Why Rural Property Exchanges Are Caught in a Survival Dilemma
As the state attaches importance to rural property rights transfer, the establishment, operation and development of rural property rights exchanges have become crucial. However, some rural property rights exchanges currently face a dilemma of low transaction volume or even being unable to continue operating. How to increase exchange transaction volume, how to strike a balance between the public-interest nature of exchanges and their survival, and how to resolve the problems of policy breakthroughs and legal lag all determine, to some extent, the future of rural property rights exchanges
Not long ago, the villagers' committee of Ailing Village, Jinkou Subdistrict, Jiangxia District, Wuhan City successfully leased out the land contractual management rights of about 137 mu of cultivated land and 80 mu of wasteland. This 16-year lease contract was facilitated and signed with the help of the Wuhan Rural Comprehensive Property Rights Exchange. This was also the most recent transaction announcement on the website of the Wuhan Rural Comprehensive Property Rights Exchange.
Since the country's first rural property rights exchange was established in Chengdu in 2008, an increasing number of rural property rights transactions have been conducted publicly at exchanges across the country.
On January 22, 2015, the General Office of the State Council issued the first national guiding document for the rural property rights transfer and trading market, the "Opinions on Guiding the Healthy Development of the Rural Property Rights Transfer and Trading Market" (hereinafter referred to as the "Opinions"), which affirmed the role of rural property rights exchanges in rural property rights transactions.
The "Opinions" pointed out that in recent years, as the rural labor force has continued to shift and rural reform has continued to deepen, demand for the transfer and trading of various types of rural property rights, such as farmers' contracted land management rights and forest rights, has grown markedly. Many places have established various forms of rural property rights transfer and trading markets and service platforms, providing effective services for rural property rights transfer and trading.
However, during interviews, reporters from Legal Weekend learned that many property rights exchanges in various places also face various difficulties in operation.
"Our current operation does indeed face some difficulties. We have no government funding subsidies, and the property rights transaction services we provide are public-interest, free services. At present, we are mainly sustained by start-up capital, and we are also working hard to obtain some policy support," Zhou Weihua, director of the Trading Department of the Tianjin Rural Property Rights Exchange, told Legal Weekend reporters in an interview.
As an important foundation for the development of the rural property rights transfer and trading market, how rural property rights exchanges should proceed next is crucial.
"Guiding the healthy development of the rural property rights transfer and trading market concerns the overall situation of rural reform, development and stability, and is conducive to safeguarding the property rights and interests of farmers and rural collective economic organizations." The "Opinions" also stated this.
On-exchange Trading Helps Prevent Backroom Deals
On the morning of January 15, 2015, more than 20 villagers from Nanhaozhuang Village, Chengnan Subdistrict, Changping District, gathered in the trading hall of the Changping Office of the Beijing Rural Property Rights Exchange. They carefully watched the numbers flickering on the electronic screen, because this would determine the final price of a ten-year lease of a collectively owned house of Team One in the south of the village. Representatives of the three parties participating in the bidding entered randomly selected separate rooms for online bidding. After 69 bids, the auction was finally concluded at a premium rate of 156%.
Transferring rural property rights through public bidding at exchanges has increasingly become a trend.
Zhou Weihua explained: "In terms of transaction forms, the land property rights transactions we currently handle include both negotiated transfers and those conducted through bidding. Preliminary qualification review is first conducted by the village committee and the agricultural economic management stations at the district and township levels. After the materials are submitted to our department, they are reviewed according to regulations. Once qualified, they are listed, and information on transferees is collected and screened. Then public bidding is conducted. Now an electronic bidding system is also used, which can avoid malicious bid rigging and price inflation."
According to Zhou Weihua, before the auction begins, all bidders need to pay a certain bidding deposit. If the bid is successful, this deposit is directly converted into the land contract payment. For unsuccessful bids, all funds are refunded.
Public data show that the land transfer market in eastern China is relatively developed, while the transfer proportion in the central and western regions is relatively low. In 2013, the proportion of household contracted cultivated land transferred in Shanghai reached 65.81%, and Jiangsu also reached 56.96%.
"In recent years, China's land transfer and trading market has indeed developed markedly." Zheng Fengtian, a professor at the School of Agricultural Economics and Rural Development at Renmin University of China, told reporters. "Ten years ago, the proportion in the eastern region was only about 20%, and in the west it was even below 10%."
