Why Land Reform Efforts Remain on the Back Burner in China

09.19.2013 17:17

Why Land Reform Efforts Remain on the Back Burner

Despite recent optimism a breakthrough had been made on rural land, disagreements among policymakers continue to stall progress

By staff reporter Wang Su

(Beijing) – Lawmakers are deliberating reforms that could revolutionize China’s land system. On September 2, a news report regarding reforms to the land system sent waves through the nation. The report said that the government would allow the trading of rural cooperative land designated for construction purposes. Officials are planning to set up pilot areas in 18 provinces and municipalities and 28 lower-tier administrative regions in which citizens will be allowed to buy and sell property rights of collective construction land on open markets. The day after the news broke, stock markets reacted. Over ten stocks related to land concept hit upper trading limits that day. A Shenyin and Wanguo Securities report indicated that land prices will be reappraised across the nation following this major development in land reforms.It’s easy to understand the market’s enthusiasm. Once the sale and purchase of collective land is allowed on free markets, it will no longer be necessary to go through the government to obtain rights to such land. Once the government’s monopoly is broken, the book on land evaluation will be rewritten.

However, two days later, the Ministry of Land Resources (MLR) denied the report, saying that policies are still being revised. An MLR insider said that heated debate regarding the reforms is ongoing within the ministry, that no such document had been approved, and that the draft being revised will likely disappoint many expecting drastic reforms.

Reforms to rural collective construction land trading rights, in the works for over ten years, remain at an impasse.

A Slow Pace

According to the constitution, all land in the nation is classified as either urban or rural. All urban land belongs to the state, and all rural land belongs to collectives.

Rural land is further subdivided into three classes: agricultural use, construction use or other. It is not a simple process to change the official classification of a parcel of land. Neither collective organizations nor individuals have the right to buy or sell collective land without government authorization. Only once agricultural land is appropriated by the state to be used for new construction may it be sold. Once sold, its official zoning may be changed.

Rural construction land has long been under-appraised as a result of this system. The high profits earned by local governments in sales of land have given rise to a development model of government revenue based on fees from land sales.

The move to eradicate the difference between urban and rural construction-use land and to allow rural collective land to be directly sold on markets is being hailed as a shot in the arm for sustainable development. If the reform is approved, rural residents would be able to directly profit from the sale of their land. More important, the chain of scandals regarding forced demolitions might finally come to an end.

At the third plenary session of the Communist Party’s 17th Central Committee in 2008, it was established that no longer would the government requisition land “for purposes other than public welfare projects within the scope of urban planning zones.” At that same time, officials agreed on a direction of reform of “gradually building a unified urban-rural construction-use land market.” MLR officials have revised their plans several times over the course of a decade.

However, such marketization schemes as allowing the direct sale and leasing of collective construction land have ceased to be mentioned within the MLR as they conflict with existing laws. The new plan raised in August would only allow for “the trading of collective construction land for such business purposes as buying and selling shares, entering joint ventures, corporate acquisitions, bankruptcies, etc.” The scale of pilot areas will be outside the parameters established by urban planning zones.

Many experts think that the pilot program is nothing more than a refinement on the Land Administration Law.

When that law was revised for the second time in 1998, officials within the MLR and other departments considered whether to include an allowance for trading of collective construction land in the revisions, but in the end it was decided to first “experiment with pilot areas.”

Following the fourth round of revisions to the Land Administration Law in 2008, trading property rights of collective construction-use land remains illegal. Existing laws make it difficult for officials to formulate nationwide procedures for the trading of collective land.

All nations with market economies have allowed free trading of land rights, given stringent planning and usage conditions. In China, stagnancy at the policy level has not prevented private citizens from surreptitiously transferring land. In some rural towns and villages, citizens have used collective land to expand urban centers. Across the country, countless small private buildings have sprouted like weeds from collective land. If such actions are not soon legalized, there could eventually be an outbreak of clashes between citizens and the government.

Locked Down Land

Rural collective construction land remains the most sensitive area of the country’s land reforms.

