Reform of the homestead system can be expected, and the direction of land reform should be clearer

According to reports, the "Opinions on the Pilot Work of Rural Land Expropriation, Market Entry of Collective Commercial Construction Land, and Reform of the Homestead System" was recently jointly issued by the General Offices of the CPC Central Committee and the State Council, and the reform of the rural land system is about to enter the pilot stage. The pilots will mainly be arranged among comprehensive pilot projects for new urbanization and rural reform pilot zones, operating in a closed manner to ensure controllable risks. The pilot work will be completed by the end of 2017.

Reform of the rural land system has always been one of the most important and most sensitive themes of China's reform. It is a typical “hard bone” after reform entered deep water. After the Third Plenary Session of the 18th Central Committee put forward land reform priorities such as “establishing a unified urban-rural construction land market,” “adhering to collective ownership of rural land, safeguarding farmers' land contract management rights in accordance with the law, and developing and strengthening the collective economy,” “stabilizing rural land contracting relations and keeping them unchanged for a long time,” and “safeguarding farmers' rights and interests in production factors,” since 2014, pilot projects for mortgage guarantees on agricultural land contract management rights have been launched in many places.

Regarding the main tasks of the reform pilots, Jiang Daming, Minister of Land and Resources, said in an interview with Xinhua News Agency that, first, the land expropriation system should be improved. Second, a system for the market entry of rural collective commercial construction land should be established. Third, the rural homestead system should be reformed and improved. Fourth, a mechanism for distributing land value-added gains that takes into account the state, the collective, and individuals should be established, and individual gains should be reasonably increased.

Previously, controversies over land reform never ceased. In 2014, the debate between Hua Sheng and Zhou Qiren over land system reform was precisely a microcosm of this intense controversy. Land system reform is a typical case of easier said than done. In the future, it is necessary to prevent the correct direction of reform from being obstructed by vested interests.

Recently, a reporter from Time Weekly interviewed Long Denggao, a professor at the Institute of Economics of Tsinghua University, on some hot topics concerning land reform. Not long ago, the major National Social Science Fund project “History of China's Land System Reform” undertaken by Professor Long was invited to submit a report on achievements to the central authorities and received commendation.

Land confirmation makes land become farmers' property

Time Weekly: In the “Decision” of the Third Plenary Session of the 18th Central Committee, the content of the next step in land system reform was proposed. This year's No. 1 Central Document clearly stated that contract rights should be stabilized and management rights should be liberalized. The "Opinions on Guiding the Orderly Transfer of Rural Land Management Rights and Developing Moderate-Scale Agricultural Operations" issued on November 20, 2014 clearly proposed the separation of ownership, contract rights, and management rights into three rights, and the completion of rights confirmation, transfer, and certification within 5 years. We have finally seen a relatively systematic statement on future land rights and capacities. Why was such a design made?

Long Denggao: For a long time, farmers' contract management rights have been a kind of use right, not a property right. For urban residents, a property ownership certificate is their property, but for farmers, the most important thing, land, cannot become their property. Now we say land is collectively owned, and collective ownership should originally also be a kind of property right, but this property right has not been realized. For example, neither individual farmers nor collectives can take land to a bank for a mortgage loan. On the other hand, under the existing land system, land transfer is greatly restricted, which greatly limits the efficiency of land output. In this way, land is a dead natural resource and cannot become a living production factor.

So the current reform is inevitable, and it is also something we have been promoting all along. I now undertake the major National Social Science Fund project “History of China's Land System Reform” and was invited to submit a report on achievements to the central authorities, which received commendation. Its content concerns the inspiration of bottomsoil rights and topsoil rights for today's land system reform.

Bottomsoil rights and topsoil rights were a kind of land system in history. By history, this is not very distant; it refers to before 1949. As long as farmers with topsoil rights paid a certain land rent to the landowner with bottomsoil rights, they could freely dispose of the land and freely trade it, including not only leasing but also rights such as mortgage and pawn. Topsoil rights were a kind of property right and, compared with today's contract management rights, had a more complete real right. Bottomsoil rights were also a kind of property right, and topsoil rights and bottomsoil rights did not conflict with each other. This is an institutional legacy formed during the Ming and Qing dynasties and was not uncommon before 1949. Contract rights should be a kind of topsoil right with the nature of a real right.

Time Weekly: The "Opinions" issued not long ago proposed completing land rights confirmation within 5 years. In light of the current actual situation in China's rural areas, how should the practical significance of land rights confirmation be understood?

Long Denggao: Current rights confirmation is still limited. Rights confirmation is still not aimed at ownership, but it is also not the old use right. In any case, it can give farmers a certificate of land real rights, just as urban residents have property ownership certificates. Now contract rights and management rights are separated, and both contract rights and management rights can be real rights, no longer merely use rights. The original use rights could only be used for one's own cultivation or leasing. In this way, farmers can use land rights certificates for mortgage loans, and there is also a stronger institutional guarantee when land is transferred, providing space for nongovernmental reform.

Now land transfer is greatly constrained. Under the original regulations, it could only be transferred within the village or township, and even transferring it to outsiders required the consent of more than two-thirds of the collective through voting. But with rights certificates, it is no longer constrained by collective ownership. Farming households can freely dispose of it and use various forms of transaction. In addition to leasing, they can mortgage loans and also pawn it. For example, if farmers want to go to the city for five or ten years, they can cash out the income of the next five or ten years in one go. Whether they work as laborers or do business, they then have a sum of funds.

