Caixin
Oct 08, 2014 12:30 PM

Reforms to Liberalize the Land Market Cannot Drift Off Course

Given their importance, land issues deserve close public attention. The government's plan to allow farmers to more freely rent, sell and mortgage their land, announced last year at the third plenum of the 18th Central Committee, was a milestone. But its implementation has proved to be difficult.

Many analysts and scholars have sparred over the issues in recent months. This is a healthy development.

Nevertheless, amid the differing views, China must not veer from its decision to liberalize the land market. The third plenum blueprint provides the basis and starting point for land reform; there must be no backing off.

The differences of opinion on how land reform should proceed are major. They are based on fundamentally different understanding of what the problem is, and has been historically.

Land – along with capital and labor – is a major factor of production in a market economy. As China's land reform deepens, one clear goal that has emerged is to treat all land targeted for development the same, whether it is rural or urban land. Yet detractors are once again questioning such equal treatment.

Some of them have also raised concerns over an earlier consensus to end the official requisition of rural land unless for purposes of public use.

In another area of dispute, some scholars said land use regulation – even of the sort that is needed for effective urbanisation, as it is the basis of property rights – is incompatible with the market. Hence, they said, the market should play no role in land use regulation, except in the secondary market.

In their analysis, the scholars also emphasised the importance of government power, regulation and penalties. The recognition and protection of land rights were rarely mentioned.

Clearly, in land reform, the battle now is over whether China should persist with the third plenum's call to allow the market to play a decisive role in the economy. Respect for land rights is what divides the reformers and their dissenters.

Some people have also called for more attention on regulating the use of rural and urban land, instead of focusing on ownership. This does not accord with reality.

For a long time, rural land in China must be acquired by the government before it can be resold for development – this is clearly discriminatory, preventing farmers from benefiting from their own land. It is the reason the third plenum's blueprint proposed the equal treatment of urban and rural land, which would allow farmers to sell their land.

Under these new rules, however, if land zoning does not change to allow for different uses of the land, farmers may still not be able to benefit from their ability to sell more freely.

Thus, in reality, some farmers who sold their land have not strictly followed the letter of the law. If the government wants to control this underground market, it would have to protect farmers' right to exploit their land resource legally.

Some scholars argue that land zoning rules should give the government the development rights of land owned by farmers. They believe land ownership and development rights can be separated. This is incorrect.

Development rights refer to the right to exploit and benefit from the buildings and facilities built on the piece of land. In China, this right to develop the land was hived off from ownership rights. There's no doubt development rights are a kind of property rights.

In advanced economies, land use regulations seek to minimise or remove the external costs of any development, but they do not affect the rights of the property owner.

Land authorities have a duty to explain to landowners why they may not decide how their land is used. If restrictions are to be placed on land use for reasons of public good and the prevention of external costs, these reasons must be clearly supported by the community and conveyed to the owners. In other words, the market should still be the driver of how the land is used.

The recent debate on land reform casts a shadow on its progress. We hope the government will unveil its measures for implementing its third plenum decision as soon as possible.

After careful study and review, it must detail how it intends to "let the collective owners of farmland manage their own land," by selling and leasing it.

Land reform involves many complex issues, and touches on many vested interests. In its implementation, government leaders should adopt a cautious and steady approach, using pilot programmes to shape their policies.

In fact, China has over 10 years of experience in rolling out pilot projects for rural land, but the lack of tax and legal reform has made it hard for such initiatives to be effective.

Land reform is tied to social justice and stability. Hence, with the economy slowing and under stress, there's no better time to implement land reform.

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