What institutional dilemmas does the separation of the three rights of rural land face?
The "separation of the three rights" of agricultural land cannot solve the problems of farmers' incomplete land rights and the lack of institutional safeguards, nor does it involve reform of the collective land ownership system.
Since May, discussion of China's rural problems has once again become lively. Among these, the most eye-catching is the statement by China's top leader Xi Jinping on the "separation of the three rights" of rural land. Although this formulation was not proposed for the first time, the "Anhui speech" centered on it is clearly regarded as the direction of China's rural policy adjustment.
At the end of April, Xi Jinping went to Xiaogang Village in Fengyang County, Anhui Province, the birthplace of China's rural reform, to hold a symposium, calling for adherence to collective ownership of rural land, adherence to a foundation of household management, and adherence to stable land contracting relations. At the same time, the contracted management right of agricultural land should be divided into contracting right and management right, achieving the separation and parallel operation of contracting right and management right.
Xi Jinping proposed that this "conforms to farmers' desire to retain land contracting rights and transfer land management rights" and is "another major institutional innovation in rural reform." Thereafter, around the connotations and implementation issues of the "separation of the three rights" of agricultural land, academic discussion and official media publicity and interpretation have formed an interesting contrast, each differing from the other.
At present, China's total agricultural output value accounts for about 9% of GDP, but agricultural labor accounts for more than 20% of China's labor force. China still has 270 million migrant workers engaged in manufacturing and services, mainly living in cities, but most of them find it difficult to settle in cities and enjoy urban education, medical care and social security.
This shows that China's agricultural sector does not need so much labor. As large agricultural machinery gradually becomes widespread in rural areas, demand for agricultural labor tends to decrease further. Under such circumstances, many farmers hope to rent out or sublease their land, so that while working in cities they can still enjoy control over cultivated land and its returns.
According to statistics from China's Ministry of Agriculture, by the end of 2015, the area of transferred cultivated land in China reached as much as 447 million mu, accounting for 33.3% of the total cultivated land under household contract management. Of this, nearly 80% of agricultural land transfers were through leasing and subcontracting. At present, China adds more than 40 million mu of transferred area each year, involving millions of rural households.
Under such circumstances, giving farmers long-term, stable land rights is very important for accelerating the urbanization process, promoting appropriately scaled agricultural operations, and improving agricultural production efficiency. From the official interpretation, the "separation of the three rights" of agricultural land is mainly intended to solve the problems of appropriately scaled agricultural operations and socialized agricultural services.
As an official solution, the "separation of the three rights" of agricultural land has three key points: first, rural land still belongs to collective ownership; second, farmer households enjoy the contracting right to agricultural land, which is in fact the right of use; third, farmers may transfer the right to cultivate or operate to cooperatives, specialized large-scale households and companies, thereby obtaining property income.
Obviously, the official expectation is that while adhering to collective ownership, farmers can have more control over land, feel more at ease in transferring land, and increase the scope and depth of scaled operations. This is a plan that does not harm the ideology of public ownership. The question is to what extent this plan can change the problem of low agricultural production efficiency in China.
The answer is uncertain. This formulation cannot solve the deep-seated contradictions in rural land. As a solution, it is also not thorough enough. Some experts even believe that the problems brought by the reform of the "separation of the three rights" of agricultural land may be more numerous than those it solves. This is because the institutional arrangement for agricultural land originally needed simplification, but now it has instead become more complex.
China's collective land ownership system took shape in the early 1960s. At that time, the private land property rights that hundreds of millions of farmers had obtained through the land reform in the early 1950s were "collectivized," with unified management and operation by collectives. Later, because collective operation was inefficient and food shortages persisted for a long time, farmers in Xiaogang Village, Anhui, took the risk of allocating land to households for cultivation, solving the food problem in one stroke. Thereafter, this "collective ownership, household contracting" was recognized by the Chinese Communist Party authorities and widely implemented across the country.
