in China can be traced to the inadequacy of the land reform introduced after 1978 and the fact that, even today, rural land is still legally under “collective” ownership. 

Although collectivised farming was replaced by a system that assigned 30-year, non-transferable land-use contracts to households, peasants were not given marketable ownership rights to the land they farmed or the freedom to use it as security on which to borrow and invest. Worse, land was not necessarily allocated to the most efficient farmers and the vast majority worked on so-called “noodle strip” patches that were too small for economies of scale. One of the biggest failings of the de-collectivised system, however, was that it did not shield farmers from the threat of expropriation by officialdom, a major disincentive to investment.

This led to local governments exploiting the countryside as a source of money and power, with the weak legal foothold that farmers had on their land only making life easier for unscrupulous and corrupt officials. According to the International Food Policy Research Institute’s Xiaobo Zhang in a speech “land is being grabbed at a fraction of its market value for supposed public purposes, and then being provided to private investors to promote local economic growth”.

The rights and legal weakness problems associated with rural land have persisted until today, in large part because of ideological taboos in Beijing.

Conservatives have clung to the view that the state should retain control of arable land, allocating it for the greater egalitarian good. Reformers, on the other hand, have been too weak to challenge a central tenet on which the legitimacy of the Communist Party was founded.

Dodging the central issue and tinkering at the edges, the government has sought for years to address rural poverty through, as the Wall Street Journal puts it, “agricultural subsidies, tax cuts for farmers and massive rural infrastructure spending”.

China’s foot-dragging meant that it eventually fell a step behind fellow Communist Vietnam, which introduced a legal market in land-use rights in 1993. Vietnam’s experience, according to a paper in the IMF’s Finance and Development magazine, achieved a more equitable outcome than one might have expected from free market allocation: while there were both winners and losers, the gains in fact tended to favour the poor and those who initially had too little land.

When China’s Communist Party agreed to new rural land policies this October, it looked for a moment as though radical change was on its way at last. The new plan means farmland can be leased over an unspecified “long term” rather than 30 years, and farmers will be allowed to “sub-contract, lease, exchange or swap” their land-use rights.

Local media reports said the government had laid the ground for the creation of larger and more efficient farms, some cited estimates that the move would double  disposable incomes in the countryside to more than $1,200 per person a year by 2020, and others suggested that it would give farmers better protection against official land-grabs.

Independent commentators, however, have brushed off the initiative as a pragmatic response to deal with wider social and economic problems rather than an ideological shift within the ruling party.

First, the Party faced the prospect of mounting unrest among its vast rural population. In the past two years there has been a rash of protests over land seizures for mining and other industrial uses, and growing resentment at the widening wealth gap between cities and the countryside.

Second, the government has been faced with a sharp slowdown in its export-driven economy due to recession in the OECD world. The economy slipped into single-digit growth in the third quarter of 2008, just above the level of 8 percent many analysts say is the minimum required to soak up the millions of people entering the labour market every year.

According to some reports, the new rural land-use plan will unleash some $500 billion in land assets. This would fill the pockets of disgruntled peasants, perhaps cooling unrest, and it could help offset the economic impact of an export slowdown by giving a shot in the arm to domestic demand.

But there may actually be much less to the latest reforms than official reports pretend. The geopolitical intelligence group Stratfor concludes that they “might turn out to be a symbolic gesture, used to appease the masses while … (China is) compelled to focus on growth”.

Indeed, it would appear that the new land-licence regulations merely codify what is already happening in practice. As Yu Jianrong, a leading researcher on social conflict in Beijing, told the Southern Metropolis Weekly: “there’s actually little new here”.

Without bolder moves towards full-fledged private ownership of land, China’s farmers will always be peasants. But China’s leaders always play a very long game. The Economist notes that even the epochal reforms of 30 years ago tended to come in baby steps rather than great leaps, and often were
formulated retrospectively. 

“In tiptoeing gingerly around one of the last Maoist shibboleths – collective landownership – the Party may yet be sowing the seeds of the rural transformation it promises.”

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“Much of the rural poverty problem in China can be traced to the inadequacy of the land reform introduced after 1978 and the fact that, even today, rural land is still legally under “collective” ownership.”

This is a gross misrepresentation of what is actually happening on the ground. Superimposing a normative framework to China’s rural development, and promoting land reforms on a continuum towards privatization undermines the complexity of of local interests that can and have influenced the policy formation and implementation of China’s policies. Privatization of land (aka strengthened land rights) would not increase productivity, but would disproportionately benefit agribusiness and farm employers while undermining the economic and social position of China’s farmers and increasing environmental degradation.
Privatization would have the following consequences:
1. it would increase farmers vulnerability to market volatility, manipulation, natural disasters, and land grabs– while they are currently vulnerable to corrupt local officials, with private land rights they would be vulnerable not only to market volatility, but they would have to individually negotiate with even more powerful actors like transnational corporations who would have deeper access to market penetration.
2. it would pit farmers against one another in a rush to extract once-communal resources before someone else does (as was evident in the early years of decollectivization
3. within the context of retracting state welfare benefits and infrastructure support for rural villages it would pressure farmers to employ intensive land-use practices to increase short-term yields at the cost of long-term sustainability, or empower land development for private profit (particularly by elite interests), thereby amplifying food insecurity, land scarcity, and rural unrest.

On the other hand, the collective model:
1. provides a minimum security while buffering farmers from the volatility of the marketplace and perils of life as a migrant landless laborer
2. creates a community of stakeholders to collectively protect their land and resist unjust land seizures
3. promotes a shared responsibility among villages to implement practices that preserve the land’s long-term productivity and sustainability

In order for a policy to be successful, it needs to integrate an understanding of the incentives that drive local actors choices to create appropriate alternatives and opportunities, and the collective model enables rural farmers to voice their interest louder, together. Privatization of land would put China one step closer to resembling the western economic hegemony that is already undermining the economic and social position of the 99% in the U.S where 95% of income gains since 2009 have gone to the top 1%.

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