1. China’s land property rights problem
Xintong Hou
Introduction
Land is the most basic asset of and the best social welfare guaranty for farmers. As a
result, implementing secure land rights will not only encourage farmers to make more
mid- to long-term investments, but has also been shown to stimulate the rural
land-transfer market which further promotes agricultural efficiency and overall
economic growth. However, there is a difference between secure investor property
rights and loosely defined individual land property rights in China. Although has once
been considered as a major driver of China’s rapid economic growth, it is now
gradually veer those being deprived of land into violence and social unrest, which
may undermine China’s social stability and long-term sustainable growth. In this
article, I want to discuss the unique history of Chinese reform about land property
rights, the problem with the current vague land property rights and the possible
solutions based on the main ideas from three books: The Rise of the Western World;
One Economics, Many Recipes and The White Man’s Burden.
1 Some facts based on literature review
In The Rise of the Western World, North argues that secure property rights are a
necessary condition for economic development. However, China’s remarkable
economic growth in recent decades was achieved with poorly-defined property rights
and a relatively weak legal system. How, then, has China achieved such economic
growth? Rodrik in his book One Economics, Many Recipes answers this question. He
underline that economic growth should be context-specific. In other words, social
arrangements can be equally important as the state institutions and that small
institutional changes specific to the context can make a big difference to growth. And
as a matter of fact, in developing and transition countries, a lack of well-defined

2. formal property rights and legal system is the norm rather than the exception. As a
result, rather than to force them to follow exactly the Washington Consensus asks,
more policy space should be given to these countries. The reason could also be found
in Easterly’s book The White Man’s Burden. The same as Rodrik, Easterly also
emphasize on local knowledge and gradualism. Based on the failure of foreign aid, he
believes that economic development could only be indigenous and bottom up rather
than imposed by outsiders since accountability and feedback—the two drivers of
economic growth—are not attainable by foreigners.
The gradual improvement of property rights for private sectors in China illustrates the
above points. In the 1980s and 1990s, the town village enterprise (TVEs) achieved a
rapid growth. Although the TVEs did not have clearly defined property rights, the
sector has achieved remarkable growth. Many articles have talked about this puzzle.
Li (1996) develops a model of how ambiguous property rights can lead to growth.
Due to the lack of formal protections on the property rights, the uncertainty related to
doing business is very high. As a result, the transaction cost to write a complete
contract is often prohibitive. In this context, the ambiguous property rights
arrangement, which often involves local officials as shareholders of TVEs, may be a
better option because it can help secure protections from the local government and
reduce impediments to reform at the local level. In a word, high transaction costs
provide a context which ambiguous property rights can be more efficient under
certain conditions than well-defined property rights. Che and Qian (1998), using
township and village enterprises (TVEs) as an example, further test the idea that in the
absence of an impartial third party to enforce contracts, entrepreneurs may receive
better protection by teaming with local government than by operating as pure private
enterprises which have to rely on the ill-functioning formal legal system.
This situation changed after 1994 tax reform. The reason, according to Wu (2003), is
that when local expropriation activities are restricted in an improved fiscal system,
local governments, who have enormous stakes in local economic growth under
China’s de facto federal system, make efforts in protecting private property rights.

3. Provided that local governments credibly make the commitment, the central
government officially grants and enforces private property rights for its own interests
in securing fiscal revenues.
Different from the gradual improvement of property rights for private sectors, there is
a severe lag for the development of individual land property rights in China. Some
scholars (Zhang, 2006) have argued that on the one hand, local governments provide
strong protection for business investment, in particular in regions with a large FDI
presence. On the other hand, local governments take advantage of the loopholes in the
law to seize land from farmers without sufficient compensation. The divergence in
degrees of protections of property rights between investors and individuals is an
important contributing factor to China’s rapid economic growth.
However, just as Rodrik and Easterly both argues, although gradualism for
development, such as getting rid of binding constraints for development at first and
taking informal rules and norms into consideration are important, fully adopting
formal institutions, which including well-established property rights is the ultimate
determinants of maintaining sustainable growth. In this case, then, gradually
improving individual land property rights is a necessary step for the further
development of China. Before talking about the problems caused by lacking of land
property rights, I will introduce the history of land reform at first.
2. Historical background
After coming into power in 1949, the Communist Party’s initial land reform gave
farmers full, private ownership of their small farms through a Land Reform Law and
other accompanying regulations. Through this law Land, titles or certificates of arable
lands were issued to farmers. This“land to the tiller” campaign lifted hundreds of
millions of poor Chinese out of destitution and hunger. Annual crop production
increased 70 percent from 113.2 million tons to 192.7 million tons between 1949 and
1956. Similarly, total farm income rose 85 percent during the same period. However,

