Page 152 - 2019 White Paper on the Business Environment in China
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9 White Paper on the Business Environment in China
sector. For better farm produce, a group of innovation like urban land, and to end the hukou system that bars
centers and alliances will be created, and outstanding mobility (Rhodium Group).
research will be enhanced. The reform also aims to refine
the quality supervision and standard system for farm China’s State Council and the party’s Central Committee
produce, control soil pollution and encourage agricultural jointly released a document signaling more flexibility for
businesses to gain international certifications. China rural land use rights in February 2018. The new policy has
will promote the export of competitive farm produce, moderately relaxed controls on the rights for rural land
cross-border operation of agricultural enterprises and allocated for villagers to build homes and for houses left
the establishment of global leaders in the sector (No.1 vacant by migrant workers. Rural residents will have more
Central Document Pushes). options to rent out land and to use land use rights as
collateral to borrow from banks. Banks have been reluctant
With 20 percent of the world’s population, China has to take farmland as collateral. Separating property rights
to feed its people on 7 percent of the world’s farmlands into three categories—collective ownership, contractual
(Cui and Shoemaker). Although the average size of farms rights and tradable land use rights—has rendered the
tends to increase in tandem with a country’s economic resale of land practically impossible in cases of default.
development, China’s farms lag behind the country’s status The result is that the government is now pushing land
as the world’s second-largest economy due to a number reform nationwide, incorporating new elements, such as
of what recent research has called“policy distortions”. The environmental protection, ecological growth and rural
average size of Chinese farms actually shrank between tourism. This signals an important shift in government
the 1980s and 2000s, a period of rapid economic growth priorities. Previously, the top priority for agriculture was
in the country. The two main factors causing these“policy food security to ensure self-sufficiency for key grains,
distortions” are the country’s household registration, or but the focus now is improving income and the quality
“hukou”system, and its household contract responsibility of rural life. Rigid land rights, along with weaknesses in
system, which allocates land to rural households. Under the financial market for rural areas, have made it difficult
the hukou system, which distinguishes between urban to set up rural businesses. Authorities want to let farmers
and rural households and makes it difficult for rural derive benefits from their land and housing assets,
migrants to obtain public services in cities, migrants are just like their urban counterparts. Diluting collective
unable to fully integrate into cities and are therefore ownership, however, has downsides. It increases the risk
motivated to keep their rural land holdings as insurance. that farmland may be appropriated for commercial use,
At the same time, the household contract system does and land designated for key grains may instead be used
not allow easy transfer of land between rural residents, to cultivate more profitable crops.
resulting in fragmentation of farmland (Xuan).
Despite the 2018 liberalization of land use rights,
China faces unique land policy reform challenges, authorities will not be looking to privatization anytime
too. Unlike economies where landowners have full soon. Land remains the main social safety net for farmers
property rights, collectives (the rural political unit) because the rural social security system is far from
own rural land, and the state owns urban land. Rural sufficient. For villagers who lack the necessary skills
households can only transfer “contractual use rights” to thrive in the city, land is their only productive asset.
within their collectives, while urbanization of land can Social stability is another concern. Many unemployed
only happen via state requisition. This incentivizes local migrant workers escaped urban unemployment by
governments to expropriate rural land at modest, fixed returning to their home areas and farming on the land
prices and develop it at a profit, which is a major element they still held. At the end of 2016, China still had 210
of financing for fiscal expenditures to meet GDP targets. million farmers. The slowing urban economy is unlikely
Rural households are limited to subscale farming and to be able to absorb such an enormous workforce in a
are under-compensated for their land when relocating. short time. Family farms in China will still dominate the
More efficient land allocation is needed to balance urban- future for agriculture, but corporate farming will account
rural interests and encourage mobility. Recognizing for a growing share of output. Small farms remain the
this, the 2013 Third Plenum reform program pledged norm, however, flat areas where large-scale farming is
to promote agriculture at a commercially viable scale suitable, such as Heilongjiang and Xinjiang, are attracting
by permitting consolidation of small plots into larger significant corporate investment. According to 2016
farms, to make rural nonagricultural land marketable estimates by Peking University, the average Chinese
152
sector. For better farm produce, a group of innovation like urban land, and to end the hukou system that bars
centers and alliances will be created, and outstanding mobility (Rhodium Group).
