Public institutions Institutions

Posted June 1997

Options for Further Reform in China's Farmland System

from "Report of a pilot study on poverty, land abandonment and rural institutions", produced by the Department of International Cooperation, Ministry of Agriculture, People's Republic of China, in collaboration with the FAO Rural Development Division

THE FUNDAMENTAL ISSUE in the setup of China's existing rural farmland system centres on ambiguity in the definition of land ownership rights. Despite stipulations in the Constitution and Land Management Law, specifying that rural land is owned by the collective, it is nevertheless unclear which of the "three levels of ownership'' in the collective -- People's Communes, production brigades and production groups - is referred to. Furthermore, even if it had designated the ownership to a certain level in the collective, the problem would again emerge from the lack of a clear scope of the collective and its membership. Added to this ambiguity in the ownership of land is the incompleteness of the principal land property right, as the State has the authority to dispose of the land, while the farmer occupies the rental income, resulting in a drain on land revenue and difficulties in land circulation.

Therefore, it is necessary to review the whole process of changes in the farmland system and find the correct point of departure for reform. In fact, such issues as egalitarian occupation of land, scattered land management, instability in farmland contracts and lack of circulation or efficiency have all resulted from an ambiguous land ownership. Once the land owner is clearly defined and the principal property rights affirmed, then, the farmland's management, sale, leasing (including farmers' contracting of collective land and re-contracting of their contracted land), inheriting and disposal as gift -- all these and other matters of management and circulation would be easily resolved.

Sticking to and perfecting collective ownership

As to the direction of future reform in China's rural farmland ownership, there have been controversial views from academic circles and the agricultural sector, both of whom have come forth with many different ideas. These include the nationalization of rural farmland, reform and improvement of the existing collective ownership of rural land, private ownership of farmland as well as a system of mixed ownership.

Based on the characteristics of China's rural land resources and its people-land relationship, the direction of reform in the country's rural land system should be the quest for a form of collective public ownership characterized by a new relationship in property rights (under the precondition of the collective public ownership of land) for the purpose of enhancing the clarity in the relationship of collective land property rights.

Therefore, the task of establishing a Chinese rural farmland system rests not in cancelling collective public ownership and replacing it with a private or State ownership of land, but in restructuring the traditional collective ownership, in order to set up a new collective system marked for its clear-cut boundaries of well-defined property rights. The nationalization of rural farmland ownership would be useful in imposing necessary control upon and facilitating the macroeconomic management of the rural farmland. But its disadvantage lies in the high cost of organizing the land management, let alone the doubtful effectiveness of such State macroeconomic control, considering the cost of land circulation under the State and the difficulties in information feedback, supervision and incentive for the farmers.

China's farmland was under de facto State ownership during the years before the rural economic reform was launched in the late 1970s, and its low productivity then was also beyond a doubt. Moreover, it would be very costly to utterly change an existing system. On the other hand, the introduction of private ownership of farmland runs counter to the rigid stipulations of the country's political and ideological system and would be also very costly to implement. Besides, viewed from the angle of economic performance, the private ownership of land would not directly result in any change of the micro-distribution of land resources. In fact, even in countries of private land ownership, individuals would no longer enjoy an absolute control of their land, as such private ownership has been subject to a growing number of restrictions imposed by the governments.

The basic reason for sticking to the collective ownership of rural land is seen in its advantage of giving the rural community a sense of stability, saving the cost of a total change-over, and conforming to the country's existing political and legal structure.

It is, however, not enough just to announce adherence to collective ownership and to clearly specify that land property rights belong to the farmers' collective. This is because, currently, land ownership and its related rights are not truly placed in the hands of the land owners. Therefore, further reform of the existing system is needed in, firstly, affirming the collective's right in disposing of its land and urging the State to give such land disposal right -- which it has earlier taken over from the collective by legal means -- back to the collective, further allowing the collective to handle, independently, the management, leasing, and sale of its land, within the scope of control as imposed by the State.

It is also needed to allow the collective to lease land to other collectives, to the State and private enterprises or to invest with the land as capital in joint enterprises or to use the land as security to seek a mortgage loan.

