Land management rights or ownership? Wu Jinglian: What is returned to farmers is the management right

Sina Finance News - The “2015 4th China International Agribusiness Summit Forum” was held in Beijing on May 17. Wu Jinglian, Baosteel Professor of Economics at the China Europe International Business School, said in his speech that the “separation of three rights” for land can solve the problem of land transfer, and suggested returning land rights to farmers, but stressed that this right should be the land management right rather than ownership.

Regarding the issue of land circulation, Wu Jinglian explicitly suggested that a unified, open, competitive and orderly market for the transfer of land management rights should be established as soon as possible.

The following is the transcript of the speech:

Wu Jinglian: My profession is very far from agriculture. I just want to discuss with so many officials, scholars, and friends from the business community in various fields, as well as friends from the Netherlands, where agriculture is thriving in the world, and I want to raise a few questions to exchange views with everyone and answer these questions.

Since the Third Plenary Session of the 18th Central Committee adopted the “Decision,” everyone has long awaited reform and development in agriculture. Half of our citizens now live in rural areas. If we add the population that works in cities in a “migratory bird” manner, most of our citizens are connected with rural areas. How agriculture is actually doing is of great importance to our country and people, and everyone has high expectations for it.

We also know that on some major issues there are many different opinions in the country. After the General Office of the CPC Central Committee and the General Office of the State Council issued a document in November last year, it appears that reform of our rural areas and agriculture has officially begun. This document is called “Opinions on Guiding the Orderly Transfer of Rural Land Management Rights and Developing Moderate-Scale Agricultural Operations.” From the title, two themes can be seen:

Theme one: the orderly transfer of management rights.

Theme two: moderate-scale agricultural operations.

The former is the premise of the latter. Our agriculture has indeed entered a period requiring scale operations. To move toward modern agriculture, it must be scaled agriculture, rather than the previous model of very small farms, one household at a time. To achieve this involves the issue of property rights. The establishment of a property rights system is the foundation of agricultural modernization. The relationship between these two is very clear.

On these two issues, we need in-depth discussion on how to put these two points into practice. The document points out the basic direction, but it also needs concrete implementation, and many issues need to be studied. I want to raise three questions:

Return land management rights to farmers; land ownership cannot be given

Question one: how to understand the “separation of three rights.” There used to be a big debate. One view held that land ownership should be returned to farmers, because before land reform, land ownership belonged to farmers, and only after joining cooperativization and communization did it become collective. Another view held that collective ownership should still be upheld.

After reading some explanations in this document, I personally feel that the “separation of three rights” is a way to resolve this dispute and reach consensus. The so-called separation of three rights is to set ownership, contract rights and management rights separately, so that management rights can be transferred. What is transferred is the management right. But after reading some explanatory articles, it seems there are still places that are not clear enough. We do economics research, and we often use economics to understand such things. In economics, how do you define these three rights?

I think traditional economic theory can fully explain the “separation of three rights.” In fact, to a considerable extent, it is suitable for China's land ownership system and can be connected with it. We probably began implementing permanent tenancy from the Song Dynasty. This term can reflect its essence. A core content of permanent tenancy is to divide land ownership into two independent rights:

Right one: ownership.

Right two: some call it permanent tenancy right, but in fact most do not call it that. Most probably call it topsoil right, and call ownership subsoil right.

I am from Changzhou in southern Jiangsu. In the Jiangnan area, by the Qing Dynasty this was already very common. Both subsoil right and topsoil right could exist independently and be bought, sold or transferred. In the economic sense, if we use Marxist economics, the so-called subsoil right is the right to obtain absolute rent, and topsoil right is the right to obtain other rents. Absolute rent is what land can obtain, because of its organic composition, as a return higher than average profit. In Marx's words, income obtained from monopoly of ownership, and other rents in Marx's words, are income obtained from monopoly of operation, constituted by excess returns from land investment.

Can it be understood this way here? In the so-called “separation of three rights,” ownership is traditionally called subsoil right, and the so-called management right is the topsoil right in the traditional land ownership system. Both rights exist independently, but contract rights are hard to explain. In my view, they may be part of the management right, but there are also explanations that this is part of ownership. Just where this fits in the traditional structure and concepts is not too clear. But subsoil right (ownership) exists. It is collective, and its income is used by the collective owner (that is, the village committee) to handle public expenditures for all village residents. Topsoil right is an independent right that can be mortgaged, rented and bought or sold. In this way, history can be connected, and it can also be connected with the past view that land ownership should be returned to farmers.

For example, when the previous leadership was about to hand over power (2002), General Secretary Jiang Zemin once organized some seminars, including one on agriculture. At that meeting I raised this opinion. I advocated returning land rights to farmers, but I clearly said that what is returned to farmers is topsoil right, not subsoil right. The document issued by the General Office of the CPC Central Committee and the General Office of the State Council last year is acceptable to me. I think this opinion can solve my problem, because the fundamental issue in clarifying land ownership is not absolute rent, but other rents. As long as this right is not implemented for specific people, operators will not be willing to invest. Some say that if contract rights are extended to 30 years, then they can invest, but I say no. First, after 30 years there will eventually be a time when it is about to expire, and then they will not be willing to invest.

Another point: if the period for returns on land investment exceeds 30 years, this is large-scale land investment, and they will also be unwilling to invest, because the returns cannot be obtained. Some economists, such as Chi Fulin, have proposed returning permanent management rights to farmers. Their proposal is also like this and does not include subsoil right. The income from subsoil right is relatively fixed. It can be used as financial support for some public expenditures in the village. Moreover, not only should permanent management rights be given to them, they should also be transferable. Only in this way can scale operations be achieved. There is also another issue: changing use. In the process of industrialization and urbanization, how can capital that does not operate agriculture enter?