There are about 18 million hectares of rural collective construction land in the country, about 2.5 times more than urban construction land. Rural collective construction-use land is mostly used for homesteading, public facilities and manufacturing. If the land is to be used for non-agricultural purposes other than the establishment of a town and village enterprise (TVE), the land must first be appropriated by the government.

Allowing collective construction land to be sold on open markets would mean a necessary limiting of the government’s authority to requisition land.

In 2012, the central government signed off on appropriations of over 600,000 hectares of construction land. Expert calculations show that if urbanization continues, each 1 percent urbanization will need nearly 670,000 hectares of new construction land. If officials continue to requisition land at the current pace, the costs to the economy and especially to society will be immense.

The vice director of the State Council Development Institute’s Center for Rural Economies, Liu Shouying, said the current land system – the government requisitions land then monopolistically sells on primary markets – is the largest institutional reason behind the country’s low-cost urbanization.

The cost of government appropriating is increasing. “The costs of land appropriations and forced relocation of occupants from 2008 to 2011 have exceeded half of the income earned (by the government) from land transfers,” said Liu.

As the value of land has risen and rural citizens have become more aware of their rights, the land commandeering situation has come to a boil. In 2011, about half of all “mass incidents” in the country were set off by land requisitioning and forced relocations. Of those, 84.7 percent were caused by disputes regarding compensation for forced relocation. There are approximately 4 million disputes stemming from land appropriation and forced relocation every year.

At the same time, land use efficiency is extremely low. Large swaths of collective land are requisitioned at non-market prices and then the rights thereto sold or directly reassigned at non-market prices. It is difficult to revitalize parcels of collective construction land when empty residences or the shells of defunct TVEs sit on them. Even worse, most buildings erected on collective land and sold illegally were of poor quality to begin with.

From 2000 to 2010, the built-up urban area increased 64.45 percent, much faster than the 45.9 percent growth rate of the urban population. Even more strangely, though the rural population has decreased by 137 million over the same period, the total area of land zoned for rural construction has grown.

Many academics have noted that the goal of the new urbanization strategy – called “urbanization of the people” – is to protect rural citizens’ rights and both reduce and clarify the scope of land that may be appropriated for “public welfare” projects. The strategy also allows for rural citizens to participate in the process of urbanization as land-owners and for markets to harmonize the allocation of resources.

Some local governments are proactively enacting reforms to revitalize land resources, and officials in the southern province of Guangdong are the forerunners. However, a lack of laws and corresponding reform direction have led to many bottlenecks in pilot areas.

Complications of Pilot Programs

As early as the 1990s, when urbanization was ramping up and institutions governing TVEs were being reformed, citizens independently trading rights to collective land already began facing legal woes.

In 1998, reforms to the land system became a hot button topic. At the time, some policymakers intended to reform land appropriation protocols and allow citizens to trade rights to collective construction land within the fourth round of revisions to the Land Administration Law.

Such reforms would have been revolutionary, but in the end they never got off the table, primarily because more policymakers feared that would induce chaos.

MLR data indicates that over the past ten-plus years, 22 provincial governments have explored potential methods for private trading of rural collective construction land. Of those, Guangdong and Anhui Province, in the east, made the greatest strides.

However, there is a barrier that cannot be crossed in all pilot areas: privately traded collective land cannot be sold to developers to build commercial real estate. Some local governments were extremely cautious in their explorations. They were very cautious in the area of homesteading-zoned collective land, which at present is protected by both existing laws and prevailing attitudes from the central government.

In an official summary, MLR officials posited that the progress of work toward allowing free trading of land rights had been less than ideal. Analysts have placed the blame for that on lack of effective legal protection for land ownership rights of individual citizens, which makes it difficult to use land as leverage for other resources.

Some companies, especially large corporations, are not willing to deal in collective construction land. It is not certain that these lands would be freely tradable in the market later, and officials are slowly shrinking the scale of some early pilot areas. Those companies that undertook the procedures for trading in collective construction land in the early years later petitioned that the land be nationalized to facilitate financing.

Zhang Xiaoling, director of the Land Zoning Center of the China Land Surveying and Planning Institute, said the lion’s share of profits from sales of collective construction land have gone to governmental organizations and village committees, owing to a lack of checks on their authority. Gains made by rural citizens themselves have been minimal.

