China's Property Rights: From Collectivization to Household Responsibility - Research Paper

Introduction

Currently, in China, agricultural producers have no property rights. Their lands belong to the state. In the early 1980s, the end of collectivization gave way to the system of household responsibility, in which land rights on rural land were split in two: the property right collectively enjoyed by a rural community, usually a village, and the right of use, held by an individual household for a piece of land. The duration of the first contracts was 15 years in the 80s, and their renewal in the 90s had lengthened the term to 30 years. This extension of contracts was part of a series of land measures designed to create the optimal conditions for the modernization of Chinese agriculture, without affecting the dogma of collective ownership. The aim was to limit land insecurity and encourage the transfer of land use rights to increase farmers' incomes and, ultimately, to ensure social stability and food security in the country. However, there is a need to grant valuable rights to farmers. Indeed, by granting this valuable right to farmers, the average size of farms in China is likely to increase and thus increase agricultural produce.

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The real change in the acceptance of property in China came with the advent of the communist regime in 1949, one of the first steps of which was to repeal the 1930 Civil Code. According to Marxist economic theory, the new regime intended to abolish the capitalist private property. This abolition was carried out gradually. It began at the national level in June 1950 with the promulgation of the agrarian reform law. The land of the big landowners was confiscated without compensation and redistributed to the peasants. In two years, 45% of China's cultivated area (47 million hectares) changed hands. In urban areas, the State confiscated movable and immovable property belonging to the Kuomintang and counter-revolutionaries. Once these first measures were implemented, the state began the collectivization of land and real estate. In rural areas, the organization of agricultural co-operatives began in 1953. The land which until then belonged to the peasants passed into the hands of the communities that exploited them. Limited at its beginnings, the process accelerated and cooperatives multiplied in 1957. The ownership of peasants on their land, recognized by the constitution of 1954, then applied only to the piece of private land of which each family could still dispose of and earn additional income in local markets.

In 1958 the collectivisation of land and production was pushed even further with the creation of the people's communes. This reform, the bedrock of the "Great leap forward" policy, resulted in a dramatic failure and a near return to the previous system of cooperatives through the reduction of the size of municipalities. In 1961, land decollectivisation was even initiated under the leadership of President Liu Shaoqi. The land was distributed among households, which in turn provided the state with a portion of their production at low prices. This new agricultural policy was, however, quickly repealed and the popular communes relaunched.

The economic reform launched at the end of 1978 began with a new agrarian reform. The people's communes were replaced by a contractual land use system based on households. Within each community, the land was redistributed among the families who then exploited them independently. This new system played a role in the rapid increase in Chinese agricultural production during the 1980s. However, from the end of the 1980s, the level of production stagnated and the contractual system of exploitation revealed its limits directly related to the system of collective ownership still in force. As the land was owned by the community, each home had an equal right to receive land whose size depended on the size of the family. The redistribution of land between households led to a large fragmentation and a reduction in farm size, thus hampering the modernization of farming techniques. Changes in the structure of households in the community (due to births, deaths or marriages in particular) also led to a constant redistricting of farms that did not encourage farmers to optimize their crops over the long term.

In 1986, the General Principles of Civil Law defined, for the first time since 1930, property as the union of rights to use, enjoy and dispose of the property. Two years later, in 1988, the 1982 Constitution and the 1986 Soil Administration Act were amended to include a new institution: the transferable right of use of land. This possibility of dismembering the right of ownership into several subordinate rights thus made it possible to recognize to individuals real rights over land and property, without calling into question the monopoly of the two systems of State ownership and collective ownership.

On the social front, land grabs or poor compensation for farmers' rights-to-use buy-backs resulted in many disputes. These disputes, which brought together hundreds or even thousands of protesters, originated from land disputes. These regular confrontations posed a local risk of destabilization and fueled resentment towards the country's model of governance. Two factors contributed to this land grab to meet economic growth. First, farmers' difficulty in enforcing their rights to the land they cultivated. Secondly, the tax reform of the 1990s, which deprived local governments of some of their resources for the benefit of the central state. In order to recover the money, the local authorities used to their advantage the modification of the land status of agricultural land in building land and the transfer of land use rights. The farmers opposed these transfers as about 10% of land conversions would be illegal, with industrialists and governments sometimes using force to end the tax reform that took place in the 1990s and deprived local governments of part of their resources for the benefit of the central state.

