Rural reform stays silent on land rights

Chinese premier Wen Jiabao called it “the building of a new socialist countryside”. The rhetoric at this year’s meeting of China’s National People’s Congress (NPC) was dominated by the problem of improving the lives of 700m farmers, who since the 1990s have been left behind in the country’s scramble for wealth.

Education, healthcare and social services in much of the countryside remain primitive at best, and sometimes non-existent. Illegal land seizures by corrupt government officers and rapacious developers deprive an estimated 1m farmers every year of their livelihoods. And it is mainly rural people who have to drink the contaminated water that flows untreated into rivers from poorly regulated factories.

It is true that some 400m farmers have been lifted above international poverty benchmarks since China began its economic reform programme a quarter of a century ago. But income statistics remain depressing: the average person living in the vast Chinese hinterland earns just US$405 a year, barely more than a dollar a day and less than a third of the average urban wage.

According to the United Nations Development Programme (UNDP), China’s “urban-rural income inequality is perhaps the highest in the world”.

Anger in the countryside is growing. Official figures state that there were 87,000 “mass incidents”, or violent protests, in China last year, up from 74,000 in 2004 and 58,000 in 2003. In the late 1990s, laid-off workers from state-owned enterprises in China’s towns and cities regularly took to the streets, but today’s flashpoints tend to be rural.

Much of the resentment is caused by cash-starved local governments charging ad hoc taxes. This is nothing new: for centuries, China’s farmers have been sucked dry by the state.

This year, agricultural tax will be abolished throughout the country for the first time in 2,600 years, with the local shortfall being made up by transfers from the central government. Cash for rural infrastructure projects, such as road building, and direct subsidies to China’s impoverished grain farmers will also come out of the central budget. Central expenditure on rural education will rise by more than US$25bn over the next five years so that farmers’ children in the poor western provinces will no longer have to pay school fees.

But these adjustments must be seen in perspective. Central government expenditure on rural areas is still rising more slowly than overall expenditure. While rural healthcare is in crisis, the state budget for hospital renovation and upgrading in the next five years is less than the cost of building a high-speed Maglev rail line between Shanghai and Hangzhou, two of the nation’s richest cities. And plans to extend trials of a rural cooperative health system to 40 per cent of counties this year will see a payment to participating farmers of just US$5 per head.

Mr Wen told NPC delegates that: “To increase rural incomes, we will continue to pursue the policy of giving more, taking less and loosening control.” This, he later explained to journalists, meant respecting the “democratic rights of farmers, especially the independent right to use contracted land”.

The one simple, radical reform that would revolutionise life in rural China, however, was not mentioned. This would be the granting of private property rights to farmers.

Currently, farmers hold their land on 30-year leases from the local collective and have no right to sell, sub-let or mortgage the property. If they leave the farm, the land returns to the village collective.

Transferring property rights from villages and townships to individual farmers would give farmers autonomy over their lives, create a free market in land and complete the rural privatisation process that began so successfully with the resumption of household agriculture in the 1980s.

Yet, the Chinese government refuses to countenance such a move. For all the talk of improving conditions in the countryside, a private market in rural property remains too great an ideological and policy leap. It is in this respect that the “new countryside” policy is most obviously socialist.

The China Economic Quarterly is an independent newsletter devoted to analysis of the Chinese economy and business environment since 1997. It draws on the 25 years of combined experience of its editors, veteran financial journalists Joe Studwell and Arthur Kroeber, and also publishes articles by leading China-focused economists and journalists. This column appears exclusively on FT.com on alternate Mondays.