Reconstructing Agricultural Land Property Rights Should Focus on Stabilizing Farmers' Contracted Rights

The vast majority of collectively owned land is agricultural land, including cultivated land, forest land, grassland, aquaculture water surfaces, etc. According to the Second National Land Survey, the total area of rural collective land nationwide is 6.69 billion mu, of which agricultural land accounts for 5.53 billion mu. This is the main component of rural collective assets and also a key area for advancing the reform of the rural collective property rights system.

Changes in the Property Rights Structure of Agricultural Land Since the Reform

Over the 36 years of rural reform, the property rights structure of agricultural land has undergone a major transformation from a high degree of unity between ownership and use rights to a separation of ownership and contracted management rights, and is now giving rise to the seeds of a further separation between contracted rights and management rights.

From 1978, when Xiaogang Village in Fengyang, Anhui Province, took the lead in implementing the all-round contracting system, to the end of 1983, when 97.8% of rural basic accounting units nationwide had adopted contracting to households, China established within just a few years a system of contracted responsibility linked to output that combined unified management with decentralized management, with household contracting as the main form. Under this institutional arrangement, the collective ownership of agricultural land and farmers' contracted management rights began to separate, but the powers of collective ownership remained quite complete: first, the right to allocate contracts, binding farmers through contracts and retaining a certain proportion of flexible land; second, the right to plan production and operations, issuing plans to farmers for the cultivation and unified procurement of major agricultural products such as grain; third, the right to unified management, "handling well the matters that members request to be handled collectively, such as mechanized plowing, water conservancy, plant protection, epidemic prevention, seed production, and breeding"; fourth, the right to income distribution, whereby farmers must "set aside enough for the collective" when disposing of agricultural products. At this time, farmers only obtained limited autonomy in production and operations, such as freely allocating their labor time and freely disposing of the remaining agricultural products and operational income after "handing over to the state and setting aside enough for the collective."

Starting in 1984, the property rights of agricultural land began a new division between collective ownership and farmers' contracted management rights. The general trend was to contract the powers of the former and expand the powers of the latter, with the various powers of agricultural land continuously being transferred from the collective to contracting households. This was prominently manifested in two aspects: first, in terms of contract duration, which was continuously extended. The 1984 Central Document No. 1 explicitly proposed that collectively owned land could be contracted to farmers with a 15-year contract period; the 1993 Central Document No. 11 stipulated that after the originally designated cultivated land contract period expired, it would be extended for another 30 years without change; the Land Administration Law revised and adopted in 1998 clarified farmers' 30-year land use rights; the Rural Land Contracting Law, which took effect on March 1, 2003, continued this provision; and the 2008 Decision of the Third Plenary Session of the 17th CPC Central Committee proposed that the existing rural land contracting relationship should remain stable and unchanged for the long term. Relevant policies and regulations emphasized that within the contract period, farmers' contracted land could not be adjusted or reclaimed, and farmers obtained actual control and disposition rights within the contract period. Some experts believe that contracted rights are in essence a division of ownership, and that the more long-term and fixed the contract, the higher the degree of division of ownership by contracted rights. Second, in terms of the nature of the rights, contracted management rights of land underwent a major transformation from creditor's rights to usufructuary property rights. Before the promulgation and implementation of the Rural Land Contracting Law, land contracted management rights were established on the basis of contracts, with the rights and obligations of both parties stipulated by contract, constituting a traditional civil law creditor's right; according to the Rural Land Contracting Law, land contracted management rights are a kind of disposition and exclusive right granted by the state to members of collective economic organizations, possessing some characteristics of property rights; the Property Law clearly defined rural land contracted management rights as a usufructuary property right in traditional civil law. In the nearly 30 years of continuous division, the land contracting relationship achieved a major transformation from contractual agreement to state-granted rights, household contracted management achieved a major transformation from reform of the production and operation responsibility system to reform of the property rights system, and land contracted management rights achieved a major transformation from production and operation autonomy to usufructuary property rights and even "quasi-ownership." The institutional framework for the separation of agricultural land ownership and contracted management rights has basically taken shape.

