Detailed Explanation of the Institutional Foundation and Governance Mechanism of Rural Land Share Cooperatives

The emergence of rural land share cooperatives is the result of bottom-up induced institutional change, and their institutional foundation lies in the land share cooperative system. The governance mechanism of rural land cooperatives involves all aspects, covering shareholder formation and decision-making mechanisms, governance mechanisms for rationally setting equity shares, social risk prevention mechanisms, member exit mechanisms, and so on. Rural land share cooperatives in various regions are a form of rural economic cooperative organization, conducive to changing agricultural management methods and implementing large-scale operation of technology-based agriculture. Their development momentum is good, but they need further improvement. To promote the rural land cooperative system in various regions, it is necessary to further improve the structure of rural land property rights, and to continuously enhance the completeness of rural land property rights while maintaining the integrity of rural land property rights, so as to better develop modern agriculture and follow the path of a technology-based agricultural development model.

I. The Background, Main Types and Institutional Foundation of the Emergence of Rural Land Share Cooperatives

1. The background and main types of the emergence of rural land share cooperatives. With the advancement of China's industrialization, urbanization, informatization and agricultural modernization, a large amount of rural labor has been separated from agricultural production and transferred to the secondary and tertiary industries. The aging of agriculture, the feminization of agriculture and the phenomenon of abandoned land have become prominent, restricting agricultural production. In the process of transforming traditional agriculture into modern agriculture, following the path of agricultural modernization with Chinese characteristics requires strengthening the foundational position of agriculture and advancing the process of agricultural modernization. The land share cooperative system, which originated in the developed coastal areas, has effectively resolved the contradictions between dispersed land management and agricultural modernization, between household-based management and industrialization, and between small-scale production and the large market. This new institutional arrangement is a great institutional innovation made by farmers in the process of China's marketization. The innovation of the operating system of “land share cooperation and specialized production contracting” achieves large-scale operation through cooperation in land, agricultural machinery and labor services, and resolves the supervision and incentive problems in agricultural production through modern management methods such as specialized contracting, clear responsibility and performance assessment, and is worth referencing and learning from in some places with the necessary conditions. In fact, rural land share cooperation is not an entirely new

form of land transfer or innovation in the farmland system. It retains the core of the household contract responsibility system and overcomes the limitations of administrative adjustments such as land subcontracting and leasing. The emergence and development of the share cooperative system, and this change in which the land management rights dispersed among households are concentrated into share cooperative organizations, undoubtedly have a profound impact on the internal rights structure, technological progress and economies of scale of rural microeconomic entities. Rural land share cooperation emphasizes that farmers contribute their land contractual management rights as shares for cooperative participation. Through the form of establishing land share cooperatives, by market means the land management rights are transformed from physical form into value form, implementing quantified equity shares and a dividend distribution mechanism according to shares, achieving large-scale land operation and centralized development. It is a new development of the separation of contracting rights and management rights under the household contract responsibility system, and is an innovation and development of the agricultural operating system. According to differences in the method of share contribution, scope of share contribution, method of operation and method of dividend distribution, land share cooperatives can be divided into different types, mainly including share allocation type land share cooperatives, entrusted type land share cooperatives and composite type land share cooperatives. At present, in the process of transforming the agricultural development model, continuously improving agricultural production conditions and vigorously developing modern agriculture must be based on large-scale land operation, making full use of the inherent advantages of land share cooperatives, vigorously developing intensive and large-scale agricultural operation, improving agricultural industrialization and land productivity, promoting agricultural efficiency and increasing farmers' income, and exploring a new path for the construction of a new socialist countryside and the development of modern agriculture.

