Could China’s Farmers Become Landowners?

Could China’s Farmers Become Landowners?

Land Reform Is on Agenda at Communist Party Meeting

RICHARD SILK

Nov. 8, 2013 4:52 a.m. ET

BEIJING— Wang Xunmei is proud of his small farm just outside Beijing, where he raises 145 sheep and two dozen wild boar and grows strawberries and rice in hothouses through the freezing north China winter. The business is doing well but Mr. Wang faces a problem common to farmers across the country: he doesn’t own the land—and that’s reducing his incentive to build the business.Chinese farmers since the 1980s have been allowed to farm on individual plots of land under 30-year leases. That ended a disastrous program under Mao Zedong in which villagers farmed collectively, reducing the incentive to work.

But the state still owns the land, giving huge powers to local officials who parcel out plots or can decide when to cut deals with real-estate developers. Land grabs of rural land by local governments spark regular protests. Farmers say they lack incentives to invest and build larger holdings. Others who want to move to the city can’t sell their land.

Mr. Wang, who is 46 years old, complains he can’t get a bank loan to expand his business because he doesn’t own the land. “We’ve got ideas, we’ve got plans, but without capital it’s hard to do anything,” he said.

With the blessing of top leaders in Beijing, some regions have begun to tinker with the system in recent years. Authorities in Guangdong, a southern province, have allowed farmers to mortgage their land to raise capital. In the western city of Chongqing, farmers have gotten welfare packages in exchange for their land.

These experiments have raised expectations of broader overhauls. Land reform is expected to form a core part of debates at a crucial meeting of the Communist Party’s Central Committee, which starts Saturday.

Chinese President Xi Jinping has touted the Central Committee meeting—known as the Third Plenum—as a launchpad for economic reforms.

For decades, China’s growth model has relied on exports and on state-led investment in industry and infrastructure. But overall growth is slowing, and the government is looking now to improve productivity and turn more to a consumer-driven economy.

The plenum is expected to discuss measures such as liberalizing China’s financial system to allow more efficient allocation of capital and restructuring inefficient state-owned industries.

For economic restructuring to succeed, experts say rural land reform must play a significant role.

The failure of China to allow a rural property market, as it has done in the cities, is holding back efforts to develop a consumer economy.

About half of China’s 1.3 billion population are currently urban dwellers, who typically spend more and save less than those in rural areas. The government aims to expand the urban population by hundreds of millions of people over the next decade.

Those who live in the countryside are deterred from making the move by an array of difficulties. Urban household registration, which bestows the right to a number of welfare benefits, is hard to obtain.

The inability to sell rural land, which is needed to finance the purchase of city property, is another major deterrent.

“If you reform this system, the farmers, who now have no capital, would have capital,” said Ye Jianping, a professor at Beijing’s Renmin University. “If they had capital they would be able to borrow from banks, move to the cities, they would be able to develop their lives.”

While a sudden breakthrough in land policy is unlikely, some changes could be on the way, according to Meina Cai, an expert on China’s land policy at the University of Connecticut. The government may raise the minimum compensation paid to farmers when their land is expropriated, and it could move to allow them to sell the land their houses stand on—though not agricultural land—directly to developers, Ms. Cai believes.

On a visit this week to Heilongjiang, a northeastern province where the local government has been encouraging consolidation of land into larger farms, China’s Premier, Li Keqiang, talked up the government’s support for change.

“Reform must respect creative initiatives from the grass-roots, because you are the ones who know the land best,” Mr. Li told farmers there, according to China Daily, a state-owned newspaper. “We support exploring attempts—made to fit local conditions—to hew out a feasible path toward modern agriculture.”

Agricultural reforms were the spearhead of China’s economic modernization drive three decades ago. Beginning in the late 1970s, the government backed off the collectivized farming that farmers disliked, allowing land to be farmed by households and letting them keep most of what they produced. Yields rocketed, with grain production rising to 446 million tons in 1990, from 305 million in 1978. Since then, production has continued to increase, albeit more slowly, reaching 590 million tons by 2012.

Yet the reforms stalled. Beijing has wanted to keep ownership in the hands of village collectives to prevent a quick selloff of farmland that would leave farmers penniless and unemployed in cities. Local governments also rely on rezoning rural land, and selling it to property developers, to finance their operations. And that transfer provides opportunities for corruption.

“The logical reform would be to unify the segmented land tenure system, unify the urban and rural land markets,” said Ms. Cai. “But it’s unlikely to occur. The largest beneficiary of this system is the local governments, the state.”

There are other obstacles to reform, including the fiendish complexity of establishing a thorough registry of landholdings, a necessary piece of groundwork if formal ownership is to be transferred to farmers in an orderly way.

Still, observers say the experiments happening across the country are likely portents of more to come.

“In China, before the law changes there are always going to be a lot of local experiments,” said Mr. Ye, the Beijing academic. “It’s only after those experiments have been carried out that we’ll see changes.”