According to Wu Zhenjun, associate researcher at the Rural Economy Research Department of the Development Research Center of the State Council, as of 2014, the transferred area of contracted cultivated land in China was 380 million mu, of which most transfer transactions were carried out spontaneously, and only a small portion were conducted on-exchange (at rural property rights exchanges). Some farmers who transferred spontaneously did not even have transfer contracts.
Zheng Fengtian believes that although conducting land transfers at exchanges increases transaction costs to a certain extent, it also promotes transparency, supervision and standardization of transactions.
"Previously, transactions of rural collective operational assets were often conducted through contracts signed directly between grassroots governments and land-using units. Farmers might not even know about them, and land-using units could protect their rights and interests according to contract law, leaving farmers with no recourse. After public trading at exchanges, this situation can be greatly improved," Zheng Fengtian said.
"At existing comprehensive property rights exchanges, this bidding and auction method is relatively common. This is influenced by the increase in trading elements in the rural property rights market, and it is also a form that the previous simple land transfer service centers did not have. Some regions have also stipulated that transactions reaching a certain target amount must be subject to bidding at exchanges," Wu Zhenjun said.
The "Opinions" also put this forward as a nationwide guiding requirement: rural collective asset transfers above a certain target amount must enter the market for public trading to prevent backroom deals. The rural property rights transfer and trading market must review and verify the qualifications of various market entities in accordance with the law and register them for filing.
Some Exchanges Have Only 5 Transactions in 3 Years
Although the advantages of trading at rural property rights exchanges are obvious, the survival situation of many rural property rights exchanges across the country is currently not optimistic.
According to Zhou Weihua, the Tianjin Rural Property Rights Exchange began preparations in 2009. It is a wholly state-owned joint-stock enterprise jointly funded and established by the Tianjin Municipal Agriculture Commission, the Baodi District People's Government, and the Tianjin Property Rights Exchange Center, with registered capital of 20 million yuan, and was officially established in May 2011.
"Since its establishment, we have completed a total of 27 rural property rights transaction services, 22 of which were conducted in January this year. Such a major change is inseparable from the government's strengthened promotion efforts and policy support since May 2014," Zhou Weihua said. The Baodi District Government clarified the scope and specific procedures of rural property rights transactions, and encouraged bidding projects for major rural construction matters. Transactions of equity, assets and intellectual property held by enterprises that are not collective economic organizations are conducted through the exchange.
"The market share of rural property rights exchanges is indeed very small now. The process required for on-exchange transactions is relatively complicated and requires time and economic costs. Farmers conducting small-amount transactions have no need to go to an exchange. Generally, enterprises trading relatively large areas of land, or transactions by parties unfamiliar with local conditions and lacking information sources, choose to trade at exchanges," Wu Zhenjun said.
In addition, the incomplete confirmation of rural land rights also has a certain impact on exchange transaction volume. Wu Zhenjun added, "In particular, varieties with unclear property rights cannot enter exchanges for trading, and if varieties with incomplete property rights are traded now, farmers' interests will suffer losses. Once property rights are complete and they re-enter the transfer and trading market, their value will certainly increase greatly."
"In the early days after establishment, the services we provided charged certain fees. The standard initially set by our superior supervising unit, the Tianjin Property Rights Center, was 1%, but considering the actual situation and in order to promote land transfer, we have always charged a service fee at a rate of 0.2%, which is already very low. Starting this year, we have shifted to free services," Zhou Weihua said.
The "Opinions" also put forward the basic principle of "adhering mainly to public interest" for the construction of the rural property rights transfer and trading market, requiring that the purpose of serving agriculture must be upheld, public interest must be emphasized, profit-making must not be the goal, and the development of the rural property rights transfer and trading market must be guided, standardized and supported so as to give full play to its important role in serving rural reform and development.
Wu Zhenjun told reporters that in order to issue the "Opinions", various agriculture-related departments and policy research institutions conducted surveys of China's current rural property rights trading market and each issued research reports as references for formulating the "Opinions".
"During the surveys, we also found that some rural property rights exchanges rely on government funds to survive. Even if exchanges charge fees in transactions, the proportions are very low. A small number that operate relatively well can sustain themselves," Wu Zhenjun said. "Ruian's first privately run rural property rights exchange closed down after operating for more than two years. It was simply because transaction volume was too low, income could not cover expenses, and it was difficult to keep going."
