There Is No Need to Create Another Rentier Class in Rural Land
As is well known, the funds for China's urban infrastructure construction come from land finance. Generally speaking, the current fiscal capacity of China's local governments is very limited. Most of the fiscal revenue that city governments rely on from taxes can only maintain operations, and there is rarely surplus fiscal revenue for the huge expenditure of urban infrastructure construction. With almost no exception, infrastructure construction in large and medium-sized cities across the country mostly comes from land finance, that is, the so-called revenue from selling land. At present, land finance is also widely criticized. Below we will discuss land finance.
Land finance can be referred to at two levels: its original meaning and its extended meaning. The original meaning of land finance refers to the land transfer revenue obtained by local governments. Its extended meaning also includes the various financing activities carried out by local government cash financing platforms relying on land mortgages, that is, “land finance”.
From 2001 to 2010, local government land transfer fee revenue increased from 129.6 billion yuan to 2.9 trillion yuan, and its proportion of local fiscal revenue also rose from 16.6% to 76.6%. Although there were obvious fluctuations between years, in most years the proportion was 40%-50%. From the first half of 2008 to the end of 2012, the loan balance of local government financing platforms increased from 1.7 trillion yuan to 9.2 trillion yuan, and its proportion of China's bank loan balance also rose from about 7.6% to 13.8%.
According to state regulations on the use of land transfer fees, land transfer fees are mainly used for urban infrastructure construction. Such huge land transfer fee revenue and financing obtained through land mortgages were invested in urban infrastructure construction, and urban infrastructure improved greatly in a short period of time. It is therefore not surprising that cities were built to look like Europe.
The question is whether land finance is reasonable and whether it can be sustained.
Article 43 of the Land Administration Law stipulates: If any unit or individual needs to use land for construction, it must apply to use state-owned land in accordance with the law. The state-owned land applied for use in accordance with the law includes land owned by the state and land originally belonging to peasant collective ownership that the state has expropriated.
Article 47 stipulates: When land is expropriated, compensation shall be given according to the original use of the expropriated land. The total of land compensation fees and resettlement compensation fees shall not exceed thirty times the average annual output value of the land in the three years before expropriation.
The above two provisions of the Land Administration Law can be called the constitutional order of China's land system. By constitutional order, it means that after the New Democratic Revolution and the Socialist Revolution, New China has eliminated private ownership of land and has also eliminated the land rentier class. Because the value-added income from non-agricultural use of agricultural land brought about by economic development and urban expansion should “appreciate to the public”, and cannot be entirely appropriated by peasant households that happen to hold contracted management rights to cultivated land as all the value-added income from non-agricultural use of land. This constitutional order in China's land system arrangements has eliminated unearned gain and ensured that the fruits of economic development are shared by all the people. It is of extremely important significance and is also a great achievement of China's socialist revolution.
The above constitutional order of China's land system can be popularly expressed as the government “expropriating land at a low price and selling land at a high price”: expropriating land according to the value of agricultural use of the land, and selling land according to the value of non-agricultural use of the land. Land sale revenue minus land expropriation cost constitutes local government land finance revenue. Because land sales are conducted through bidding, auction, and listing, the land price in bidding, auction, and listing is also called the land transfer fee. Therefore, land finance revenue equals land transfer fee revenue minus land expropriation cost.
However, the above expression “expropriating land at a low price and selling land at a high price” should be treated with caution, because only part of the land is truly used for commercial trade and residential construction through bidding, auction, and listing. Expropriated peasant land is mainly used in three aspects: first, land for infrastructure construction; second, industrial land; third, commercial service land.
Taking 2012 as an example, in 2012 the total amount of construction land actually supplied reached 10 million mu, of which 40% was used for infrastructure construction, about 65% was truly used for urban construction, about 6.5 million mu, and the part truly used for commercial trade and residential purposes, that is, the part that could be sold for money, accounted for about 35%. In other words, of the 10 million mu of construction land supplied throughout the year, only about 2.3 million mu could be sold for commercial services, less than one quarter of all land supplied.
