NOTES AgriculTurAl & rurAl DEvElOpmENT 42697 Land Policy and Administration china: integrated land policy reform in a context of rapid urbanization iSSuE 36 fEBruAry 2008 By li guO, jONAThAN liNDSAy, AND pAul muNrO-fAurE iNTrODucTiON including analysis and field work in more than a dozen Over the past thirty years, China has undergone a provinces by a multi-disciplinary team of Chinese profound economic and social transformation as it and international experts, in-depth studies by DRC in moves towards a market-oriented economy. Land Shaanxi, Zhejiang, Guangdong, Sichuan, Shandong issues are implicated in this ongoing transformation and Jiangsu, and policy dialogue at various levels of in numerous ways. The allocation and security of land government. rights are key factors in China's quest for economic The DRC/World Bank collaboration has given particu- growth and social stability. Land use choices influence lar emphasis to the role of land in the context of rapid the shape and sustainability of China's rapidly growing urban expansion. The spectacular growth of cities has cities, as well as the future prospects of its agriculture. been one of the most prominent features of China's Revenue generated from land plays a critical role in recent history. From 1980 to 2005, the urban popula- local government finances and affects the relationship tion grew from 19.4 percent to 43.0 percent. Urban between different levels of government. And increas- growth has also been spatially dramatic, with the ingly, the growth and stability of the financial sector accelerating lateral expansion of cities resulting in the are linked to land-based transactions and financing rapid conversion of agricultural land. The urban-rural arrangements interface defines an arena that is ideal for examining For the last four years, the Development Research the complex interplay of all of China's most pressing Center of the State Council (DRC) and the World land issues, including those of special relevance to the Bank have been working together to develop a deeper agricultural sector. understanding of the role of land policy in China, and to identify options for moving forward on key land- ThE TrAjEcTOry Of lAND related problems and opportunities. This collabora- pOlicy rEfOrm iN chiNA tion has entailed a number of interlinked activities, Land policy in recent decades has evolved continuous- ly in response to China's economic and social changes. Under China's Constitution, urban land is owned by the State, while the principal holders of rural land rights are collectives. However, within the formal framework of State and collective ownership, individu- als and legal persons have increasing opportunities to acquire private rights over land. Since adoption of the household responsibility system in the late 70's, successive legal and policy reforms have both extended and deepened these private rights. Under the Land Administration Law (LAL), farmers have 30-year rights over land allocated to them by the collective; these rights have been further strengthened with the passage of the Rural Land Contracting Law in 2002. In the case of urban land, ThE WOrlD BANK the LAL provides for marketable use, rights of up to 70 acquire it for new urban uses, limiting the farmers' ability years, and creates the legal foundation for an active to share in the appreciating value of their land as it enters urban land rights market. Most recently, on March 16, the urban market. This is true whether land is destined for 2007, the National Peoples' Congress adopted a new public, quasi-public, or even clearly private uses. Law on Property. This landmark law (the result of legisla- tive deliberations spanning more than a dozen years) for These features are unusual by international standards-- the first time clearly articulates that all types of property no other major market economy in the world maintains in China--state, collective, and private--are entitled to as absolute a split between urban and rural land rights, the same level of legal protection. administration, and markets as does China. Given the growing integration of urban and rural economies and Despite these advances, significant challenges remain. the accelerating mobility of people and capital markets, Addressing these challenges has been complicated by the problematic ramifications of this approach have the absence of a unified and integrated land policy increasingly come to light. framework that could help negotiate effectively between competing interests and pressures. Rural land users are disadvantaged. Most mature market economies seek to limit the exercise of govern- ment's taking power. Chinese law, by contrast, has basi- cally no limits on the purposes for which government can use its powers of compulsory acquisition. Because of this, and the heavy reliance on this power for assembling urban land, the impacts of government land acquisition practices have widespread and significant social and economic consequences. Requisitions have been a widely-publicized source of grievances. The Ministry of Land and