In many places, de facto private property rights have long appeared. Many years ago, they began not adding land when people are added and not reducing land when people are reduced. Is this not de facto private ownership? Because people found that the originally envisioned equal distribution of land is very troublesome in reality, with numerous problems. For example, some places redistribute once every 5 or 10 years, making the land more and more fragmented. We once conducted field research and found that the seven mu of land of a family of six was distributed across 12 places. Village and township land ownership has already lost its meaning. Whether periodically equalizing distribution or fixing it so it is no longer divided, neither can guarantee the beautiful wish of average land distribution.

Comparatively speaking, a market-based system is better. The foundation of marketization is that each person has their own property and can make choices and decisions in accordance with the law.

Reform of the homestead system can be expected

Time Weekly: According to media reports, the "Opinions on the Pilot Work of Rural Land Expropriation, Market Entry of Collective Commercial Construction Land, and Reform of the Homestead System" was recently jointly issued by the General Offices of the CPC Central Committee and the State Council, and the reform of the rural land system is about to enter the pilot stage. The pilots will mainly be arranged among comprehensive pilot projects for new urbanization and rural reform pilot zones, operating in a closed manner to ensure controllable risks. The pilot work will be completed by the end of 2017.

The media noted that regarding homesteads, the reform has made a breakthrough and allows transfer within the collective. How should the significance of this reform be evaluated?

⟦NL> Long Denggao: Allowing homesteads to be transferred within the collective is a breakthrough. But its role and impact may be limited. Property is secure only in liquidity, and only through transactions can assets and future income be cashed out. The designers of this system should have a clearer understanding of this point.

Reform of the land expropriation system involves the interests of governments at all levels, and resistance will be great. The greatest resistance comes from local governments, and all kinds of forces must be gathered to advance it.

Time Weekly: Speaking of land transfer, some people have also pointed out that short-distance, small-scope transfer of agricultural land can already meet the demand for transfer. If the scope is expanded to form a large land market, will it lead to land concentration?

Long Denggao: First, for farmers, analyzing from the basic principles of supply and demand, if there are more counterparties to choose from and more transaction forms to consider, the price can be higher, which is more beneficial to farmers. The broader the scope of land transfer, the better; the more transaction methods, the more beneficial; and the stronger the liquidity, the better. Moreover, in many villages now, all the labor force of a village has gone out. To whom would it be leased?

As for land concentration, first, scaling up is a trend. Only concentration can bring economies of scale into play. Second, urbanization is another irresistible trend. The number of farmers will inevitably decline. The process of urbanization is the process of farmers becoming urban residents. A considerable portion of farmers will inevitably leave the land. In fact, 15 million farmers now enter cities and become urban residents every year.

Any system should be considered from the perspective of major trends. Large-scale land operation and reducing the number of farmers are both major trends. The worry about land concentration is a historical misunderstanding. This understanding holds that free land transactions bring land concentration and annexation, farmers go bankrupt and flee, and this in turn brings social turmoil. But in fact, first, land annexation and concentration in Chinese history have been severely exaggerated. New research results show that the Gini coefficient of land possession is within a reasonable range. If forms such as topsoil rights, permanent tenancy rights, and clan fields are included, the Gini coefficient is even lower. Second, in fact, smallholder farming has always dominated in history because smallholder farming had its competitiveness, thereby hedging the trend of land concentration. There were also other negative feedback mechanisms against land concentration that constrained it, such as the equal division system among sons. If sons and grandsons all divided equally, how could there still be widespread land concentration?

Time Weekly: One current worry is that large capital will cause farmers to lose their land.

Long Denggao: In fact, agriculture needs capital. The current situation is that rural areas lack capital. Farmers themselves deposit their money in banks and are unwilling to invest it in land that is not their own. Banks invest money in state-owned enterprises and will not invest in rural areas, while external or private capital also has no channel to invest in land. So it is precisely a lack of capital flowing to land. Land improvement, seed improvement, and water conservancy facility construction all need capital, and improving operational methods needs capital. The reason Taiwan, China's agriculture developed well is precisely capital investment.

In addition, this is also some intellectuals looking down on and underestimating farmers. In fact, farmers are not that short-sighted. For example, if you now give farmers urban household registration, they may not necessarily be willing to give up rural household registration. Farmers will also make rational choices. The key is that a system cannot be set for individual phenomena, but should be set according to general laws.

This is a typical view of oneself as the savior of farmers. In order to avoid the bankruptcy of individual farmers, they cannot be allowed to own their own land, and instead the government must watch over the land for farmers. This is the thinking of a planned economy.

Time Weekly: It is reported that a pilot plan for actively developing and granting farmers six rights and capacities in collective asset shares, including possession, income, paid exit, mortgage, guarantee, and inheritance, will also be issued soon. It is usually understood that collective assets also include land. Can it be understood that, in addition to the original household contract responsibility system, land can have another form of collective ownership?

Long Denggao: In some grassroots reform practices, this form has long existed, such as the shareholding land system in some places. For example, in some villages farmers no longer farm, so they lease out the land to build factory buildings and then obtain income. The shareholding system can also be regarded as a form of collective property rights. The shareholding system has the integrity of overall property rights, and on the other hand it is constituted by numerous shareholders through the ownership of private shares. Each person can freely dispose of their own shares, and trading shares does not affect the integrity of the company's property rights.