Analysis on rationalizing Chinese landless farmers' compensation

Analysis on rationalizing Chinese landless farmers' compensation

University of Nevada, Reno

Analysis on Rationalizing Chinese Landless Farmers’ Compensation

A thesis submitted in partial fulfillment of the requirements for the degree of Master of Science in

1446448 2007

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Abstract

While Chinese urbanization has accelerated since the early 1990s, the worsened living

condition of landless farmers has been largely attributed to the unfairness of the

compensating standards By building two econometric models that separately analyze

the amount of compensation given for land eminent domain and market value of the

land, this thesis concludes that the compensation amount is between only 2.81 and

6.36 percent of the land market value Furthermore, it suggests that privatizing land

ownership is a better solution to protect farmers via comparing the pros and cons of

centralized ownership and private ownership

Table of Contents

1 Introduction……… 1

2 Land Administration System Evolution since 1949………… ……… 9

2.1 Collecting and Reallocating Lands (1949-1953)…… ……… 10

2.1.1 Realizing the Promise……… 10

2.1.2 Independent Groups……… 11

2.2 Collectivization and People’s Commune (1953-1978)………… …… 13

2.2.1 Junior and Senior Corporation Communes……… 13

2.2.2 People’s Commune……… 15

2.2.3 Evaluation……… 17

2.3 Reversion to Private Property Rights (1978-Present)……… 18

3 Land-to-lease System and Its Compensation Policy……… 20

3.1 The Land-to-System and Its Disadvantages ……… ……… 20

3.1.1 Blue Print……… 20

3.1.2 Fundamental Problem……… 21

3.2 Compensation: Rules and Practices…… ……… …… 26

3.2.1 Compensation Policies……… 26

3.2.2 In reality, Practicing Compensation Policies……… 38

4 Quantitative Analysis……… ………… ………… 45

4.1 Capozza and Helsley’s Model on Land Price…… ……… 45

4.2 Land Eminent Domain and Market Transaction Analyses……… 49

4.2.1 Data Dscription……… 49

4.2.2 Data Analysis of Land Eminent Domain……… 50

4.2.3 Data Analysis of Market Land Transactions……… 56

4.3 Comparison……… 61

5 Land Ownership Reform in the Future ……… 65

5.1 Improving the Land-to-lease System and Its Problems……… 65

5.2 Privatizing Land Ownership and Its Problems……… 68

6 Conclusions……….… 73

References……… 77

List of Tables

Table 2.1 The Growth of Independent Groups, Junior and Senior Communes…… 13

Table 3.1 Area Under Cultivation……… ……… 30

Table 3.2 Areas Under Cultivation by Region……… 31

Table 3.3 Compensating Standards on Land……… 32

Table 3.4 Supplementary Expenses for Farmers’ Resettlement……….… 32

Table 3.5 The Replacement Value for the Crops….……… 33

Table 3.6 Other Materials Attached to the Land ……… 33

Table 3.7 Hangzhou Municipality General Compensating Standards on Land Eminent Domain (2003)……… 36

Table 3.8 Recent Land Eminent Domain Cases and the Compensations ………… 38

Table 4.1Data Description of Eminent Domain Cases……… 51

Table 4.2Basic Characteristics of Land Eminent Domain Cases……… 51

Table 4.3 Variable Definitions and Expected Signs of Eminent Domain………… 54

Table 4.4 Regression Results for Eminent Domain……… 54

Table 4.5 Data Description of Market Transaction Cases……… 57

Table 4.6 Characteristics of the Land Market Transaction Cases……… 57

Table 4.7 Variable definitions and Expected Signs of Market Transaction ……… 59

Table 4.8 Regression Result for Land Transaction……… 60

Table 4.9 Estimated Compensations, Market Prices and Comparisons in Different Conditions……… 64

1 Introduction

China has been undergoing economic reform since 1978 under the leadership of Deng

