China's Retrograde Rural Land Policies

William Sandlund is an intern for Asia Studies at the Council on Foreign Relations.

Land is cited by the Chinese government as the greatest source of “mass social conflict” in China today.[1] Nonetheless, instances of rural unrest over land are quickly forgotten. People rarely mention that in 2004 paramilitary troops put down an uprising of 100,000 farmers in Sichuan. Or that, in the mid-2000s, government expropriations of rural land were described by one academic as resembling “low-intensity war.”[2] Or that in 2011, a series of peasant uprisings in Wukan, Guangdong, convulsed the country’s top leadership.

Indeed, rural land reform is one of those problems that will not go away. China’s peasants have long suffered from frequent land expropriation and stifling bureaucratic restrictions on rural development. The central government first started to take notice of these structural factors driving rural poverty when Li Changping, an obscure village party secretary, wrote an open letter in 2000 to then-premier Zhu Rongji complaining of exorbitant peasant taxation funding the extravagant lifestyles of local party officials.

Perhaps because of the Chinese Communist Party’s (CCP) acute awareness of the role rural misgovernment played in their own rise to power, officials in Beijing took notice. This letter gave rise to powerful rhetoric around tackling the “three rural problems” of agriculture, rural governance, and farmers. For the past seventeen years, the government’s first annual policy proposal, “Document No. 1,” has been about rural policy. Yet this number is also telling — for seventeen years the government has failed to solve issues of rural land reform.

This is not to detract from improvements to peasant welfare over the last twenty years. Average rents for grain fields have quadrupled in the last decade, compensation for expropriated land is now linked to property values after years of being tied to crop yields, and the government is seemingly committed to eradicating rural poverty. Yet in the 1980s China’s peasants were beneficiaries of the government’s early economic reforms, driving that decade’s remarkable economic growth. Understanding how this massive section of the country shifted from leading economic growth to being a victim of growth is a lesson in how limited property rights hinder long-term prosperity.

The fundamental problem stems from an inherently ambiguous land ownership structure. China’s land management system utilizes two different legal regimes for urban and rural land. Land in cities is directly owned by the state; businesses and individuals can lease this land from the government on long-term contracts that will automatically renew, essentially granting them private property rights. Rural land, on the other hand, is ostensibly owned by collectives—entities set up in the 1950s during the Great Leap Forward that still exist on the village level. While the collectives’ apparent legal autonomy from the Chinese state might appear to be good for peasants, in reality during the 1990s, administrative and fiscal overhauls effectively shifted decision-making power from village collectives (administered by locally elected villagers) to the townships above them (administered by CCP-appointed officials).[3] In 1999 Sheng Li, a senior official in the Bureau of Law and Policy System Reform of the Ministry of Agriculture, ominously noted, “It is like the ownership rights to land have been silently stolen from the natural village and vested in a level higher.”

In fact, the collective ownership structure, combined with regulations that require rural land be primarily used for agriculture, mean that when cities expand into rural areas, the government must expropriate villager-owned land in order to legally develop it. In addition to corruption, this has resulted in a historically unprecedented transfer of wealth from peasants to local governments and land developers. China’s highly centralized tax system, reformed in 1994, exacerbates government expropriations because it severely restricts sources of local government revenue — land expropriation is a significant source of revenue for municipal governments. In 2018 alone, land sales accounted for 40 percent of local government revenue.

The government has tried various solutions to address the social tensions created by its land regime, primarily in the form of pilot zones and changes to laws. Between 2010 and 2014, a series of cities attempted pilot projects to more clearly define the constitutional limits of land expropriation.[4] Yet China’s courts cannot invoke the constitution in rulings, so such a change will offer limited legal protection to peasants.[5] Another set of pilot zones grants access to a land bank that facilitates transferring and financing rural land. But an Economist article from August 2018 notes the sad reality that such initiatives have not changed much—as one farmer noted “the truth is, we’ve always been able to find people to rent to on our own. Less paperwork, no one interfered and the result was the same.”

Another attempt at reform was made in 2002 with the passage of the Rural Contract Law (revised in 2018) which allowed rural land owners to transfer and sell their land rights.[6] In theory, this system allows the market to facilitate transfer of property to bidders ready to invest capital in the rural economy. However, as of 2019 only about 37% of land has been transferred. The likely reason? Continuing restrictions on what rural land can be used for severely reduce incentives to invest in rural land. While the Land Management Law was recently altered to allow peasants limited ability to develop collectively-owned land, rural land continues to be an unappealing investment because any construction will require approval from at least two thirds of the collective.

The Chinese government has tried everything to fix its rural land policy. Everything, of course, except the simplest and most obvious policy to ensure China’s rural folk get their fair share—granting individuals, or even collectives, full rights over their land. This choice is unthinkable because such a decision devolves central control over  a fundamental “means of production.”

2020 started no differently. This year’s “Document No. 1” promises to eradicate rural poverty and create a moderately prosperous society by the end of the year—a simple task in China’s “New Era.” Section four also highlights strengthening grassroots rural governance. What this means, however, is not strengthening the right of farmers to determine their own forms of governance but rather strengthening the role of the party in rural governance. The document exhorts villagers to “Listen to the Party's Words, Feel the Party's Grace, and Follow the Party.”

In response to the economic fallout of COVID-19, the government included rural land in its April announcement of sweeping market reforms. In my next article, I will discuss why a more fundamental reform of China’s rural land system—alluded to in the announcement—is unlikely to transpire.  It does, however, hint at divisions within the party on the best way to manage China’s rural population.