Land contracted management rights are a hybrid of contracted rights and management rights. Contracted rights belong to membership rights, which only collective members are eligible to hold, and have obvious characteristics of personal attachment, community closure, and non-tradability. Management rights belong to property rights, which can either be attached to contracted rights or separated and allocated through market-based means to those capable of operating the land, and have obvious openness and tradability. Under circumstances where the population does not flow and land does not circulate, these two quite different rights can be integrated seamlessly and coexist peacefully. But the situation is changing, as contracting entities and operating entities are gradually separating. In 2013, the number of rural migrant workers nationwide reached 269 million, of which 166 million were migrant workers working outside their home areas, and among those working outside their home areas, more than 34 million moved out with their entire families. Changes in employment structure and employment locations created conditions for land circulation. According to statistics from the Ministry of Agriculture, as of the end of June 2014, the area of contracted land circulated by farming households nationwide reached 380 million mu, accounting for 28.8% of the total area of household contracted cultivated land. As more contracting farmers go out to work, land circulation accelerates, and demand for land financing expands, the separation of contracting entities and operating entities will further increase, and continuing to confuse contracted rights and management rights will bring jurisprudential confusion and policy chaos.

In July 2013, General Secretary Xi Jinping pointed out during an inspection tour in Hubei that to deepen rural reform and improve the basic rural management system, it is necessary to carefully study the relationship among land ownership, contracted rights, and management rights. The Decision of the Third Plenary Session of the 18th CPC Central Committee emphasized granting farmers the rights to possess, use, benefit from, and circulate contracted land, as well as the rights to mortgage and guarantee contracted management rights, and allowing farmers to use contracted management rights as equity shares to develop agricultural industrialization operations. To implement this reform requirement, it is necessary to clarify whether the object of circulation, mortgage, guarantee, and equity participation is contracted management rights, contracted rights, or management rights. To this end, the Central Rural Work Conference held at the end of 2013 clearly stated that, in response to farmers' willingness to retain land contracted rights and circulate land management rights, farmers' land contracted management rights should be divided into contracted rights and management rights, achieving the separation and parallel operation of contracted rights and management rights, which is another major innovation in China's rural reform; the 2014 Central Document No. 1 further clearly stated that, on the basis of implementing rural land collective ownership, farmers' contracted rights should be stabilized and land management rights should be liberalized, allowing the management rights of contracted land to be mortgaged to financial institutions for financing. This means that dividing land contracted management rights into contracted rights and management rights and implementing the "separation of three rights" of ownership, contracted rights, and management rights is the broad logic of the evolution of the agricultural land property rights system. In fact, in order to find a balance between safeguarding the rights and interests of contracting households and promoting the circulation of contracted land, some experts and grassroots officials proposed as early as the early 1990s the formulation of "clarifying ownership, stabilizing contracted rights, and liberalizing management rights," and the 2001 Central Document No. 18 also consciously used the concept of "circulation of contracted land use rights." In recent years, Jilin, Shandong, Yunnan, and other places, in order to circumvent the legal obstacles in the Guarantee Law and the Property Law regarding the non-mortgageability of land contracted management rights, separated from land contracted management rights such rights as "the right to state subsidy income," "the right to operational income," "use rights," "circulation rights," and "circulation management rights," and used them to handle bank pledges and mortgage loans.

To implement the "separation of three rights," the key is to reasonably define the scope of powers of agricultural land ownership, contracted rights, and management rights. Taking into comprehensive account the basic national conditions, path dependence, and reform costs, the next step should follow the approach of "implementing collective ownership, stabilizing farmers' contracted rights, and protecting land management rights" to further clarify the boundaries of the three in terms of possession, use, benefit, and disposition.