Economic development and urban expansion inevitably occupy land. Urbanization is not only the urbanization of population, but also the urbanization of land. When land previously used for agriculture is used for urban construction, the land will generate value-added income. Land value-added income is related to two factors: first, land use control; second, the value of land in a specific location. A specific location is related to planning, and the premise is that urban expansion requires an increase in construction land. The value-added income generated by the conversion of agricultural land into construction land has nothing to do with the efforts of peasant households contracted to manage agricultural land. Moreover, China is a country that has eliminated private ownership of land. Therefore, expropriating land from farmers with compensation according to the agricultural value of the land is legal and reasonable. Using the value-added income from non-agricultural use of land for urban infrastructure construction shared by all the people even more realizes the ideals advocated by Mr. Sun Yat-sen of “sharing land benefits” and “appreciation to the public”.
Non-agricultural use of agricultural land will generate value-added income. This is not because the land itself has any special magic, but because of the value-added income from non-agricultural use of land brought about by economic development, urban expansion, and state control over land use. Chen Xiwen said: “The best land in Seattle, United States, if calculated as agricultural land, is only 5,000 US dollars per acre, but if agricultural land is planned as construction land, it can reach 200,000 US dollars per mu, a difference of 39 times between the two.”
At present, both academic circles and policy departments strongly advocate arguments for giving farmers greater land rights, such as the so-called establishment of a unified urban-rural construction land market, “equal rights, equal treatment, and equal land” for urban and rural construction land, “returning rights and empowering rights”, and so on. Behind all these statements is the intention to change the current constitutional order of China's land system, to have farmers participate as subjects in the supply of construction land, thereby breaking the current pattern of state monopoly over the primary market for construction land and opening up the interest distribution pattern of the secondary land market. Simply put, farmers should be allowed to freely and independently transfer land as construction land, thereby allowing farmers to obtain the value-added income from non-agricultural use of agricultural land.
One of the most deceptive aspects of this argument lies in conceding profits to farmers and letting farmers obtain land benefits that originally belonged to them. The actual situation is that, according to the constitutional order of China's land system, suburban farmers only have contracted management rights to agricultural land, and they have no legality to obtain the value-added income from non-agricultural use of agricultural land.
Assuming that suburban farmers are allowed to transfer contracted land as trading subjects, suburban farmers would in fact become a land rentier class, and they could obtain an extremely large amount of land benefits. However, these farmers who can transfer land can only be a very small number of people in the suburbs, and it is impossible for all farmers to have the opportunity to transfer land and thereby obtain the value-added income from non-agricultural use of land. Therefore, this argument is actually not based on the standpoint of the farmer market but on the standpoint of rentiers. The question is, New China has already eliminated rentiers. Is it still necessary for us to rebuild a rentier class?!
There is another view: taxing the value-added income obtained by suburban farmers from independently transferring land. But this also has problems, because if farmers, as the subject of land ownership, can freely transfer land, then farmers will certainly demand to transfer land at the market price of commercial and residential land. Even if the government wants to build urban infrastructure and can forcibly expropriate farmers' land, it must compensate farmers at market prices. According to what Chen Xiwen said earlier, only about 1/4 of the country's construction land is used for commercial and residential purposes, and 40% is used for infrastructure construction. Then even if the state levies a high tax of 50% on the income farmers obtain from land, the land tax collected by the government would still not be enough to cover the expenditure for expropriating land for urban infrastructure construction, let alone expropriating cheap industrial land and building good urban infrastructure.
One of the fruits of economic development is urbanization. Urbanization is both the urbanization of population and the urbanization of land. Land urbanization means the conversion of suburban agricultural land into urban construction land. Non-agricultural use of agricultural land will produce huge value-added income. In countries with private land ownership, this part of the value-added income mainly belongs to suburban landowners, thereby forming a huge parasitic and decadent land rentier class in the suburbs.
China's land system arrangements have already eliminated the land rentier class. The value-added income from non-agricultural use of agricultural land is mainly held in the hands of local governments in the form of land finance and is mainly used for urban infrastructure construction, thereby achieving “appreciation to the public” and “sharing land benefits”. This is the reason why China, although a developing country, has urban infrastructure comparable to that of developed countries.
China's land rentier class has already been eliminated, so of course there is no need to produce another one.