china land policy rural urban

Playing Favorites Or Enforcing Equality?
compensation foreign investment subsidy

China's Land Policy

The vast majority of Chinese are not the ones getting the vast majority of Chinese land rent. This 2012 article is from OpEd News, Jun 15. The author wrote the introductory chapter in China in the Next 30 Years and its sequel.

By Dr. Michael Hudson

Most Chinese peasants want to escape from agriculture, although national policy stipulates that 1.8 billion acres in China must be used for farmland. There are about 900 million farmers in China, but young people are largely deserting the rural areas and moving to the cities to better their lot. In fact, some areas are being almost entirely deserted.

Peasants are building quick houses on their land to get compensation if their parcel is turned back into farmland and the houses are torn down by the government, or to get rezoning as residential sites. (I was told that one peasant got 10 million yuan for a house that was torn down -- a kind of urban/rural arbitrage evidently has developed between agriculture and construction.)

The earlier communal spirit had been replaced by individual maneuvering. More often, the result was short-term opportunism. Many peasants sublease their land rights to developers, foreign investors, or other users.

China's regions have a "GDP race," which is won largely by attracting foreign investment, mainly into large projects such as the "100,000 pig" farms being developed most visibly by Taiwanese investors. There has been little discussion of how China as a nation benefits from the surplus. The key is simply to increase production to meet targets or exceed other localities.

Foreign investors in pig farming and other agricultural projects get a government subsidy, but not small farmers. The first two years are tax-free, and the next three years have lower-than-average tax (15% of profits). But few foreign investors declare a taxable profit, using transfer pricing or "expensing" their cash flow as interest payments to offshore financial vehicles. As far as China's economy is concerned, the surplus is largely given away. The Wuhan area does not get taxes from Taiwanese meat-producing companies.

Animal husbandry is for the domestic market, where prices are in excess of those in foreign markets. The government wants to lower meat prices, by producing more. But on balance, it is sacrificing agriculture in favor of urban development and new construction.

The result is that although China's land is nominally owned by the state, its rental site value is left in private hands, after being collected "in advance" -- for 70 years from residential developers, 30 years for agriculture. Originally, these 30-year agricultural permits were to expire in 2012, but they have now been made permanent.

The "land rent" recovered is not the actual market site value, which has soared as the economy has prospered. Foreign investors tend to get favoritism. Public financial aid is for the landowner, not the renter or leasor!

The central government has little voice in land use, which has been privatized by the granting of land-use permits, which have become marketable. Local peasants decide what to farm -- and are free to lease their land with scant oversight.

Farmers pay no tax, and get 400 yuan per acre to plant, on average. They sell their crop at prices set by the government (even crops that are brought into the cities for sale). If price rise, the government lowers the subsidy paid to farmers so as to stabilize their income. This is a major reason why peasants are so eager to sublet their land to non-agricultural users or large foreign investors.

Where the government has focused aid is for large investors, not small ones, e.g. in its 10,000 pigs policy. (Beef herding is smaller scale, I was told.) Buyers pay the land-use tax and other transfer costs reflecting land-use privileges.

Underutilized land is a problem. But there are no taxes on unused land, so little fiscal incentive to use it or bring it back into cultivation, as rights are not lost when land is used sub-optimally.

JJS: Chinese policymakers get some things right, as when they let farmers own farmland, but also get some things wrong, as when they let developers corral land rents, instead of public agencies recovering these socially-generated site-values for public benefit.

You think China’s economy is growing, and while that is true, it is actually creating and growing for a new bourgeoisie and ruling elite. This growth is splitting China in two, making nigh impossible for China to become a super power, not with so many poor people and with a ravaged environment, depleting resources and polluting people, sickening citizens and dumbing down the populace. The Chinese government has done many good things but must do many more before it can usher its nation into the ranks of the superpowers.

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Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .

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