Authors: Christopher Findlay and Andrew Watson

We’ve enjoyed reading the comments of Sherry Kong and others on the confirmation of a policy on the ability to trade in the use of land (both long term holdings and a short term rental market).

It will take some time to see the full impact of the policy and we can expect considerable regional variation. While there is likely to be an effort to protect arable land and the likelihood that many villages will continue to conduct informal land contract adjustments based on their local sense of equity and family structures change, some of the potential effects of this in agriculture could be greater ability to consolidate land into larger plots for higher levels of productivity, encouragement for migration given clarity of tenure over land, and the possibility of new forms of organisation and corporate structures in agriculture. Greater capacity to use the more liberal capital markets foreshadowed in the decision by borrowing against the use right in order to facilitate investment is also a possibility, though many observers in China still argue against developing the right to mortgage land.

Commentators in China have argued, however, that a lot of these changes have already happened, driven by market forces at least in agricultural areas closer to industrial centres. The sorts of effects listed above might be important though in some of the western areas. At least, the differential impact of the new policy is an interesting question.

What might be even more important is

- the ease of transfer of land to industrial use
- the effects on the fiscal capacity of local governments, since a big share of their revenue comes from transactions in land

The new regime will make it easier to convert collective land not used for agriculture into industrial use. Moreover the benefits of doing so will accrue directly to the collective owners, rather than be absorbed by local governments and developers. This opens up the scope for a lot of re-redevelopment of Chinese villages.

We wonder then whether the conditions are now right for a new round of dispersed industrialisation in China. Migrant labourers might well be attracted to industrial centres closer to home.

The scope to mobilise land, in the context of the images of rural workers queuing to return home following the closure of coastal export oriented factories, and alongside the big new investments in transport infrastructure in China are three important elements.

Other talking points are the impacts on local officials. A lot of their revenue and power came from procuring land and designating it for different use. Getting those transactions out into the market is a plus, but the scope remains for officials to abuse the process.

‘Land use’ on the face of it sounds like it might be all about agriculture, but as Sherry has been explaining there are some bigger stories to watch.

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See also:
Land at the heart of China’s reform
CASS gets with the fiscal program
Tax and hukou hold China back