China’s land use policy under change

Liu Weixin and Yang Dongsong

- This article outlines the changes to China s land use policy and landown- ership system since the founding of the People’s Republic and the social- ist revolution; changes which have been reinforced and accelerated by the economic reforms started in 1978. In particular, it looks at the wide- spread use of the new contracted responsibility system and the benefits this has brought; the introduction of land use fees; and the development of a land use market. Future trends are also examined, such as the possibility of land leasing as a way of achieving better scale operation in the future.

The authors are Associate Fellows of the Institute of Finance and Trade Economics, Chinese Academy of Social Sciences, 2 Yuetan Beixiaojie St, Beijing, 100836, PR China.

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The establishment of the People’s Republic of China brought many fun- damental changes to the country, among which changes in landown- ership were of importance. Through land reform in the rural areas, land dominated by the feudal landlords was distributed among farmers, thus realizing the farmers’ dream of ‘land to the tillers’. By confiscation, redemp- tion and other policies, most of the land in the urban areas became nationalized.

With the development of the social- ist revolution and construction, Chi- na’s land has gradually fallen under public ownership. In the countryside, farmers organized themselves into producers’ cooperatives - later the people’s communes - and pooled their land and tilled together. In cities, almost all land became state owned. Therefore, until the start of the cur- rent economic reforms in 1978, it was the government (in the cities) and the collective organizations (in the coun- tryside) who decided the utilization of land; the land users hardly paid any- thing for their usage.

Changes since reform and openness The Chinese government began eco- nomic structuring in 1978. The most significant guideline of the present reform is ‘Enlivening the economy at home and being open to the outside world’. Great changes have taken place in China’s land policy as reform has strengthened over the past ten years or so.

First, the administrative system of people’s communes has been abo-

lished in the countryside and the contracted responsibility system is now broadly practised, ie rural land has been distributed among farmers according to their family size, and each family bears sole responsibility for tilling the land. This system has replaced the original system under which farmers worked together and drew their pay according to work- points made. There are at least three advantages of the new system, name- ly: (a) the separation of landown- ership and the right to use it makes the farmers independent, thus arousing enthusiasm, promoting farm produc- tion, and increasing incomes; (b) the principle of ‘more pay for more work’ can be realized; and (c) it may help to promote the transformation from a self-sufficient natural economy to a commodity economy.

Furthermore, the labour surplus freed from agriculture due to the improvement of farmers’ productivity has stimulated the development of small enterprises and tertiary industry in the rural areas. The past ten years have shown this sytem to be success- ful, and there is still more room for improvement. One of the problems, for example, is that with scattered, fragmentary, agricultural plots it is hard to achieve scale operation and increase agricultural infrastructure. To some extent, this restricts the increase of farm production, and grain production in particular. A survey of 28 000 farm households in 300 coun- ties in 1986 showed that 37% of households had less than 5 mu (0.8 acre) of contracted land. Due to the

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‘Prior to the introduction of the paid system (during reforms in the 1980s) government allocated urban land to users with no obligation for them to pay. Thus, urban land users would try to acquire more land, without trying to make best use of it - leading to waste of a valuable yet scarce resource. Since the introduction of the paid system, users have to pay for land they acquire, and this payment affects their business performance. Users are now cautious in making applications for land, and many businesses have voluntarily returned some of the land they had ac- quired previous to the new system. In addition. local government revenue is in- creased through the paid land use system, and thus public utility construction benefits.

restrictions of national economic de- velopment and lack of adjustment in state agricultural policy, some farmers neglect and even give up their cereal crops in order to seek more immediate benefits. As a result, there has been a drop in the country’s grain produc- tion. This is obviously an issue of vital importance to a country with such a large population.