Resources reports that over two-thirds of the complaints it received in recent years relate to disputes over requisition and low compensation. The compensation for requisitioned land, based on the value of land's agricultural use, is low compared to the value of the land for urban construc- tion. Perceptions of unfairness are exacerbated by the growing inequality between urban and rural incomes and livelihood options. Moreover, the issue is compli- ThE pErSiSTiNg DuAliTy cated by the fact that there are three levels involved: Of urBAN AND rurAl lAND government, the collective as landowner, and individual TENurE SySTEmS farming households--the distribution of the compensa- An overarching characteristic of Chinese land policy at tion between collectives and farmers is often not trans- the urban-rural interface is the strict separation between parent and a source of discontent. As DRC's field work the treatment of urban and rural land. These realms are in three provinces has confirmed, a prevailing feature of subject to different rights regimes and are administered by land acquisitions has been that farmers are largely unin- separate institutions and rules. The sole mediator of the formed about the process and their rights, and unaware interface is the government--under current laws, all land of or unable, to use effectively mechanisms for seeking entering the urban market must first be requisitioned by redress when grievances arise. The central government urban authorities before being re-allocated through one has tried hard in recent years to respond to these prob- of several transfer mechanisms to urban users. There are lems, by issuing policies designed to raise compensation essentially no avenues for direct dealing between those standards and improve distribution, but implementation holding rights over rural land and those who ultimately at local levels has been weak. 2 The problematic relationship between collective man- conducted by the government showed that about 43 agement and farmers when distributing compensation percent of requisitioned land remains idle. The resulting relates to the broader issue of the relative weakness loss of farmland is seen as a serious threat to food self- of farmers' land rights. Despite a progressive enhance- sufficiency. The government estimates that the annual ment of rights over the last two decades, farmers' rights rate of farmland loss cannot exceed 0.3 percent in remain limited and vulnerable in a number of ways. order to reach the official goal of 90 percent domestic Farmers are not yet allowed to use land use rights as production of consumed food, but by 2002 the rate had collateral to access credit and have unclear and severely accelerated to 1 percent. The central government has constricted rights over residential plots. The implementa- accordingly tried to impose tighter controls on farmland tion of Rural Land Contracting Law has been weakened conversion. However, it will be difficult to suppress by the absence of an effective process for farmers on widespread evasion of these controls if no steps are challenge violations of their rights from collectives, such taken to fundamentally alter the economic incentives as illegal land readjustments. Farmers also have limited that currently drive rapid urban expansion. knowledge about their rights, which helps facilitate abuses of power and corruption. OpTiONS fOr Local governments rely excessively on revenue mOviNg fOrWArD from land transfers and land-related financ- Addressing the above challenges requires an integrated ing. The nature of the rules governing the property approach to land policy, one that moves in the direc- market distort local government incentives, both at the tion of loosening the government's monopoly over the institutional and personal levels, encouraging the con- primary land market for urban land, reducing disparities version of agricultural/collective land into urban/state between rural and urban tenures, and creating a more land as swiftly as possible. Local governments depend sustainable and rational foundation for local finances heavily on the income generated from land transfers to and land use planning. Towards these ends, a number supplement regular budget funds and to finance urban of recommendations emerged from the DRC/World expansion. Studies consistently show that land transfer Bank collaboration, which is summarized below: fees account for some 30-50 percent of total sub-pro- vincial government revenues. Such fees are a one-time Clarify, secure, and broaden the rights of revenue item that are not sustainable in the long-run rural and urban land users to allow them to because land available for conversion is limited. These participate more fully in economic growth revenues are often kept off-budget, making their use through the sustainable use of their proper- non-transparent. ty. A number of steps could be taken to strategically strengthen and expand land rights, some of which are Local governments increasingly use requisitioned land already being tested in pilot settings. These include as