Xiao Ping, who successfully persuaded communists to make the ideological

transitions to accept a market economy Private ownership began to emerge in urban

areas and farmers did not have to hand in all their outcomes, and these new policies

greatly encouraged people’s willingness to produce Only ten years later, China

basically solved the problem of starvation, serving 22 percent of the world population

by using 7 percent of the world’s farmlands After entering the 21st century, China’s

economic growth still exceeds 9 percent By the end of 2006, the Chinese nominal

GDP reached 2.25 trillion US dollars, surpassing France and Britain in one year and

ranking the fourth after United States, Japan and Germany, and its real GDP in

consideration of the real purchasing ability of currency has been over 6 trillion US

dollars, only less than United States As the most populous state and the third largest

country in territorial terms, China has become one of the main economic entities in

the world

By taking advantage of globalization, it is estimated that China’s rapid economic

growth will continue On one hand, China has made full use of its inexpensive labor

force and built itself as a world factory “Made in China” became a brand that most

frequently appears in western supermarkets An article of News Week on May 9th,

2005 tells that among 6,000 of Wal-mart’s worldwide suppliers, over 5,000 of them

come from China On the other hand, Chinese success has attracted more foreign

investors to come; they are bringing technology, experiences, and the most FDI in the

world In other words, time has been saved because globalization provides this

country an opportunity to take advantages of foreign outcomes, which cost many

decades to generate Steven Roach, the chief economist of Morgan Stanley, forecasts

that the Chinese GDP will keep increasing at over 9 percent for another decade

However, under the booming economy there is an increasing social disharmony

between rich and poor people Generally speaking, people in rural areas gained few

benefits from GDP growth, their living conditions did not improve much in the past

decade, and some were even worsened An example can easily illustrate this income

difference: by the end of 2005, the nominal GDP per capita in Shanghai had reached

7189 US dollars (Xu, 2007), indicating that people can enjoy the same living

standards as Italians and South Koreans; in contrast, in certain western areas, some

rural people seldom earn more than 12.5 USD each year1 Although China is still far

from being a developed country, the Gini Coefficient, an index used to measure the

fairness of income distribution, has increased from 0.33 in 1980 to 0.496 in 2006 (Liu,

2007), indicating the Chinese income gap is more serious than in many western

countries This is because the Chinese GDP increase is mainly attributable to

industrial growth in urban areas, while rural development is much slower and rural

people have a higher birth rate due to the difference in birth control policy2 Since

1953, a policy of depressing price has been implemented by means of monopolizing

1

Data from CCTV program “Western Report”, October 21st, 2003

2

Though some cities have allowed parents to have two children, most still insist single-child policy, while

generally each family can have at most two children in rural China

main agricultural product purchases, in order to transfer more and more capital from

the agricultural sector to the industrial sector (Qu, Heerink and Wang, 1995)

Recently, after famine has basically disappeared, agricultural prices began to be

protected, but cities and villages were treated significantly differently in investments,

education and social welfare Moreover, since the 1990s, Chinese urbanization has

speed up, and over 100 million mu 3 of farmlands in suburban areas have been

acquired by the government to build economic development districts and real estates

As a result, from 1997 to 2003 Chinese farmlands decreased from 1.951 billion mu to

1.851 billion mu (Fang, 2005) and at least 20 million peasants lost their land In the

future, following the Guidelines for National Land Usage Plan, agricultural land used

for nonagricultural purposes will exceed 54.5 million mu from 2000 to 2030, which

means the number of landless farmers will undergo further dramatic increase (Hong,

2004)

Unlike the United States, which clearly defines eminent domain and restricts

government to use this power (Lin, 2007), Chinese land eminent domain practice has

become a frequently seen phenomena So why would the Chinese government freely

force farmers to give up land? The reason is Chinese farmers do not have property

rights Although private rights prevail in urban China, the property rights of farmlands

are collected by thousands of “villagers’ committees” whose leaders are often

appointed by the government, while under current laws and regulations farmers only

have the use right, which is to plant and harvest the land for a certain period (usually

3

1 mu is approximately equal to 0.1647 acre

thirty years) Because of this, the Chinese land system is called a “land-to-lease

system”

After the government has acquired farmlands, landless farmers must immediately start

to look for new employment, and research shows that most landless farmers’ lives are

worse than before land eminent domain (Han, 2005) It is well known that in the first

industrial revolution, British peasants were forced to give up their lands and enter

cities, which provided industries with plenty of labor, and they gradually became

urban workers But the situation is quite different in China: after the “baby boom” in