Secondly, reform of the existing system is needed in realizing the right of earnings from the land, by clearly setting forth that the farmer household should pay rent for the farmland, contracted by it from the collective, instead of the current ambiguous economic relationship of letting the contractor pay a "commission'' to the collective. Regardless of whether the collective land is requisitioned by the State or used by social organizations, the principle of "free will and paid transfer'' should be observed in making full payment of land rent or land price to protect the immediate interests of the farmers, thereby realizing the true economic value of land ownership. Thirdly, it is necessary to solidify the legal status of the land ownership, by issuing land-ownership certificate and land-use-right certificate to confirm the legal acknowledgment and protection of the collective land ownership.

The "collective'' represents a collection of people in their dynamic state and is constantly changing in its composition. And in the long-term prospective, it should includes both the existing population in the collective community and also those unborn or unmarried population expected to join the collective community. However, during the prescribed term of the leasing contract, the boundary of the collective body should remain the same as at the time of signing such contract.

It is necessary to strengthen and stabilize the farmers' contracted managing right of the farmland. The process of stabilizing and strengthening the farmers' managing right should be specified as:

Only by affirming the farmers' land-managing rights, could a land-use right market be formulated, and could the market circulation of land, as a commodity, be realized. Clearly defining collective ownership and strengthening the farmers' land-managing right are both indispensable for establishing a sound land system.

However, land ownership should not be construed as to cover -- in addition to contracting out the farmland and collecting rents from the contractors -- the rights, unrestricted by the contract, in disposing of the land (e.g. through retrieving contracted land, transferring land ownership, investing land in business ventures, using land as mortgage security etc.). This would lead to setbacks in the land management and the deprival of farmers' right.

However, qualifying the land-managing right is also a necessary content of the contract, which should include, mainly, the quota of farmland output and the quota on the added value of farmland -- the first quota is virtually the same as that of the joint responsibility contract system and the second quota requires the farmer to preserve the value of the contracted farmland, while fulfilling the production quota.

To award the land contractor for boosting the value of farmland symbolizes the basic principle of letting the farmer household enjoy the added value of its contracted farmland, and the award should either equal the total amount or certain proportion of such added value of farmland.

Meanwhile, penalty should be imposed on those farmer households whose contracted farmland has sustained a decrease in value; the penalty should equal the total sum of the decrease in value, in order to reinforce the requirement for land protection.

Political measures for further reform of the farmland system

Basic principle: reduce administrative intervention

The adjustment and reform of land system is a gradual process of economic development. The farmland is owned, collectively, by the farmers, who, inmost parts of the country, still depend on managing the farmland production as the basic source of their income. And the farmers know best how and in what form such farmland management be organized; therefore, the farmers should be given the freedom to choose by themselves. Government guidance is obviously necessary, but it should avoid such moves as to force certain managing organization or system upon the farmers, because such moves often run counter to the objective rules of economic development and hamper the growth of productivity. For instance, during the introduction of "larger-scale operation of farmland production, how to decide the "hectares of farmland per laborer'' ratio -- in the different areas, on different projects and during different periods -- is very difficult for a government institution but should be left for the farmers to explore through their economic practice.

Legislative control on land exchange and management

1. Control on land use, which must have two stipulations: 2. Control on farmland rent and lease contract, which should also have two stipulations: 3. Control on exchange, which should include, mainly, the following two stipulations:

The external economic condition: breaking the barrier between city and countryside

Even if steps were taken to allow the circulation of land ownership or land-use right, the plan to boost farmers' (particularly, the farmwork operators') income through the concentrated management of land would remain an illusion. Little progress is possible as long as there is no breakthrough in the barrier between cities and countryside, especially, no cancellation of the census, grain rationing and urban welfare system.

China's rural labor force will continue to maintain a high momentum of growth within the foreseeable future. As long as the country's effort to seek and plan a farmland system reform is confined to the rural area - or even just limited within a rural collective community, while allowing all the load of new population and new labor force to pile upon the limited or even dwindling acreage of farmland - then, any well-considered reform program would only end up in dire straits. In other words, any further reform of the rural land system will, inevitably, involve the two closely-related major issues of providing jobs for the surplus labor and promoting the utilization rate of existing farmland. It should, therefore, be directed toward an effective dispersion of the gigantic population impact from upon the existing farmland -- which is its fundamental prerequisite. This is because such a problem could neither be resolved within the collectively economic organization -- as in the case of farmland responsibility contract system -- nor be provided with a basic solution within the rural community itself.

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