When the Communist Party announced last October that it was reforming rural property rights, it was initially greeted as a radical move that would finally set Chinese farmers free from the shackles of the state.
The Party communiqué was actually far less revolutionary than the headlines suggested – largely ratifying existing practices and assuring farmers that their land rights would be solidified. Most importantly, Beijing remained opposed to granting individual farmers the right to mortgage their land.
But a new pilot project in the northeast province of Liaoning, where 151 rural households have been allowed to use their land-use rights as collateral for mortgages, shows that change may be afoot. By giving farmers practical access to credit for the first time, the pilot project has the potential to turn rural households into economically significant players.
Liaoning’s Faku county is the first to be selected as part of an experiment launched by the People’s Bank of China to allow a handful of rural counties in nine provinces to pilot new financial products. Whether this experiment is extended to other counties will indicate whether a breakthrough in rural financing is likely.
Extending the project nationwide would boost agricultural productivity and increase rural household incomes. Beijing wants to expand credit to help farmers weather the economic downturn in the short term and to boost rural consumption in the long term.
Under current law, farmers are allowed to transfer their individual land-use rights but cannot use them as collateral for mortgages. This massively restricts farmers’ ability to invest and consume.
The legal regime for rural land developed over the past three decades. After decollectivisation in the early 1980s, farmers received 15-year individual cultivation rights for a set amount of agricultural land. These were subsequently extended to 30 years in the 1990s.
Since then, various laws have gradually turned these informal use-rights into much more formal and secure property rights. Together, these laws supposedly grant individual farmers an indivisible, perpetual property right to their land – including the ability to lease out or transfer their use-rights.
However, Beijing views land reform as a trade-off between economic development and social stability: privatising land would create huge assets and increase agricultural productivity and rural incomes, but it would also risk separating farmers from their ultimate source of financial security – their land.
Although the broad trajectory of land reform supports more flexible rural land-use rights, Beijing has opposed granting individual farmers the right to mortgage their land for social and, therefore, political reasons.
Partly, the government fears a return to the dark old days of pre-Communist China when, according to Party propaganda, peasants were rent slaves bound to unscrupulous and rapacious lenders. But today’s prohibition on mortgaging farmland, which prevents farmers from improving their circumstances through better access to capital and credit, amounts to an alternative form of economic servitude.
If Liaoning’s pilot project were extended nationwide, it would boost agricultural productivity and increase rural household incomes – a vital step towards shifting the economy to a more sustainable, consumption-based model.
Fears that landless farmers potentially pose a risk to social stability could scupper any genuine reform – but any loosening of the shackles that tie farmers to the land is a positive development. Watch this space.