Potential Land Reform Will Increase Farmers’ Income

The author is head of Greater China research at Standard Chartered, Stephen Green

A potential breakthrough in land policy at the November Third Plenum has caused some excitement. Although officials at the Ministry of Land Resources have denied media reports that the ministry has issued the relevant policy documents to the localities, a breakthrough in rural land transfer rights could be in the works.

China’s land – while it is all state-owned – is classified into several categories. In rural China, land is held by the collective (village) on behalf of the state, and this land is divided into agricultural land and rural construction land (RCL).

Farmers build their houses on RCL, villages build communal storage facilities on it, and in the more developed parts of the countryside, village- and township-owned enterprises (TVEs) have also built factories on this land. Although many of these firms have closed down since their salad days in the 1980s.

Until now, no other use of RCL was legally possible without the local government requisitioning the land, compensating the village farmers, formally changing RCL into "urban construction land" (UCL), and then re-zoning it for residential, commercial or industrial use.

This process usually takes place under the aegis of each city’s plan. Farmers are usually compensated poorly – the maximum compensation is currently set at 30 times the annual crop income – and badly managed land requisition is the leading catalyst for protests and violence.

In one study by the Development and Research Centre of the State Council, 60% of the complaints taken to Beijing by people in the shangfang ("complain up") process involve land, and 85% of these involve problems with land requisition.

The expected reform would loosen these rules, allowing collectives (within certain strict parameters) to sell their RCL to others directly without going through the expropriation process. Rural agricultural land would not be involved, only RCL.

The advantage for Beijing is that this would hopefully reduce social tensions and add to farmer incomes.

(The article has been edited for clarity)