Second, the pattern of free urban land use has been broken. (a) With the deepening of economic reform, the experiment of charging a land use fee was first carried out in special economic zones and, since 1984, this practice has been introduced to some other provinces and municipalities. So far land use fees have been charged in 118 cities in the country. (b) Since 1987, the sale and transfer of land use rights has started in some special economic zones or coastal open cities by negotiated contracts, public bid- ding and public auctions. This practice was later regulated by law. In the revised constitution passed at the First Session of the Seventh People’s Con- gress in 1987, Article 10 Section 4 - ‘No organization or individual may seize, buy, sell or lease land or make any other unlawful transfer of land’ - is rewritten as ‘No organization or individual may seize, buy, sell land or make any other unlawful transfer of land. The right to use of land may be transferred according to law.’ (c) In 1988 the State Council made public ‘Regulations on land use tax collection in cities and towns’. The regulation stipulates that, from November 1988, land use tax be collected in all cities and townships in China at different rates. The implementation of this reg- ulation marks the end of free land use in China.

Third, with the increase of transac- tions between land users, eg paid land transfers and land mortgages, a land market has gradually developed. There are currently three forms of paid land use in China’s cities and towns: payment in kind, payment in money, or land as shares. With pay- ment in kind, the state transfers land to development corporations and, in return, these corporations provide construction for urban infrastructure

according to the agreement. Guang- zhou is a case in point. With payment in money, eg in Shenzhen, Zhuhai, Shanghai, Fuzhou and Xiamen, the transfer of land use rights occurs through public bidding and auction which help realize state landownership in economic terms. With land as shares, the Chinese party provides land as shares while the overseas party provides share capital, eg in some joint ventures in Guangzhou.

Most economists in China hold that it is imperative to establish a paid land use system. For a country with a large population and inadequate land re- sources, such a system can help (to some extent) avoid land wastage, im- prove efficiency of land utilization, resolve the problem of land shortage for urban construction and recoup capital outlay in construction of infrastructure.’

Future trends Although China is a large country, the land resources per capita are not great. Before liberation China was predominantly an agricultural country and urban growth was slow. However, during the 40 years since 1949, espe- cially in the past decade or so, there has been a large increase in the number of cities and the expansion of urban areas. In 1947 there were only 69 cities in China; this increased to 223 in 1980 and jumped to 431 by the end of 1988 - 51.7% more than in 1980. The urban area of the 382 cities in 1987 was 967 400 km’, accounting for 10.07% of the total country, and the urban population reached some 260 million. The continuous expansion of the cities and the rapid increase of land used for other purposes has led to a rapid decrease in the area of culti- vated land in China. There was 1677 million mu of cultivated land in 1957. By 1986 this had been reduced by 611 million mu. Due to the reclamation of 377 million mu, the net loss of land in that period was 237 million mu. In addition, poor management, serious waste and a population boom (the averaged annual growth rate is 15 million) have made the problem of land shortage more serious with each passing day.

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*In most of the rural areas, land is allo- cated to farmers mainly on family size. Plots are further divided to ensure fair distribution of good quality land. To replace this present practice of allocating small, scattered plots to households according to their size, a leasing system may be prac- ticed. Land is leased by the Villager’s Committee to those who are willing and able to till the land better in order to realize scale operation and increase farm yield.

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The importance of land issues has received increasing attention in both academic and government circles. With the issue of the Land Adminis- tration Law of the People’s Republic of China in 1986, and the establish- ment of the State Land Administra- tion, the Chinese government has strengthened administration over land use and adopted a more unified land policy. With the deepening reform, land policy in China will be further amended in due course.

The practice of reform over the past ten years or so shows that the lagging reform of the land use system had hindered the establishment and de- velopment of China’s entire market system, and had also imposed restric- tions on the further improvement of farm productivity. Land use system reform in China should be accelerated in the next few years to meet the needs of ‘reform and openness’.

Leasing land In the rural areas, the achievement of scale operation by letting out land may be a better choice for the reform of land use systems. In recent years, opinions have differed as to how China’s rural land use system should be reformed. A number of scholars believe that rural land should be nationalized - a good path for scale operation, farm mechanization and improvement of land use efficiency. Some are for the privatization of rural land, so that farmers are self- supporting and self-managed. Others are in favour of leasing the rural collective land to the farmers. in the belief that leasing is more suitable to China’s specific conditions because it will not only consolidate the collective economy (to strengthen farmers’ col- lective spirit through leasing land), but also help to consolidate the scattered land and facilitate scale operations.