research will be enhanced. The reform also aims to refine
the quality supervision and standard system for farm China’s State Council and the party’s Central Committee
produce, control soil pollution and encourage agricultural jointly released a document signaling more flexibility for
businesses to gain international certifications. China rural land use rights in February 2018. The new policy has
will promote the export of competitive farm produce, moderately relaxed controls on the rights for rural land
cross-border operation of agricultural enterprises and allocated for villagers to build homes and for houses left
the establishment of global leaders in the sector (No.1 vacant by migrant workers. Rural residents will have more
Central Document Pushes). options to rent out land and to use land use rights as
collateral to borrow from banks. Banks have been reluctant
With 20 percent of the world’s population, China has to take farmland as collateral. Separating property rights
to feed its people on 7 percent of the world’s farmlands into three categories—collective ownership, contractual
(Cui and Shoemaker). Although the average size of farms rights and tradable land use rights—has rendered the
tends to increase in tandem with a country’s economic resale of land practically impossible in cases of default.
development, China’s farms lag behind the country’s status The result is that the government is now pushing land
as the world’s second-largest economy due to a number reform nationwide, incorporating new elements, such as
of what recent research has called“policy distortions”. The environmental protection, ecological growth and rural
average size of Chinese farms actually shrank between tourism. This signals an important shift in government
the 1980s and 2000s, a period of rapid economic growth priorities. Previously, the top priority for agriculture was
in the country. The two main factors causing these“policy food security to ensure self-sufficiency for key grains,
distortions” are the country’s household registration, or but the focus now is improving income and the quality
“hukou”system, and its household contract responsibility of rural life. Rigid land rights, along with weaknesses in
system, which allocates land to rural households. Under the financial market for rural areas, have made it difficult
the hukou system, which distinguishes between urban to set up rural businesses. Authorities want to let farmers
and rural households and makes it difficult for rural derive benefits from their land and housing assets,
migrants to obtain public services in cities, migrants are just like their urban counterparts. Diluting collective
unable to fully integrate into cities and are therefore ownership, however, has downsides. It increases the risk
motivated to keep their rural land holdings as insurance. that farmland may be appropriated for commercial use,
At the same time, the household contract system does and land designated for key grains may instead be used
not allow easy transfer of land between rural residents, to cultivate more profitable crops.
resulting in fragmentation of farmland (Xuan).
Despite the 2018 liberalization of land use rights,
China faces unique land policy reform challenges, authorities will not be looking to privatization anytime
too. Unlike economies where landowners have full soon. Land remains the main social safety net for farmers
property rights, collectives (the rural political unit) because the rural social security system is far from
own rural land, and the state owns urban land. Rural sufficient. For villagers who lack the necessary skills
households can only transfer “contractual use rights” to thrive in the city, land is their only productive asset.
within their collectives, while urbanization of land can Social stability is another concern. Many unemployed
only happen via state requisition. This incentivizes local migrant workers escaped urban unemployment by
governments to expropriate rural land at modest, fixed returning to their home areas and farming on the land
prices and develop it at a profit, which is a major element they still held. At the end of 2016, China still had 210
of financing for fiscal expenditures to meet GDP targets. million farmers. The slowing urban economy is unlikely
Rural households are limited to subscale farming and to be able to absorb such an enormous workforce in a
are under-compensated for their land when relocating. short time. Family farms in China will still dominate the
More efficient land allocation is needed to balance urban- future for agriculture, but corporate farming will account
rural interests and encourage mobility. Recognizing for a growing share of output. Small farms remain the
this, the 2013 Third Plenum reform program pledged norm, however, flat areas where large-scale farming is
to promote agriculture at a commercially viable scale suitable, such as Heilongjiang and Xinjiang, are attracting
by permitting consolidation of small plots into larger significant corporate investment. According to 2016
farms, to make rural nonagricultural land marketable estimates by Peking University, the average Chinese
152
