Opinion & Commentary
Land reforms fall short for China farmers
With America and Europe facing the likely prospect of deep recession, Asia is looking to China’s potentially huge consumer market as its savior. This is why many are applauding Beijing’s proposed rural land reforms as an important initiative to restructure Chinese economic growth. Consumption as a proportion of GDP was over 50% in the early 1990s but has now fallen to around 30%. Over this same period, the net household incomes of around 400 million Chinese – predominantly in rural areas – have declined even as the Chinese economy has more than doubled in size. There are still around 800 million people living on US$2 a day or less. Raising the income of China’s poor is the key to raising consumption.
In principle, Beijing’s proposed rural land reforms look promising. The goal is to double rural incomes by 2020. Many China watchers believe these reforms will herald in better times ahead for China’s 800 million farmers. But in practice, there is the real possibility that these reforms could actually worsen the plight of many of China’s peasants and entrench the ill-gotten gains of many of China’s corrupt local officials.
Mao’s disastrous collectivist system is a thing of the past but farmers today are still not granted actual ownership of the land. Instead, they are offered 30 year leases and are allowed to keep the profits arising from use of the land. The new reforms will allow farmers to "subcontract, lease, exchange or swap their land-use rights." The state still ultimately owns the land but farmers will be given control over how it is used. The right to use the land becomes an asset. Land leases can also be consolidated offering the possibility of creating larger and more efficient farms. Finally, the government will lower barriers against the creation of rural financial institutions, and push state-owned-banks to lend to rural businesses. These reforms are welcome because they are designed to create a more vibrant rural economy that has so far been stymied in favour of developing urban China.
The key to these reforms is to build a rural economy on the back of offering peasants a very real and valuable asset that they can use, offer as collateral or sell. However, the reforms assume that peasants are currently sitting on their leases just waiting for an opportunity to realise the value in them. But the situation in rural China is much more complicated and dysfunctional.
Vast areas in rural China suffer from widespread lawlessness where the ‘rule of local officials’ rather than the ‘rule of law’ prevails – something central authorities in Beijing are keen to address. The acquisition of land by corrupt local officials – especially the best placed plots – accompanied by inadequate compensation for the peasants who are dispossessed is a common practice. Even where adequate compensation is offered, local officials have long acquiring farm use leases from peasants only to change the status of the land into one used for commercial purposes. By effective fiat, the leases under the control of local officials immediately become more valuable. Chinese Academy of Social Sciences (CASS) researchers believe that from a third to a half of the 87,000 instances of mass unrest in 2005 were triggered by anger over land seizures or the lack of adequate compensation.
The average plot of farm land in China is also small – around 0.6 of a hectare compared to about 170 hectares in countries such as the US and Australia. Unable to achieve sufficient scale to make ends meet, many peasants have either abandoned their land in search for jobs elsewhere or else have informally passed it to their relatives to tend. In turn, these de facto lease transfers have been targeted by local officials who move to informally acquire the leases.
Unsurprisingly, local officials are usually the most powerful ‘landlords’ in rural China. Without painstakingly revisiting past decisions by officials to appropriate land – something which simply will not happen - new reforms to transform leases into tradable assets will allow many local officials to formally entrench and realise their illegal gains.
Social safety nets in rural China – health, education, pensions – have also collapsed. For example, one CASS study suggests that three in four rural Chinese cannot afford basic healthcare. The concern is that peasants will sell their lease for an inadequate price out of sheer desperation for immediate financial relief. The whole strategy to offer peasants a real asset to better build a life will be undermined. Instead, those best able to immediately buy up leases – most likely local officials and those well connected to them – will be the greater beneficiaries.
Land reform in rural China and the establishment of property rights are desperately needed. But it has to occur alongside the development of civil society meaning the improvement of safety nets and the building of institutions such as ‘rule of law’ and accountability of officialdom. Without these, reforms designed to alleviate the suffering of China’s peasants will instead strengthen the position of local officials and preserve their ill-gotten privileges.
Dr John Lee is a Visiting Fellow at the Centre for Independent Studies, his report ‘China’s Insecurity and Search for Power’, was released by CIS on Thursday.