It can thus be seen that collective ownership of agricultural land was originally the result of incomplete rural reform in the 1980s. For the farmers of Xiaogang Village, what they expected to obtain was ownership of the land, not merely contracted management rights. However, constrained by many historical and practical factors, it was impossible to go back, so collective ownership could only be retained, with the focus placed on substantiating farmers' contracted management rights.
Thereafter, the Rural Land Contracting Law, implemented in March 2003, codified the above institutional arrangement into law. During the legislative process, some people suggested that rural land contracted management rights should be changed to "agricultural land use rights," as this expression would be more concise and more accurate. But this suggestion was not adopted. The Property Law promulgated in March 2007 followed this formulation.
In other words, for more than 20 years, the core of China's rural land legislation has been to "leave ownership nominal and substantiate use rights." Just like urban state-owned land, urban governments represent the state and hold nominal land ownership, while companies, enterprises and individuals acquire "urban land use rights" through public transactions and may freely buy, sell and transfer them.
Especially in recent years, the Chinese government has been advancing a new round of pilot land system reform. For example, authorized by the Standing Committee of the National People's Congress, 232 counties (cities and districts) are currently carrying out pilots for mortgage loans backed by agricultural land management rights. The core of these pilots is to allow farmers to have the right to dispose of contracted land. The right of disposal is also the core of land property rights.
From the current perspective, the "separation of the three rights" of agricultural land cannot solve the problems of farmers' incomplete land rights and the lack of institutional safeguards, nor does it involve reform of the collective land ownership system. It is more focused on improving the depth and flexibility of scaled operations. As for what the nature of agricultural land management rights is and whether certificates are needed to confirm them, this remains uncertain, and new troubles will also be encountered in implementation.
In May this year, Sun Zhonghua, a senior policy official at the Ministry of Agriculture, published an article arguing that cultivated land under household contract can be divided into ownership rights, contracting rights and management rights. Agricultural land contracting rights, as property rights, may be allowed to be mortgaged; however, agricultural land management rights are a kind of creditor's right, and mortgage rights should not be established over them, otherwise serious risks will be brought to the property rights holder.
The article pointed out that after the 2014 Chinese Communist Party "No. 1 Document" proposed "allowing the management rights of contracted land to be mortgaged to financial institutions," localities generally interpreted this as allowing "agricultural land management rights" to be mortgaged. Some local governments issued documents stipulating that in the confirmation and registration of agricultural land rights, contracted farmer households should be issued land contracting right certificates, and operators should be issued land management right certificates, allowing operators to use land management rights as collateral to apply to banks for loans.
Farmers, as users of contracted cultivated land, have no problem obtaining mortgage loans; however, for operators to use rented land as collateral at a bank is equivalent to using a rented house as collateral, which is a completely wrong practice. At present, the scale of agricultural land mortgage loans in China is growing larger and larger, and most of them involve operators using rented land as collateral to banks. The risks are very great and deserve high attention.
This in turn shows that agricultural land management rights are not an independent right in themselves; they are derived from farmers' contracting rights on the basis of land transfer contracts. In other words, the collective nominally owns the cultivated land, but farmer households actually hold the right to use the land. Whomever a farmer household is willing to rent its land to holds the management right to that land. But this management right is only a right used for production and operation, not a property right, and certainly cannot be used to establish mortgage rights.
The above biased practices of local governments pose new challenges to the institutional design of the "separation of the three rights" of agricultural land. This also prompts people to think about whether it is really necessary to separate agricultural land management rights from contracting rights. Whether viewed historically or in practice, whether this design can become "another major institutional innovation in China's rural reform" still remains to be observed in practice.
If China wants to build modern agriculture, it must improve agricultural production efficiency and appropriately increase the scale of land operations. The prerequisite for achieving this goal is to handle the relationship between the state and farmers well, substantiate agricultural land contracting rights, accelerate the confirmation of rights and issuance of certificates to farmer households, and grant farmers complete land property rights. As for agricultural land management rights, this is in fact a matter of negotiation between farmers and operators. Whether to establish management rights and how transfer contracts are signed are not the most important issues.