1950s and 1960s, the birth rate has been strictly controlled since 1983, which means

that today middle-aged people make up a large portion of population, so there is a

surplus in the labor market Another factor that is adverse for farmers’ migration is, in

the central planning era, state-owned enterprises employed all urban laborers to reach

the aim of “zero unemployment”, but those enterprises have shelved unnecessary

employees in order to increase profits since China began to adopt a market economy

In other words, nowadays the cities are suffering an unemployment burden from

inside, and there is little they can do to absorb incoming labor Also, there are some

other disadvantages that work against landless farmers’ improvements First of all, the

expropriated lands are often fertile, in good locations, and probably will appreciate in

the future, but the compensations are much less than fair, and this is one of the most

important parts that the author will analyze in the following chapters Secondly, due to

fast urbanization and the unequal positions between the government and farmers, the

annual amount of land expropriated is growing, which has resulted in more landless

farmers It is estimated that land eminent domain is producing more than 8.7 million

farmers that have lost lands annually (Yang and Cao, 2004), but the nation cannot

create so many jobs immediately The third disadvantage is Chinese rural society is

highly built on kinship, and many farmers have few relationships in the outer world

For example, it is very common to see most of the farmers in a village have the same

family name As a result, once the farmlands of a whole village are acquired, many

people who used to help each other have the same difficulties in finding support

Lastly, very few farmers are well educated, and it is very hard for them to find jobs

other than farming In China, almost 90 percent of peasants have never entered high

school (Yan, 2007) Basically, they have devoted most of their lives to planting crops,

and few have a second occupation Also, the local government pays little attention to

farmers’ occupational training Hence, if farmers were forced to give up lands, they

could not start their careers in other fields and they suddenly feel helpless about their

future

Land eminent domain will trigger a profound effect for farmers After giving up their

land, farmers will lose at least the following four rights

1 Property rights Farmland is the producing input for peasants By planting on land,

farmers can enjoy the rights to land tenure, disposal, and profits (Hong, 2004), so land

is one of their most important properties If they give up the soil, they permanently

lose the rights to plant, harvest or transfer their lands

2 The right of enjoying a stable life As we have mentioned before, there are few

farmers who have a second occupation For most of them, farmland is the only

resource to get outcomes, serve family and guarantee a stable life The loss of land

means they will have to move and start searching for new jobs

3 Right of working If we consider working as a right, farmers would lose this right

after they became landless Their contributions are mainly evaluated by how much

they can harvest, and the contributions will fall to zero immediately if their lands are

deprived

4 Other rights related to soil Besides these rights above, there are some other rights

to be lost because land is the basis of using them For example, agricultural subsidies

and free 9-year compulsory education will no longer be provided to landless farmers

Some scholars have considered landless farmers as a “socially vulnerable group”

whose definition is “a difficult group that cannot keep average living standards by

their own abilities” (Li, 2005), or at least a potential “socially vulnerable group”

Firstly, after land is taken away, mostly their living conditions are worsened Chinese

farmers have low incomes, but landless farmers have lower incomes A statistical

survey shows farmers’ incomes dropped by 17 percent after land expropriation in

Fujian Province, and 16 percent in Shanxi Province (Han, 2005) If we notice their

increasing living expenses, we may easily conclude that landless farmers have poorer

lives as well as higher uncertainties Secondly, they cannot change their situations on

their own They are uneducated and unable to speak up for themselves, and they have

less political rights Thirdly, they must get help from other people or the government

if they want to improve their lives For instance, they need special compensation or

practical training, or even a specific law that can protect them

This thesis will mainly analyze the rationality of compensation for land eminent

domain, and discuss three questions

Is the land-to-lease system suitable for further development?

The current Chinese land administration system is an improvement from collectivism,

compared with central collective system, because it can better encourage farmers to

increase productivity However, is it good enough to solve newly appearing problems

in the future?

Is the current compensating standard fair?

If a farmer is forced to give up the farmland, the compensation is the value of average

annual output multiplied by a given number of years (no more than 30) But most

landless farmers cannot get as much as theoretical compensation amount because of

various reasons So, how much compensation is fair?

How could the Chinese Government better protect farmers?