4. in the mid-1950s, China followed in the footsteps of the former Soviet Union and
started the collectivization of all farming. Private ownership of land became illegal. In
1958 the situation was further exacerbated, with a move to giant “communes” and the
termination of the“private lots” that had allowed farmers to hold up to five percent of
the land privately, outside the collective-farming system. This movement finally led to
the Great Famine from 1958 and 1962, causing 15 to 30 million deaths. Finally,
modest reforms, beginning in 1962, ratcheted back the production unit from the
communes to village teams and restored private plots. Production then began a long,
slow recovery.
In the late 1970s, after Deng Xiaoping came into power, several regions of China
began to experiment with tearing down the collective farms and giving individual
farmers limited freedom to farm. Technically, the collectives retained ownership of
the land and allocated or “contracted out” land parcels to individual households for
private farming for a period of time. The land allocation was mostly in equal per
capita shares based on family size. The contracting households, in return, were
obligated to fulfill their “responsibilities” in harvest quotas or taxes to the collectives
every year. This scheme was called the “Household Responsibility System” or the
HRS. After its initial success, the experiment spread rapidly and became the
fundamental system of rural land tenure throughout China. The HRS was an
enormously successful reform, lifting the living standards of hundreds of millions of
rural people and was the driving force behind the single greatest poverty-reduction
achievement worldwide in the past three decades.
Despite the achievements of the HRS, several looming questions were left unresolved
and still remain. As a response, the Chinese government adopted a series of policies
and laws to address these issues. The most important four of them are the 1993 policy
directive issued by central government that extended farmers’ land-use rights to a
continuous and fixed term of 30 years; the 1998 revised Land Management Law that
embodied the 30-year policy in formal law for the first time; the 2002 Rural Land
Contracting Law which was devoted entirely to the relationship between collectives’

5. land-ownership rights and farmers’ land-use rights; and the 2007 Property Law, the
first comprehensive civil property code in modern Chinese history, in which
characterizes farmers ‘rural land-use rights as property rights or rights in rem.
3. The problems of the current land property rights
Firstly, a large amount of rural land is taken or expropriated by governments for
purely private or commercial purposes. According to a 17-province,
1,962-farmer/respondent survey conducted in China in 2005by the Seattle-based
Rural Development Institute, Renmin University (Beijing), and Michigan State
University, incidents of land takings have increased more than 15 times during the
past 10 years and appear to be accelerating. As I see it, this problem emerges because
China’s special situation. On the one hand, the rule of law is not firmly established in
China, and the government relies heavily on policy or administrative initiatives to
push its agenda. On the other hand, there is a completing relationship for economic
interests between center government and local governments especially after tax
revenue system reform in 1994. After that reform, power over taxation was
centralized and local governments lost most of their freedom to collect and keep local
taxes. The direct result of that was the existence of fiscal shortages of local
governments and thus forcing them to seek extra-budgetary revenue. In fact,
extra-budgetary revenue makes up more than 60 percent of local governmental
expenditures and the biggest source of extra-budgetary revenue is the sale or lease of
land (often rural land). Aside from its role as a primary source of local governments’
patronage and wealth, it also became a resource for local development by attracting
investment and boosting real estate. Under these circumstances, without strong
supporting institutions and accompanying reforms, the financial incentives behind
these land takings are too strong for local governments to resist.. While the farmers’
rights exist on paper, in practice the decision-making processes are far from
transparent, participatory, or fair.

6. Secondly, a lack of due process prevents farmers from voicing their opinions. Under
the current legal regime, farmers often do not receive due process, owing to
insufficient compensation and a lack of procedural transparency. The 2005 survey
indicates that approximately 30 percent of affected farmers were not notified of land
takings in advance. On the amount of compensation, only one out of every five
farmers was consulted. Less than 1 percent of all surveyed farmers were able to file
formal lawsuits to resolve these grievances. To make matters even worse,
dispossessed farmers seldom have access to independent courts for an unbiased ruling
and sometimes resort to violent confrontations.
Thirdly, compensation for farmers’ lost land is often grossly inadequate. The 1998
LML sets up a specific formula to determine the amount of two primary types of
compensation: one for loss of land and the other for resettlement. The law explicitly
provides that the compensation for loss of land should be 6 to 10 times the average
annual yield of the land, and the resettlement subsidy should be between 4 to 6 times
the average annual yields (Article 47 of the LML). However, since this formula does
not take market value into account, it does not allow farmers to profit from the
appreciation of land value due to development projects. Besides, the compensation is
not paid to the farmers but to the collective. The collective then decides how much
will go into the hands of farmers. Since the farmers usually know little about their
legal rights, as many studies reveal, land-losing farmers typically receive only 10–20
percent of the real market value of the expropriated land.
Fourthly, despite mortgage is universally accepted as a means for urban residents to
obtain credit, the land rights in China cannot be freely transferred in the market
because of uncertainties, lack of documentation, or legal restraints, and thus become
“dead capital”. In China, the market for theoretically transferable agricultural land is
very constrained for the last two decades. The rural land-transfer market in China’s
countryside is still at a very early stage. Roughly a third of rural households have been
parties to a land transfer. Scrutinized more closely, nearly half of these transactions
cannot be construed as market transactions because they were at will, oral transfers