Implementing Collective Ownership

Over the past 36 years, the powers of collective ownership of agricultural land have been comprehensively contracted. Against the historical background of promoting and consolidating the household contracted management system, preventing grassroots officials from arbitrarily adjusting and forcibly circulating farmers' contracted land, reducing farmers' burdens, and giving farmers "reassurance," making the safeguarding of farmers' land contracted management rights the main policy orientation was necessary. However, some people hold different views on this policy orientation of continuously dividing agricultural land property rights toward contracting households, believing that practices such as restricting collective economic organizations from adjusting and reclaiming farmers' contracted land and abolishing land contracting fees are wrong. These people worry that after the land contracting relationship remains unchanged for the long term, the collective ownership of agricultural land may exist in name only. Some others believe that agricultural land property rights have not tilted enough toward contracting households and that "state-owned perpetual tenancy" should be implemented, with the state possessing only nominal ownership and farmers possessing permanent use rights; some even advocate implementing private ownership by farmers.

We believe that farmers possessing complete land property rights, or even private property rights, is not necessarily conducive to land circulation and the expansion of operational scale, and may even become an obstacle to land circulation and concentration. The situation in Japan, South Korea, and China's Taiwan Province over more than 60 years is sufficient to prove this point. Even some Japanese agricultural economists believe that under the condition of adhering to collective land ownership, China may be more successful on the path of scale operation than Japan, because collective land ownership is more conducive to implementing the principle of land to the tiller and provides more methods for concentrating the cultivated land of those who leave agriculture than private land ownership. The key to the problem is that we must neither repeat the old path of collective ownership, unified management, and concentrated labor, nor fall into the dilemma of farmers occupying land without using it, leaving it idle without renting it out, or letting it go fallow without transferring it; we must neither make the powers of collective ownership too great nor endlessly empty and weaken collective ownership. At the current stage, implementing collective ownership should focus on respecting and fulfilling the collective economic organization's powers of possession and disposition, and giving play to its supervisory role in handling abandoned land, its leading role in land leveling and improvement, its organizing role in building farmland water conservancy and other infrastructure, and its bridging role in promoting contiguous land concentration and moderate-scale operation.

Implementing collective ownership requires attention to five points:

First, the stability of the subject of collective land ownership should be maintained. Problems left over from the process of confirming collective land ownership should be properly handled, and land ownership should be confirmed, based on the situation of basic accounting units before the reform, to the farmer collective at the villagers' group, villagers' committee, or township level. The boundaries of the original basic accounting units should not be disrupted, and the equal transfer of land property rights between different collective owners should be prevented.

Second, the organizational form of the subject of collective ownership rights should be determined based on actual conditions. Economically developed areas may generally establish village economic joint cooperatives and group economic cooperatives as the property rights representatives of collective land ownership. Economically underdeveloped areas may continue to have villagers' committees perform the functions of village-level and group-level collective economic organizations, in order to reduce collective burdens, but this must be premised on clearly defined land ownership boundaries, similar to the currently widely practiced "village finances managed by the township."

Third, at the current stage, ownership should not be manifested by expanding the collective economic organization's right to adjust and forcibly reclaim farmers' contracted land, nor by collecting land contracting fees or participating in the distribution of land circulation rents. Otherwise, infringement of farmers' contracted rights is highly likely to occur.

Fourth, when farmers' contracted land is lawfully expropriated, collective ownership may appropriately participate in the distribution of land compensation fees.

Fifth, the practice of some local collective economic organizations exercising disposition rights should be re-understood and re-treated. For example, "reverse leasing and sub-contracting." In the previous "reverse leasing and sub-contracting," village collectives generally practiced low-in, high-out, forcibly reclaiming farmers' contracted land at relatively low prices and then sub-contracting it at high prices to some farmers or industrial and commercial enterprises, intercepting land circulation fees in the process. In the current "reverse leasing and sub-contracting" or "entrusted circulation," the village collective leases land from the original contracting households, organizes it, and then sub-contracts it in contiguous plots according to certain standards to moderate-scale operators. Not only does the village collective not intercept land circulation fees, but local governments and village collectives also provide circulation rewards. The practice of developing family farms in Songjiang District, Shanghai, is "reverse leasing and sub-contracting" under the new situation, and has achieved obvious results in protecting the rights and interests of contracting households and promoting moderate-scale grain production.