collateral for bank loans through vehicles known as the following: "land banks." In some cities, 60-70 percentt of total city construction was financed from loan proceeds · Making collective construction land marketable and secured through government-run land banking. This allowing collective landholders to sell directly to new remains an activity on which little comprehensive users in the case of land conversions for "non-public data exists and for which the regulatory framework interest" uses. Pilot experiments in regulatory reform is seriously underdeveloped. Nationwide, the volume for collective construction land have been conducted of land bank-related lending appears to be large in a number of provinces with some promising results; and could pose serious risks to an already fragile bank- · Strengthening efforts to protect rural land users from ing system. improper actions by collective leadership, both in the Inefficient forms of urban growth and difficul- context of government land requisitions and in the ties in reducing the rate of farmland conver- implementation of the Rural Land Contracting Law; sion. The artificially low price of rural land encourages · Introducing the right to mortgage farm land held land-intensive and inefficient urban growth. One survey under 30-year contracts; 3 · Developinganeffectiveregistrationsystemforallland · Experimenting with alternative forms of compensa- rights,includingruralland.No.1Documentof2008 tion(e.g.,reservingsomerequisitionedlandforcom- hasrecentlyembracedthisproposal,statingthat"the mercialusesbydispossessedfarmers),whileensuring Government should accelerate the establishment of thatfarmer'sparticipationinthealternativeformsof landrightsregistrationsysteminruralarea." compensation is voluntary and based on informed · Resolvingambiguitiesconcerningthenatureofcollec- consent;and tiveownership; · Consideringlimitsonthepurposesforwhichlandcan · Definingfarmers'housingplotrightsasperpetualusu- betakenbygovernment,aproposalthatwillneces- fructrightsandexpandingtheirtransferability;and sarilyneedtogoforwardincombinationwithsteps toloosenthecurrentgovernmentmonopolyonrural · Strengthening legal literacy of farmers and officials. landenteringtheurbanmarket. Local studies have convincingly demonstrated that concerted efforts to improve the understanding of Enhance the role of land as a sustainable rights and processes have measurably improved the foundation for local government finances and impactoflegalreformontheground. improve the efficiency of urban land use.Moving Ensure fair treatment and adequate compensa- towardsthesegoalsimpliesthefollowing: tion for those affected by compulsory acquisi- · Implementingpilotstotestthefeasibilityofintroduc- tion. The central government has engaged in serious ingpropertytaxasanalternativesourceoflocalgov- attempts to address the well-publicized problems associ- ernmentfinance; atedwithrequisitioninrecentyears.AsDRC'sprovincial levelresearchhasshown,importantlocalexperimentsto · Re-assessingthepurposeandfunctionoflandbank- protect farmers' interests are also underway in different ingandbetterregulatingitsoperations; partsofthecountry,includingeffortstobetterintegrate · Reviewingcurrentincentivesforlanduseconversion, farmersintosocialsecurityschemes.Overall,however,fur- forexample,examiningtheimpactofsubsidizingland therattentionstillneedstobetargetedonthefollowing: forindustrialusebysettingartificiallylowprices;and · Revisingmethodsforcalculatingcompensationtowards · Promotingthecoordinationandintegrationofurban more equitable and socially-acceptable standards. In andruralplanningfunctions. theshortterm,thismeansmodifyingexistingformulas toensureamorejustquantumofcompensation.Inthe RefeRences longerterm,itislikelyanddesirablethatthecalculation Development Research Center and World Bank, China. ofcompensationwillmorecloselytracktheapproach 2005. "Land Policy Reform for Sustainable Economic and inothermaturemarketeconomiesinwhichthemarket SocialDevelopment:AnIntegratedFramework."Development valueofthelandrightsservesasthefoundation. ResearchCenteroftheStateCouncil,PRC,Beijing,China. DevelopmentResearchCenterandWorldBank,China.2008. · Taking steps to ensure that compensation reaches "StrengtheningLandRightsforEquitableGrowthandSocial thedispossessedfarmers(e.g.,reducingintermediary Harmony."DevelopmentResearchCenteroftheStateCouncil, stepsofcompensationdistribution); PRC,Beijing,China. TheARDNotesseriesonLandPolicyandAdministrationaimstodisseminateresultsfromresearchandBankESW,describeinnovativeopera- tionalpractices,orpointtowardsareasmeritingfurtheranalyticalattention.Significantcontributionstotheirpublicationandcontentcome fromtheDFID-WorldBanklandpolicypartnership,theWorldBank-FAOcollaborativeprogram,theKnowledgeforChangeTrustFund,the GlobalLandToolsNetwork,themulti-donortrustfundsupportingimplementationoftheGenderActionPlan,andtheNorwegianESSDTrust Fund.Theviewsexpressedarethoseoftheauthor(s)andnotnecessarilythoseoftheWorldBankGrouporsupportinginstitutions. THe WORLD BAnK 1818 H Street.NW Washington, DC 20433 www.worldbank.org/rural