Although the nationalization of land is theoretically tenable, it would be difficult to implement, due to the strong attachment of Chinese farmers to the land and the lack of alternatives for subsequent surplus labour.

Plans to privatize land do not fit in with China’s specific conditions of high population density. The culti-

vated land per capita in two-thirds of China’s provinces is less than 1 mu at present. If the contracted land were given to the farmers it would not overcome the drawbacks of the pre- sent contract system, and it might cause a turning back to the small-scale farming of the early post-liberation days; thus farm mechanization might never be realized in China.

On the premise of maintaining the collective ownership of rural land, land leased to farmers by the econo- mic organizations representing the collective may, on one hand, streng- then and consolidate the weakened collective economy and enhance far- mers’ collective spirit; and on the other, muster more land in the hands of farming experts to achieve proper scale operation and raise productivity.’ This seems practicable and acceptable to the farmers. Scale operation of farming began in 1986 in Shunyi County in the suburbs of Beijing with notable results. The output of grain in 1987 was 12% higher than in 1986, and 5.6% higher in 1988 than in 1987. In popularizing scale operation in four counties of Anyang City, Henan Pro- vince, over 200 farm households tilled land of over 50 mu. It seems that scale operation on the land leased by rural collective economic organizations may be a better choice in the reform of China’s rural land use system.

The land market Not only is the ownership of urban land different from that of rural land, but the ways of use and operation are also different. Thus, the policies for and orientations of land reform should also be different.

The major trends of urban land use system reform are as follows. First, in the transition from free use to paid use of urban land, ‘separation of two rights’ (ie the separation of the right to own from the right to use) should be implemented gradually. At present in China, most state enterprises have separated ownership from the right of business operation, and have become independent commodity producers and operators, with sole responsibility for benefits and losses. Land is one of the three major factors in production.

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Therefore the development of a com- modity economy would be hindered without the separation of land- ownership from the right to use it.

Second, once the ‘separation of two rights’ is achieved, there should be a shift from the method of planned allocation to the economic method of land use management, and, gradually, the right to use land could be traded as a commodity. China’s economic sys- tem currently combines planned and market economies. Under such a sys- tem, land capital still bears the prop- erties of a commodity; rent and the price of land are levers to realize and adjust various economic relationships. Therefore, it is necessary to use these levers to adjust the trends in land use in order to make it fit with the aims of the overall urban plan.

second-class market - land transfer and trade between users - seems rare in public, but underground illegal trade (mainly barter deals of land for houses or other materials) actually exists in a number of cities. It is expected that this kind of under- ground transactions will become open when the land use tax is levied in cities and towns. Local government also wishes to open the second-class mar- ket and make these transactions open in order to increase its local revenue from precious land resources.

Conclusion

Third, the establishment and de- velopment of a land market is an important component of urban land use system reform. For various reasons, the transfer of land use rights - taken as the sale of state land - was banned for a long time. The current economic reform and changes in land use policy have made it possible to separate landownership from the right to use. With a better understanding of economic laws and the strengthening of urban land management by econo- mic means, market mechanisms have been introduced in land use in China’s coastal cities in recent years, hence the beginnings of a land market have emerged. The right to use of state land was transferred by the government in cities like Shenzhen, Guangzhou, Shanghai, Fuzhou and Xiamen. This is known as the first-class land market monooolized bv the government. The , a~ ~~ ~~ further changes during the reform.

The founding of the People’s Repub- lic, and the socialist revolution and construction in the 40 years thereafter, have brought fundamental changes to China’s land policy, and a landown- ership system (with public ownership as the mainstay) has been gradually established. The economic reform started in 1978 has further accelerated the adjustment of land policy. On the basis of continuous improvement of the established contract and responsi- bility system, more measures should be taken to consolidate collective ownership and promote farm produc- tion. In the urban areas, on the basis of widespread implementation of paid land use, more stress should be placed upon establishing and developing the land market, and upon optimizing land use for greater and better com- prehensive economic results. Reform of the land use system is very complex for numerous historical reasons, and more desirable and practical policies will only be possible through repeated experimentation; thus there will be

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