17 February 2019

Finding the sweet spot in rural land reform

The shares of some listed companies with huge rural land banks have come to life with widespread speculation that Communist Party leaders will unveil a breakthrough in collective land transfers next month at the Central Committee’s plenary session.  

Most land in China can be divided into either state-owned land in urban areas or collective land in the countryside. Property rights in urban areas are fairly clearly defined and easier to trade. Collective land is the cornerstone of the country’s agriculture sector and generates an income for 656 million farmers.

Former party chief Hu Jintao first raised the idea of fast-tracking the transfer of collective land rights, and going by reports from various party mouthpieces, Premier Li Keqiang seems to have adopted it as part of his wider economic policy to invigorate unused assets across the country.

The thinking goes that letting farmers cash in their most valuable possessions — land use rights, contractual rights, or concessions — will enable them to more easily amass enough wealth to move to cities, buy a home there and settle down. In other words, the reform could unleash a driving force for urbanization for decades to come, spurring national economic growth.

On top of that, relaxing the grip on rural land transfers could promote mergers of fragmented farmland, leading to more efficient land use and paving the way for agricultural upgrades. The potential increase in land supply arising from the reform could greatly ease the shortage of space available for industrial and commercial activities.

But investors should also bear in mind that the proposed change has encountered years of strong objections because it would affect not only half of the population but also half of the country’s area. If the reform went awry, it would risk widespread social unrest or catastrophe in the agriculture industry.

To minimize resistance from this quarter, Beijing is likely to compromise on the scope of farmland rezoning. The Economic Observer reported last week that Beijing is almost certain to ban commercial housing from rural land even if the broader reform unfolds, shrinking the potential value to flow from the change. And if that’s the case, land reform may not be such a strong trading catalyst any more.

– Contact the writer at [email protected]



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