7. among relatives of the same village without any rent paid (Zhu Keliang, 2006).
Another problem with land transferring is due to ideological reason. In China, the
term “landlord” is so sensitive and carries so much political baggage that a serious
assessment of mortgaging land is political infeasible. Chinese laws ban mortgaging
arable land based on the consumption that farmers may engage in unwise deals, using
their land as collateral, and eventually losing the land to banks or rich people. The
controversy surrounding rural land mortgage was reflected in the drafting of the 2007
Property Law. One of the earlier drafts of the Property Law actually allowed
mortgages, but the clause was eventually scratched off.
Finally, since the 30 years began in the late 1990s (1997–99 in particular), majority of
farmers’ rights to their land are set to expire by the late 2020s. A telling provision in
the new Property Law is that the term for urban land-use rights—currently 70
years—will be automatically renewed. However, in the case of rural land, when the
present 30-year contract term expires, the law states that “farmers should continue
extending the contract according to relevant law” (Article 126 of the Property Law).
The question of the length and the manner of the extension is actually stated very
vague. While the best scenario would be automatic and repeated renewal by operation
of law, which would entail the least amount of disturbance and uncertainty, the
ideological preference, again, may become the obstacle for the government to grant
full, private land property rights.
To sum up, the problems with the current land property rights in China lie in
insecurity, uncertainty and non-transparency, and thus prevent farmers from making
more mid- to long-term investments as well as stimulating the rural land-transfer
market which would further promotes agricultural efficiency and overall economic
growth. In other words, although vague land property rights (HRS) was once an
effective expediency based on the specific context of China, keeping fixed on it will
undermine China’s further development and stability.

8. 4. Political feasible solutions
As aforementioned, as the government considers collective ownership of rural land
one of the fundamental features of a “socialist” country, so it is unlikely that truly
private ownership of land will come about in the foreseeable future. So the political
feasibility would be the top priority of current solutions and recommendations.
My solutions are focused on improving the uncertainty and non-transparency of the
rights for land as well as perfecting the implementation of the existed laws.
Firstly, the issuance of documentation to all rural families should be pushed harder
since valid contracts or certificates will provide stronger protection for farmers’ rights
and interests as well as encouraging them to make mid- to long-term investment. To
make local governments to implement this process, the central government should
clearly signal that the achievement of this goal will be one of the key issues on which
the adequacy of officials’ performance will be judged. In other words, the local
officials should be held accountable for the implementation of issuing valid land
contrasts and certificates.
Secondly, it is essential to improve compensation standards and procedural fairness in
land taking. Because of farmers usually have a relatively low education and skill level,
it is extremely difficult for them to quickly transform into urban workers after their
land is appropriated. Therefore, the compensation standard should be set ensure
long-term livelihood. Equally important, the law needs to make sure that the
compensation actually goes to the land-losing farmers. In this way, the feedback
mechanism should be improved. Moreover, affected farmers should have the right to
participate in and influence the decision-making processes which should bring all the
parties—government, commercial developers, collectives, and farmers together to
enhance the procedural fairness and transparency. Also, farmers should be given easy
accessibility to public hearings and legal remedies.
Finally, the progress on implementation of local governments should be monitored.
Just as an old saying of China “the power of an official in charge is more effective

9. than the power of a county magistrate” indicates, the final success of the policies
depends on the implementation of local governments. As a result, the central
government should conduct continuing assessments through for example farmer
interviews telephone surveys. Besides, steps such as random selection of counties,
villages and direct farmer interviews without the presence of local officials should be
taken to ensure the accuracy of the findings.
5. Conclusion
China’s successful transition away from collective farming to “Household
Responsibility System” proves the arguments of Rodrik and Easterly by showing the
potential impact of improved land-tenure security on agricultural production.
However, the informal expediency of development should finally be institutionalized
to formal property rights to ensure sustainable and stable economic development as
shown by the more and more serious problems with the current informal and
incomplete land property rights. This requires further significant legal and policy
reforms as well as concrete implementation at the local level of the already existing
body of law.

10. Reference
1. Douglass C. North & Robert Paul Thomas. The Rise of the Western World: A New
Economic History. Cambridge University Press. 1973.
2. Dani Rodrik. One Economics Many Recipes: Globalization, Institutions, and
Economic Growth. Princeton University Press. 2007.
3. William Easterly. The White Man’s Burden: Why the West’s Efforts to Aid the
Rest Have Done So Much Ill and So Little Good. Penguin Group (USA) Inc. 2006.
4. Wenbo Wu. The Origin of Property Rights In China: A Game between Central
and Local Governments. The Chinese Economist Society Beijing Conference,
2003.
5. Yan Qin and Yunbo Zhou. Transformation of Property Rights in China.
International Review of Business Research Papers, Vol. 4 No.2 March 2008
Pp.243-248.
6. Zhu Keliang and Roy Prosterman. Securing Land Rights for Chinese Farmers: A
Leap Forward for Stability and Growth. CATO Institute. October 15, 2007, no. 3
7. Xiaobo Zhang. Asymmetric Property Rights in China’s Economic Growth.
International Food Policy Research Institute (IFPRI). January 6-8, 2006.