Unlock the potential
Wang Huiyao says rural land reform could power the next wave of growth on the mainland
Since the inception of China’s “reform and opening up” policy, the nation has introduced landmark reforms every decade or so. These major reforms in pursuit of national development and economic modernisation include the household contract responsibility system in 1982, the urban housing reform in 1994 and China’s entry into the World Trade Organization in 2001.
By 2021, having achieved the goal of creating a moderately prosperous society and lifting hundreds of millions of people out of poverty, China set its sights on “common prosperity” as its next grand objective.
Nevertheless, two decades into the new millennium, a reform of comparable scale remains conspicuously absent and the road to common prosperity is fraught with hurdles, particularly the urban-rural divide. According to the National Bureau of Statistics, in 2022, the per-capita disposable income of rural areas was only about 40 per cent of that in the urban areas.
This chasm – coupled with a persistent shortfall in domestic demand, a stagnating real estate sector and diminishing economic confidence – highlights the pressing need for China to chart innovative pathways to bolster productivity.
Among the most promising of these pathways is the efficient use of underutilised rural land and aiding farmers’ transition to more economically productive urban roles. An ambitious reform eagerly anticipated nationwide could invigorate public confidence and urbanisation while addressing the dire need for domestic demand in China’s economy.
A critical step in this direction is the issuance of property rights certificates for homestead lands to rural residents, a measure crucial for granting them legal rights equivalent to their urban counterparts.
China’s existing land ownership system mandates that rural lands, including homestead lands designated for residential use, are collectively owned. It severely curtails rural residents’ ability to lease, sell or mortgage their homesteads.
Initially established to protect rural land from being acquired by urban and affluent individuals, the non-tradeable characteristics of homestead use rights and restrictive land transfer model in China’s rural areas have hindered rural economic development and exacerbated the wealth gap between urban and rural residents.
While the 1994 urban housing reform triggered a boom in property market prosperity and wealth accumulation for urban dwellers, rural residents in China face stringent restrictions on the use of their land and find it difficult to capitalise on property assets.
At the Third Plenary Session of the 18th Central Committee of the Communist Party of China in November 2013, the central government called for the “creation of a unified market for construction land in urban and rural areas”. Building on this foundation in 2015, the government initiated three pilot reforms of the rural land system, including the reform of the homestead system.
The Central Committee’s 2018 “No 1 Document” introduced the separation of the ownership, contractual and management rights for contracted rural land. The central rural work conference in December 2020 identified the next 15 years as essential for dismantling the urban-rural dual structure and perfecting an integrated urban-rural development system.
Those policies have led to pilot reforms on a limited scale across the country. Drawing on more than a decade of trials, it is time to take a crucial step forward in addressing the urban-rural divide and resolve the issuance of property rights certificates for homestead lands to rural residents.
This initiative could spark urban-torural migration for retirement or tourism, opening new pathways for economic growth and bringing about rural rejuvenation. Moreover, it promises to empower newer generations of farmers to derive asset income from their underused rural homestead lands, thus strengthening their financial footing for urban integration.
At the end of 2023, the total number of migrant workers in China was close to 300 million, up by more than 13 per cent from 2012. Empowering these people to sell, lease or mortgage their rural homesteads could provide them with the funds needed to cement their urban residency, thereby invigorating China’s struggling real estate market and stimulating the expansion of domestic demand.
Critics opposing reforms around rural homestead land might cite the potential exploitation of farmers as a concern. However, this condescendingly overlooks the capacity of rural residents to effectively engage in market economic activities.
Last month’s fourth meeting of the Central Commission for Comprehensively Deepening Reform highlighted the importance of further comprehensive reform. The readout of the meeting included a reform package described as both a continuation of efforts initiated by the Central Committee and a new chapter in China’s journey towards modernisation – arguably more ambitious than Beijing’s other declarations in recent years.
More than a decade has passed since the initiation of rural reforms in 2013. Seizing the current momentum to improve rural land use and promptly re-engaging with these reforms is critical for tapping the potential of China’s real estate sector and securing sustained economic expansion.
The proposed reforms, which are aimed at granting rural residents equal legal rights to their land, hold the promise of unlocking the economic potential of the country’s rural population, promoting the efficient use of land resources and bringing about a more equitable distribution of wealth.
Following years of detailed preparation and pilot programmes in the rural land system, finally ensuring the same property rights for farmers as their urban counterparts as part of the effort towards common prosperity is long overdue.
The restrictive land transfer model in China’s rural areas [has] hindered rural economic development
Wang Huiyao is the founder of the Centre for China and Globalisation, a Beijing-based nongovernmental think tank