Several weeks ago, Landesa, an American non-government organization focused on land rights for the rural poor in various emerging economies, published its sixth study of land rights in China. As part of their updated study, they surveyed 1,791 farmers in 17 provinces within China and found, as Landesa put it, "that urgent reforms are necessary in order for China to promote social stability and continued economic growth".
If this comes as surprise to readers in North America, it does not to bureaucrats and rural farmers in China who have long held frustrations over the unresolved ambiguities over property ownership that the Landesa report highlighted.
Beijing continues to assert that the country is "ruled by law" and that issues related to land rights have established legal processes by which grievances can be addressed and remedies found. If anything can be gleaned from the protests late last year in Wukan, in southern Guangdong province, it is that while China`s land rights may be well promulgated in form, they are poorly implemented in practice.
Of the many lessons learned from the Wukan protests, observers like Stanley Lubman have been quick to point out that ultimately what resolved the situation in Wukan was not elevating the law and using it to address complaints, but rather administrative actions taken by local party officials.
Whether ultimately China`s legal system is deployed to formally address the corruption in Wukan or the end-runs around the country`s established property rights which served as much of the fuel to the fire that flashed up in Wukan remains to be seen; for now, it appears that the mechanism for addressing the grievances of the people in Wukan (population about 20,000) was administrative remedies as opposed to following the law.
This underscores the unfortunate reality in China that for all of the laws already on the books, how the law is actually implemented at a local level is the more important factor to monitor, a realization that closely follows similar frustrations business has encountered when dealing with differences between how intellectual property law is written versus how it is executed at the local level in China.
This all underscores much of what Landesa`s report highlighted: land takings continue to be common place in China, and the disparity between what farmers are paid for the land appropriated by the government and what the government is paid by developers for the said land remains a troubling gap.
Landesa found that "the mean compensation paid to affected farmers was 18,739 yuan per mu (approximately US$17,850 per acre)", while the government fared much better. Specifically, Landesa determined that on average "authorities themselves received for the land 778,000 yuan per mu or $740,000 per acre". It should come as no surprise that Landesa`s study also found that in cases where the government took land through eminent domain, some 60% of the farmers reported being unsatisfied either because of "low compensation" or an "unfair process."
Land sales between local government and developers in China accounts for a significant part of the municipalities` revenue, which partially explains why the government has been so aggressive and insensitive to complaints from rural farmers. According to research done by Guan Qingyou at Qinghua University, local governments have significantly increased their reliance on land sales to fund their infrastructure programs.
Qingyou`s analysis suggests that towards the end of the 1990s, land sales accounted for approximately 10% of local government`s revenue, but that this had increased to 74% by 2010. As a consequence of this, Landesa estimates that compulsory land takings in China have actually increased since 2005.
Local governments now face three problems, all of which are inter-related: first, an increasingly vocal group of farmers and property rights` activists are beginning to speak up and resist compulsory land taking and unsatisfactory remuneration as a matter of local policy. Second, as land prices in China have skyrocketed, local governments have benefited, but they have also taken on enormous debt obligations based on skyrocketing property values. Servicing these debts is becoming increasingly difficult given the third problem; namely, Beijing`s policy mandates that are attempting to clamp down on China`s real estate market.
Cumulatively, local governments face the challenge of needing to bring their land policies in line with China`s promulgated laws in order to address grievances, while doing so in a period where revenue from these very land takings is more critical than ever before.
China`s top leadership understands the difficulties inherent in managing the divergent complaints and issues being faced by both local villagers and municipal leaders. In early February, Premier Wen Jiabao stated that a major problem for the country as, "... the arbitrary seizure of peasants` land, and the peasants have complaints, so much so that it`s triggering mass incidents." This sort of candor seems to shed light on the party`s understanding of the need to reform the various local governments` land taking policies.
Beyond matters of civil disobedience and public protest, Beijing has other reasons to be concerned about these practices. Already, as the Landesa report makes note of, China`s land-taking policies represent a major reason why rural farmers do not pursue mid- and long-term investments to improve the productivity of their land. As Landesa states, "One of the best indicators of tenure security is whether farmers make mid- to long-term investment in land they farm. Typically farmers need to have reasonable confidence in the long-term security of their rights to land in order to make such investments."
Given that one of China`s pressing needs is to develop policies that empower farmers to modernize agriculture in order to help the nation feed itself, the central government cannot simply overlook the necessary reforms, or choose to view land reform as only a political issue. It is, in a very real sense, an obstacle to the country`s ability to bring agricultural productivity into the 21st century.
Landesa`s analysis supports this relationship. They noted that when farmers did make investments in their land, they were "76.5% more likely to have made investments when they have law-compliant land certificates compared to non-compliant certificates."
Landesa estimates that "24.2 million incremental investments that are attributable to secure land rights have been made by all Chinese rural households from 1998 onward". Given these investments took place in the midst of enormous insecurities over whether even properly compliant land certificates might be inadequate, further reforms and enforcement would likely result in even more improvements and investments, the sort of which China badly needs from its agricultural sector.
Taken together, few policies illustrate the trap Beijing finds itself in. Local governments, in pursuit of badly needed revenue for infrastructure investment, have aggressively taken land and used the wide gap between what they paid farmers and what they received from developers to do so. Both the disparity in these respective payments as well as what Landesa calls the "lack of public participation" on the decisions themselves, creates deep animosity on the part of villagers who believe local government officials are enriching themselves at the expense of land rights the villagers believed were secure.
Beijing understands this issue has the potential to escalate given the reality that the party`s ascent to power in the late ▞s owed much to peasant frustrations over land ownership. Has the party made a different mistake in the same area as China`s past leadership did, and if so, what does this suggest must be done in order to prevent land issues from again eviscerating the good that the party has done over the past three decades?
As the Landesa report makes clear, improving the implementation of existing laws about land takings, narrowing the gap between the prices farmers are paid in cases of eminent domain and what government receives from developers both need to be quickly addressed, as the protests in Wukan make clear.
China`s current leadership has chosen to speak out regarding the need for reforms in these areas; however, Wen`s candid comments come towards the end of his tenure. It remains to be seen whether the leadership transition coming later this year will result in leaders eager to build on his call for additional reform or whether, as has happened in the past, calls for stability and the status-quo will prevent the necessary reform process from advancing.
If the latter were to happen, Wukan could well prove to be the first in a growing pushback against both the local and central government which could well spin out of hand.
Benjamin A Shobert is the managing director of Rubicon Strategy Group, a consulting firm specialized in strategy analysis for companies looking to enter emerging economies. He is the author of the upcoming book Blame China and can be followed at www.CrossTheRubiconBlog.com.
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Link to Survey’s findings