Poverty in China - Land Policy and Corruption

Land Policy and Corruption

Just as Chinese citizens are either registered as urban or rural under the Hukou system, land in China is zoned as either rural or urban. Under Chinese property law, there is no privately held land. Urban land is owned by the state, which grants land rights for a set number of years. Reforms in the late 1980s and 1990s allowed for transactions in urban land, enabling citizens to sell their land and buildings, or mortgage them to borrow, while still retaining state ownership. Rural, or “collectively owned land,” is leased by the state for periods of 30 years, and is theoretically reserved for agricultural purposes, housing and services for farmers. Peasants have long-term tenure as long as they sow the land, but they cannot mortgage or sell the use rights. The biggest distortion, however, concerns moving land from rural to urban use. China is a densely populated, water-scarce country whose comparative advantage lies more in manufacturing and services than in agriculture. The fact that many peasants cannot earn a decent living as farmers is a signal that their labor is more useful in urban employment, hence the hundreds of millions of people who have migrated. But, at the same time, it is efficient to alienate some of the land out of agriculture for urban use.

In China, that conversion is handled administratively, requiring central approval. Farmers are compensated based on the agricultural value of the land. But the reason to convert land – especially in the fringes around cities – is that the commercial value of the land for urban use is higher than its value for agriculture. So, even if China’s laws on land are followed scrupulously, the conversion does not generate a high income for the peasants. There are cases in which the conversion is done transparently, the use rights over the land auctioned, and the revenue collected put into the public budget to finance public goods. But still the peasants get relatively poor recompense. One government study found that 62% of displaced peasants were worse off after land conversion.

Secure land tenure is recognized as a powerful tool to reduce poverty, and the central government has begun guaranteeing all farmers 30-year land rights, strictly limiting expropriations, documenting and publicizing farmers’ rights, and requiring sufficient compensation when farmers’ lands are expropriated. A 2010 survey of 17 provinces by Landesa found improved documentation of farmer’s land rights, but much room for improvement: 63% of farming families have been issued land-rights certificates and 53% have land-rights contracts, but only 44% have been issued both documents (as is required by law) and 29% have no document at all; farmers who have been issued these documents are far more likely to make long-term investments in their land and are financially benefiting from those investments.

There have been reports of cases where peasants complain and demonstrate because the conversions have not been done in a transparent way, and there have been accusations of corruption of local officials. The government has published statistics on violent protests involving more than 100 people, and that number grew steadily up to 2005 (84,000 incidents), before dropping a reported 20% in 2006. Up until 2006, the way in which agricultural land was being converted to urban land probably contributed unnecessarily to increasing inequality. It has been noted that compared to other developing countries, virtually all peasants in China have land. If that asset could be used either as collateral for borrowing, or could be sold to provide some capital before migrants moved to the city, then it would have been helping those who were in the poorer part of the income distribution. The administrative, rather than market-based, conversion of land essentially reduced the value of the main asset held by the poor.