According to previous public media reports, in May 2011, Ruian Zhonghe Land Transfer Information Consulting Co., Ltd., founded by Chen Qingfu, was officially approved and registered by the Administration for Industry and Commerce. However, because there was no trading activity within one year, the Administration for Industry and Commerce placed it on a blacklist. By the time the company closed down, Chen Qingfu had completed only two transactions, but he still stated that rural land intermediaries have their necessity.
Wang Zhengyi, an instructor at the Shanghai Agricultural Factors Exchange, told Legal Weekend reporters: "National policy has established in its top-level design that the services of the rural property rights transfer and trading platform should be public-interest in nature, so it will certainly not aim for profit. We promise permanent free service for farmers and cooperatives. We have no income."
How Should the Government Support It
In interviews with Legal Weekend reporters, many interviewees mentioned the question of how rural property rights exchanges can survive while adhering to their public-interest nature, and some experts believe government support is very important in resolving this issue.
Data show that at present the legal person nature of China's comprehensive rural property rights exchanges is diverse, including public institutions, government-funded enterprises, wholly state-owned enterprises, wholly state-owned joint-stock enterprises, limited liability companies and joint-stock limited companies, among others. But the common feature of most is that they all have the support of government forces.
Wu Zhenjun believes that the development of the rural property rights trading market can be divided into three stages: the initial stage of development, when profit is not visible, market failure occurs, and the government needs to step in to help establish institutions. "Specifically, which department it should be placed under and what nature of legal person enterprise should be established need to be considered in light of local history and actual conditions."
In Wu Zhenjun's view, the second stage is the growth stage, when the government gradually withdraws from some areas while continuing to support some exchanges that cannot yet make a profit.
"When it reaches the mature stage, the government fully lets go and leaves it to the market to choose. The government is then mainly responsible for supervision and for issuing laws, regulations and rules that can promote rural property rights transactions. The boundaries of behavior among the market, intermediaries and the government must be clearly defined," Wu Zhenjun said.
Wu Zhenjun proposed that China's rural property rights trading market is in its initial stage. On the one hand, government financial support is needed to make the market bigger; on the other hand, legal improvements are needed so that the market can develop in a standardized way, clarifying when the government should withdraw from the market and when it should carry out administrative intervention.
However, there are also different opinions in academic circles about whether rural property rights exchanges should receive government support.
"Land transfer transactions do not necessarily have to be conducted on-exchange. As long as a contract exists, it is legal, so trading at exchanges should fully follow the principle of voluntariness," said Xue Kepeng, a professor at the Civil, Commercial and Economic Law School of China University of Political Science and Law. "The construction and development of trading platforms should be determined by the market and formed spontaneously when the market needs them. Trading platforms mainly provide service functions such as price discovery."
Che Yubin, deputy director of the Rural Research Center and director of the Rural Economic Development Research Institute, also believes that rural property rights trading centers should be market-oriented organizations, and organization by the government may raise suspicions of market intervention. "For example, as a government institution, a trading center will naturally have performance requirements, so there will be indicators such as transaction volume, and the government may guide through various means to complete work targets."
Xue Kepeng also pointed out that the government establishing rural property rights trading centers itself and then supervising them itself is inherently problematic.
According to Wu Zhenjun, at present the supervision of rural property rights exchanges is mainly carried out by the government. "It is not uniform across regions, and there is no complete specialized supervision mechanism."
It is understood that the Chongqing Rural Land Exchange simultaneously accepts guidance and supervision from municipal departments of land and housing management, agriculture, forestry, water resources and finance regarding related trading business, and accepts comprehensive supervision from auditing and supervisory departments.
In addition, according to survey results from the Rural Economy Research Department of the Development Research Center of the State Council, since their establishment, many rural property rights exchanges have had very few transactions involving collective asset equity, collective physical assets and agricultural production facilities, and agricultural intellectual property. Some only play a role in registration and filing, and do not provide much supplement or substitution for land transfer service centers and forest rights transfer service centers.
"During the surveys, we found that the premises of some rural property rights exchanges are indeed temporary. When there is a lot of work, staff may even be temporarily transferred from other departments, and equipment is often reused from existing equipment," Wu Zhenjun said. "Our policy encourages on-exchange transactions, but considering that the scale of rural property rights transactions is still limited, local governments should proceed from reality and must avoid following trends and chasing fashions."
"Whether to establish a market, what kind of market to establish, and how large an area it should cover must all proceed from local realities, with overall planning and rational layout. Coercive orders must not be used, and blind administrative direction must not be used." The "Opinions" proposed.