In order to provide solutions to these problems, and recognizing that their main cause resided in the collective ownership system, two contradictory ideas of reform emerged. The first was that collective ownership in rural areas should be abolished and replaced by the State-owned system by granting farmers the right of permanent use of land. The second, even more radical, was to allow peasants access to individual property. With the development of the theoretical debate on this issue and in the face of the difficulties that these first two avenues of reform seemed to pose, a third way appeared, according to which it was preferable and more realistic to take into account and to reform the real rights linked to the land rather than changing the ownership system. Without calling into question the collective ownership of rural lands, proponents of this third way wanted to clarify and strengthen the rights of peasants to use, enjoy and dispose of their lands. This approach, considered less risky socially and politically by the central government, has prevailed over the previous two and has been applied both in rural areas and in urban areas.

On the agricultural front, since the establishment of the household responsibility system, the size of the farms did not change significantly, due to the reallocation of parcels and the increase in the number of farm households in the 1980s and 1990. The average size of some 200 million farms was between 0.6-0.8 hectares in 2016, still far below the average in France, 55 hectares, or in the United States, 175 hectares. As a result of small acreage, the low incomes of Chinese farmers contributed to maintaining an income gap between rural and urban figures, as measured by official statistics from 1 to 3, a source of resentment in the countryside.

These low incomes were also a threat to Chinese agricultural production. Farmers and especially grain producers (cereals, soya beans, and tubers) are tempted by the urban adventure where incomes and wages are growing faster, despite the policies of minimum prices and various subsidies for agricultural production. This rural exodus, desired by the authorities, certainly supported the economic development of the country by abundant sectors of industry and services, with higher productivity. However, it resulted in the abandonment of cultivated areas.

About 15 million people leave the countryside each year and the phenomenon of abandoned land is gaining momentum. In 2012, more than 7.5 million hectares of cultivated areas were abandoned by people who moved to urban areas. In addition, millions of hectares are cultivated by older people, with lower productivity than younger generations. If part of the family stays behind to continue agricultural work, it is often an older, less productive workforce. A new agrarian reform, therefore, requires the legal recognition of land use rights on rural land. The challenge is to provide farmers with sufficient wealth to succeed in their voluntary mobility.

Increasing the size of farms would, therefore, reduce production costs, increase workers' productivity and thus income, motivating farmers to continue their activity. In addition, small farms, which are often poorly connected to markets, are considered by the authorities to be uncompetitive vis-a-vis imported products, especially since China's entry into the world trade organization (WTO) in 2001, and are not very responsive to consumer demands as to market fluctuations. However, while the increase in farm size appears to be relatively divided, there is still a debate in China among Chinese authorities and academics between supporters of the status quo and those of land privatization. They argue that privatization will increase the agricultural economy through mass production. Their opponents, on the other hand, argue about the danger of concentrating rural lands in the hands of a small number of landowners who are being privatized. They also insist on the safety net of land for rural families in the absence of social security and good unemployment benefits, while warning against a massive and uncontrolled rural exodus. The example abundantly cited highlights the dismissal of tens of millions of migrants in 2008-2009, in the midst of the financial crisis, cushioned by the return to the land of the newly unemployed.

The reforms undertaken since the 1990s have long evolved between the two points of view. They have recently sought to reconcile them by promoting the emergence of a land market that allows land to be allocated more efficiently while retaining collective ownership. In 2014, it was decided to put on the market of rural constructible land, which is collective rural land intended for non-agricultural use. By increasing the supply of land, the authorities are seeking to reduce the demand for agricultural land to meet urban demand. The big project aims to facilitate the transfer of arable land between users, whereas, since the 1990s, transfers have been carried out on a seasonal basis, both orally and informally. In 2013, 26% of the agricultural land would have been transferred to another user than the holder of the right of use, according to data from the Chinese Ministry of Agriculture.

In 2015, a new land rights reform formalized transactions and secured the rights of stakeholders. The "right of use" held by a household was divided into a "management right", which may be assigned to a third party and a "contract right" on the land that remains in the hands of the household. Thus, the household gives up the use via a provision of the land but retains ownership of the contract. It remains to be seen whether these measures will be considered as providing enough guarantees to investors and security to farmers. Many farmers are still reluctant to transfer their lands, fearing a halt o...