2. The institutional foundation of the emergence of rural land share cooperatives

Rural land cooperatives originate from the creativity of farmers and are bottom-up induced institutional change, and their institutional foundation lies in the land share cooperative system. The land share cooperative system is a transitional institutional arrangement under specific conditions. Institutions, especially the property rights system that protects individuals' legitimate interests, are one of the key factors in economic growth. A land rights transfer system full of institutional vitality is an important guarantee for the efficient allocation of land. The institutional foundation of rural land share cooperatives lies in the land share cooperative system. Farmers contribute land at a valued price as shares, and its essence lies in valuing farmers' contractual management rights. The evolution of the rural land use system follows the principle of diminishing endogenous transaction costs, while the common ownership and closed governance of the farmland share cooperative system will inevitably lead to relatively high endogenous transaction costs. The way to resolve this contradiction is to move toward the joint-stock system. Timely clarification of the property rights structure, selection of governance contracts and innovation of the distribution system are effective ways to reduce endogenous transaction costs and enhance the institutional performance of China's farmland share cooperative system. The pilot reform of the rural land share cooperative system carried out in the 1980s in Nanhai, Guangdong and other places has now developed to a certain scale in Jiangsu and other places, and in practical work models worthy of reference such as the Nanhai model and the Kunshan model have also emerged. The land share cooperative system, in the form of share-holding and cooperation, achieves integration in organizational and management forms, satisfies multiple needs within the community through the share-holding form of income distribution and disperses market risks, and on the basis of integration, through the centralization of decision-making power, achieves the greatest possible tapping and collective sharing of various potential gains such as land value-added income. One of the institutional performance aspects of rural land share cooperatives is that after farmers contribute their land as shares, the collective interests of the cooperative are linked with the individual interests of farmers, forming a joint force, promoting the development of modern agriculture, and improving the ability to withstand natural disasters and market risks, while large-scale operation forms new production bases and reduces the cost for farmers to enter the market. The second institutional performance aspect of rural land share cooperatives is that this institutional arrangement not only recognizes farmers' income rights to land when the land is used for agriculture, but also safeguards farmers' sharing of land value-added income after the land is used for non-agricultural purposes, realizes the transition of farmers' land rights from natural form to capital form, promotes the reasonable transfer of land, and promotes the transfer of rural labor and the linked development of the primary, secondary and tertiary industries. The establishment and practice of rural land share cooperatives is an important option for the reform and innovation of the rural land system, for the protection of farmers' rights and interests in participating in and sharing land value-added income, and for the coordinated development of urban and rural economies and societies.

II. The Governance Mechanism and Development Trend of Rural Land Cooperatives

⟦NL> 1. The governance mechanism of rural land cooperatives

The governance mechanism of rural land cooperatives involves all aspects, covering shareholder formation and decision-making mechanisms, governance mechanisms for rationally setting equity shares, social risk prevention mechanisms, member exit mechanisms, and so on. Rural land share cooperatives emphasize changing the management method, being market-oriented and efficiency-targeted, and implementing large-scale operation. As a form of organizational and institutional innovation, the farmland share cooperative system can generate external profits that economic actors cannot obtain under the existing farmland institutional arrangement, but the contradictions inherent in the rules of the farmland share cooperative system may also lead to efficiency losses. In practice, the imperfection of the rules of the farmland share cooperative system has led to efficiency losses in the farmland share cooperative system. The generation, development or decline of the farmland share cooperative system stems from the comparison between external profits and efficiency losses; to promote the generation and development of the farmland share cooperative system, it is necessary to strive to enhance its external profits and reduce efficiency losses.

In the governance process of rural land share cooperatives enhancing their external profits and reducing efficiency losses, the setting of collective equity shares makes the relatively dispersed residual claim rights relatively concentrated, and the rural collective economic organization, representing the owners of collective equity shares, holds part of the dispersed residual claim rights, which will effectively resolve the problem of excessively high management costs brought by dispersed equity shares to decision-making. At the same time, its strong position seeks bargaining power for weak small shareholders, which is conducive to preventing various immoral behaviors such as speculation by operators, thereby reducing endogenous transaction costs.