The collective construction land controversy has raged for over 10 years now with no clear outcome. Beginning with the second round of revisions to the Land Administration Law in 1998 and continuing through the fourth round in 2008, nothing has been solidified within the law, even though there have been wide calls for the government to allow trading of rights to collective construction land and legislators have repeatedly deliberated on the matter.

In recent years, the MLR has begun cracking down on illegal trading of rights to collective land. The MLR’s bureau in Beijing has prosecuted over 80 cases involving petty real estate projects in 2012 and 2013.

Minor and Major Revisions

The slow progress of reforms can be attributed to political deadlocks on two old problems, namely how to reform land appropriation institutions and how much freedom citizens should be granted in the trading of collective land. Some policymakers are doubtful that reforms will yield any positive results at all.

One group of policymakers fears what they call chaos. They are concerned that current laws will be unable to control speculation if land-trading rights were set free and that rural collectives will be expanded to include arable land, which will then be sold on free markets.

Chen Xiwen, vice director and office manager of the party’s Rural Work Leading Group, published an article in April saying that the connotation of laws regarding rural collective construction land was “those who own it must use it themselves.” If this principle is abandoned in rural construction, there will be an unmitigated disaster within the administration of land across the nation. If trading of land resources is allowed but rural citizens remain permitted to erect buildings for private use on their land, then the candle will be burning at both ends.

“One day you receive the permission to build residences on your land and on the other you’re trading your land away,” Chen said. “How can we keep a lid on that? Won’t they cover the land with buildings?”

Another group of policymakers is concerned that rural homesteading land is often the only property of value owned by many peasants. If big capital and city residents buy them out, there may eventually be a mass of destitute, homeless peasants roaming the country fomenting social unrest.

Yet another group is concerned that reducing the scale of allowable government land requisitioning will slow the pace of urbanization. Chen, former MLR vice minister Li Yuan and other officials have publicly said the country is undergoing a process of rapid urbanization and industrialization, and that the primary use of construction land should remain the commercial development of large swaths of land. Only by requisitioning rural land can officials achieve comprehensive planning and determine pricing for whole blocks of land.

“Let’s say we stop appropriating land,” Chen said. “Rural citizens will be willing to build residential buildings and sell them, but unwilling to sell land for building highways. If that happened, we wouldn’t be able to continue expanding urban areas.”

There are two potential paths forward for land reforms. Proponents of the first think that current institutions are mostly reasonable, but a major problem lies in the low compensation rates for appropriated land, which may be remedied by simply increasing payment standards.

Proponents of the second think that local governments’ authority to appropriate land must be diminished. This group can be further subdivided into those who support “minor reforms” and those who support “major reforms.” The former believe that progress should be made slowly and cautiously, and that reforms take into consideration the pace of urbanization. They are in favor of beginning reforms at the level of urban planning zones. The latter think that land appropriation institutions should be completely and immediately overhauled, that rural citizens should be granted full rights to their own land, and that the government’s land monopoly on primary markets should be broken. Most officials are in favor of incremental progress.

The MLR was initially planning “major revisions” to the Land Administration Law. The draft it submitted for approval in 2009 indicated no need for government land appropriations outside of urban planning zones and that trading of collective construction land would be allowed for “non public welfare” projects. The draft reached the Legislative Affairs Office (LAO) of the State Council in 2010. It has since been reported that the LAO found the MLR’s proposals too aggressive and watered them down in favor of a more incremental approach.

There are still major divergences of opinion regarding land issues. As a result, the original proposal was cut down to only “minor revisions” by the time it was officially issued as a law in 2011, addressing only the most urgent issue of compensations for appropriated land.

Comprehensive reforms to the land system have since been placed on the back burner for further research. At present, the trading of collective construction land within urban planning zones is not even on the agenda of policymakers.

It has also been reported that officials within the MLR have raised some suggestions regarding the change of zoning for homesteading land, but are not in favor of trading usufruct privileges outside of village collectives in which the land is held. In other words, they are still not in support of “city folk” buying up the countryside.