This is the first question: how exactly to understand these three rights, and what their operational essence is. This must be clarified. Otherwise, because the same term is used by everyone, this kind of problem often occurs: its meaning changes. Therefore, a clear economic definition is needed.

There is an urgent need to establish a unified, open, competitive and orderly market for the transfer of land management rights

Question two: orderly transfer.

Some recent documents mention subcontracting, leasing, exchange, transfer, and other forms. I think that as long as it is an independent form of property right, all property rights functions should be present. There is a question here: how to achieve order? There is much practical experience here that can be exchanged. The first step now being taken is confirming rights. After rights are confirmed and property rights certificates are obtained, they enter the transfer process. What happened recently is that capital entered, and then withdrew after a couple of days, and as a result the land was left uncultivated. This is because we did not establish an orderly transfer market.

The Third Plenary Session of the 18th Central Committee required us to establish a unified, open, competitive and orderly market system. This market system of course includes the land market. In particular, what now stands out and needs to be solved is how to establish a unified, open, competitive and orderly market for the transfer of management rights. This is the problem we face.

The family farming model is still suitable for China

Question three: the mode of operation.

The document from the General Office of the CPC Central Committee and the General Office of the State Council says that moderate-scale agricultural operations should be developed. This is a goal of our agricultural land reform. Scale operations are related to the theme of today's conference: how cross-sector industrial and commercial capital enters agriculture. But there is an even more basic question: what is the organizational form of scaled modern agriculture? What is the mode of operation? It seems that the guidance document issued at our conference is mainly about industrial and commercial capital entering, so that it can develop toward scaled modern agriculture. But this differs somewhat from our understanding. We do not know whether everyone remembers.

The Third Plenary Session of the 15th Central Committee in 1998 had a decision on agriculture and rural work. In this decision there was something very prominent for those of us who study economics. It had a passage saying that the family farming model is the mode of operation most suitable for agriculture. The family farming model is not only suitable for traditional agriculture based mainly on manual labor, but can also adapt to modern agriculture that uses advanced science and technology and production methods. That is, family agriculture is the same as the capitalist large-farm mode of operation, the mode of operation of large farms that hire labor. Traditional Marxism held that modern agriculture was something else, not the family farming model.

We know that this judgment was first put forward by Du Lao and others. Later, Comrade Chen Xiwen, in a work in the 1980s, explained in detail why this is so. Looking at this judgment now, is it right or not? When we now talk about scale operations, do we still agree with the judgment from 1998? I personally think that from the perspective of production, it is probably still so. I will not repeat it; you can look at Chen Xiwen's work in the 1980s. This seems not to have changed, because its basic nature has not changed. That is, agriculture, whether crop farming or agriculture in the broad sense (forestry, fisheries), is connected with animals and plants. It must respond very sensitively to constant changes in nature, and its results appear at the endpoint of the life process.

The basic arguments seem not to have changed, and so a question arises. The scaling document also says that the focus is on how to cultivate family farms into scaled operations, whether it is broad large farms like those in the United States, or family farms like those in Japan where land is relatively scarce.

Under these circumstances, what should our industrial and commercial capital do? Financial capital can enter agriculture. What can industrial and commercial capital do? I think there is still a lot it can do. Directly engaging in production is probably relatively difficult. Today I brought two of my colleagues. They are from a creative park company under our Leping Foundation, a public welfare institution. It intervenes in this because it wants to deliver pollution-free vegetables to every household. There are many links in the middle. How should these links be organized? How should rules be made? How should this market be organized? We want to use public welfare methods to make some investment. This public good needs public welfare organizations to participate and do it.

I often exchange views with these colleagues, and I find that there are many problems here. In European countries and countries like the United States, cooperativization is very common, not in the production link, but in the circulation link, commerce and finance. What we now call specialized cooperatives are run by farmers themselves. When this issue was first discussed for specialized cooperatives, the first was actually the 19th-century Sunkist oranges, a California orange sales cooperative run by farmers themselves. In addition to those run by farmers themselves, our social capital can actually also vigorously intervene, because there are many links. From the beginning of agricultural production to the moment each person puts it in their mouth, there are very many links.

In the past Soviet-style socialist system, the method for these many links was to incorporate them all into one nationwide large enterprise, turning it into one enterprise, with each link controlled by planning. It seems this method does not work. How can the links be connected? Farmers can run specialized cooperatives themselves, because at the very beginning there was a big debate about whether to learn from Japan or Taiwan, China and rely on farmers' associations to run them themselves. Farmers' associations also have their own finance departments and sales departments to run them. At that time, leadership approval was not obtained, so later this became very weak. Now there seems to be a little possibility. Can this method (the method of rural self-operation) be restored relatively comprehensively? Some has already been done. Why was a specialized cooperative law enacted? Because this type of cooperation in the circulation field, financial cooperation, supply and marketing cooperation, and so on, needs to be developed.

Can our social capital intervene? How should it intervene? These are all worth discussing in depth.

Three questions:

The first question is an accurate understanding of the separation of three rights.

The second question is how the organization, rules and supervision of the market for the transfer of economic rights should be handled.

The third question is what the main mode of operation of scaled modern agriculture should be, and how our industrial and commercial capital and financial capital can promote the process of transformation toward modern agriculture.

I hope our conference is a success and can provide us with some good ideas in these areas.

Thank you, everyone.