Chinese economists hope land reform will lead to larger farms
By Jim Yardley
Sunday, October 19, 2008

BEIJING: Following days of uncertainty, the ruling Communist Party announced a rural reform policy on Sunday that for the first time would allow farmers to lease or transfer land-use rights, a step that advocates say would bolster lagging incomes in the Chinese countryside.

The new policy, announced by the Chinese state media, marks a major economic reform and is also rich in historical resonance, coinciding with the 30th anniversary of the land reforms by Deng Xiaoping, which were considered the first critical steps in the market-oriented policies that have fueled China's rapid economic growth.

For President Hu Jintao, whose tenure has disappointed some reformers, the new policy seems intended to position him as a worthy heir to Deng, considered the father of China's reform era. "The new measures adopted are seen by economists as a major breakthrough in land reforms initiated by late leader Deng Xiaoping 30 years ago," reported Xinhua, the country's official news agency.

Currently, Chinese farmers can sell what they produce but are mostly prohibited from transferring their collectively held land-use rights. Under the new policy, the government will establish markets where farmers can "subcontract, lease, exchange or swap" land-use rights or join cooperatives. Xinhua reported that giving farmers this latitude would enable them to become more efficient by increasing the size of farms while also providing income that can be used to start new businesses.

The fate of the reform program has been uncertain for the past week. Analysts had expected an announcement last Sunday after the conclusion of an important annual Communist Party planning session. But the communiqué released after the meeting made no mention of land reform, fueling speculation that opponents may have derailed the plan.

Critics had warned that weakening the existing system of collective village ownership could deprive peasants of the security of having a piece of land and possibly lead to millions of landless farmers. But the existing system has become rife with corruption, as local officials and developers have illegally seized farmland for urban expansion while paying minimal compensation to farmers.

Signs that the reforms had been approved began to appear as the week wore on. In Chengdu, a government land market opened last Monday. On Thursday, a leading Communist Party magazine published an article by one of the country's most senior officials on rural issues in which he said the party would create a market for transferring land-use rights in the countryside.

Under the current system, farmers are assigned small plots of land. Reform advocates say that allowing leasing or transfer would enable the creation of larger, more efficient farms that could bolster output. The new program also pledges to uphold "the most stringent farmland protection system" and require that local officials maintain 120 million hectares, or 297 million acres, of farmland - the minimum deemed necessary to feed the most populous nation in the world.

Deng's reforms broke up the collective use, if not ownership, of land and created a household registration system that assigned land to individual families to use as they saw fit. Those reforms enabled farm incomes to rise sharply during the early 1980s, even as city dwellers suffered.

But the later creation of an urban real estate market saw an explosion of wealth in the cities that contributed to a sharp income divide between increasingly affluent city dwellers and impoverished peasants. In recent years, rural protests have become increasingly common as disgruntled farmers have demonstrated against illegal land grabs or corrupt local officials. At the same time, tens of millions of farmers have flocked to cities in search of work, leaving plots of land to be tended by their elderly parents.

Reducing the rural-urban income gap has been a major priority for Hu - yet it has continued to widen in recent years as Chinese society has become one of the most unequal in the world.

On Sunday, Xinhua also announced the party's intention to establish a modern rural financial system to extend more credit and investment into the countryside. Chinese banking regulators have been ordered to establish 40 more rural banking institutions by the end of the year.

Increasing incomes in the countryside is a major part of the government's effort to bolster Chinese domestic consumption at a time when the overall economy is slowing. More than 700 million people are still designated as rural inhabitants, yet their spending is minimal.

Huang Yuanxi contributed research