To answer this question we must suggest reasonable improvements to government

policies or even fundamental reforms This thesis will discuss whether China should

privatize land ownership

The organization of the thesis is as follows Section two reviews the land

administration system evolution after 1949 and provides descriptions of the current

system Section three especially focuses on the fundamental problem in the

collectivity-owned land system, and takes a municipality as an example to compare

the policy and practice of compensation distribution Section four presents a

quantitative analysis of land eminent domain Section five provides further

suggestions for Chinese land-to-lease system reform Section six concludes the thesis

2 Land Administration System Evolution since 1949

Before the Communist takeover in 1949, Chinese society was gradually transforming

into capitalism after the last feudalistic period The Qing Dynasty was terminated in

1911 In the rural areas, private owners obtained all lands The rich farmers had plenty

of land to plant crops, while landlords leased their lands to poor farmers and collected

certain outcomes as rents So Lai concluded that “Chinese proprietors before the

Communist takeover enjoyed, subject to the law and policies of the day, the three

characteristic private property rights, namely (1) freedom to use the land for whatever

purposes, (2) freedom to derive income from the land uses chosen, and (3) freedom to

alienate, transfer, subdivide or agglomerate their use and income rights” (Lai, 1995)

In other words, after more than 2,000 years of development in the feudalism era,

during which commerce was depressed while agriculture was extremely emphasized,

Chinese land system was relatively advanced and sustainable

However, a history of more than 2,000 years did create a lot of bankruptcies, land

annexation, as well as poor peasants As agricultural producers, they had no land,

which was the most important capital, so they had no other option but renting lands

from landlords and paying most of their products for reprises This phenomenon had

lasted for centuries and the tenant farmers felt so unsatisfied, especially in the first

half of the 20th century, that a series of wars put the country into chaos and most

farmers had serious difficulties in living Consequently, when the Communists

attributed all the problems to the unfair ownership and promised each poor farmer

would get a piece of land of his/her own after the victory, the majority of the

population began to support this new party and finally helped it beat the Capitalist

Government

Since Communists victory in 1949, the Chinese land administration system has been

dramatically changed three times

2.1 Collecting and Reallocating Lands (1949-1953)

2.1.1 Realizing the Promise

When the socialism in China was founded, land distribution was very imbalanced

Landlords and rich farmers, who only took less than 10 percent of population,

occupied 70-80 percent farmlands, while more than half of the population were poor

farmers, and they had to rent lands (Dang, 2000) Based on this situation, on June 3rd

1950 the central government issued the People’s Republic of China Land Reform Law,

which confiscated all landlord-owned farmlands, tools, livestock, extra houses and

extra crops To carry out their promise, the Communists fairly reallocated about 700

million mu of collected land to over 300 million poor farmers, and former landlords

were reallocated some lands to let them raise crops themselves (Deng, 2001)

By the end of 1952, the government had basically completed this reform Because

every farmer got a piece of land, and the People’s Republic of China Land Reform

Law prescribed that farmers had land ownership, and land planters could keep most of

their outputs after harvest, the farmers were greatly encouraged to produce more

products Hence, the agricultural GDP gained an average increase of 13.14 percent

annually from 1949 to 1952; in particular, cotton increased by 43.15 percent annually

in that period The productivity had recovered and increased, and farmers’ living

conditions had improved (Qi, 2001)

Generally speaking, this was a tremendous reform After reallocation Chinese

farmlands had been changed from minority-owned to majority-owned, and most

farmers were very willing to see this evolution because they could work for

themselves in the future After this reform, the Chinese land system was more like the

system in western countries, that land ownership was private and owners had all the

property rights Probably we should conclude that this reform was a start toward a

market economy However, since China had a huge rural population and each farmer

could get only a small piece of land, this scattered farming style was adverse to

further development, so the government made another reform later

2.1.2 Interdependent Groups

In the first “Five-Year Plan”, the government emphasized developing heavy industry,

but it also required some development in agriculture to support industrial growth

However, the statistical report indicated that in the early 1950s on average each

farmer owned only 2.58 mu of land, 0.1 furrows, and 0.12 cattle The scattered

farming had some restrictions which hampered increased outputs Accordingly, policy

makers decided to lead farmers to organize temporary “interdependent groups”, in

which a few families joined together, helping each other get through difficulties and

cropping collectively (Wei, 2002)

Interdependent groups respected farmers’ property rights, and could help individual

farmers unite and solve some problems By this way, small pieces of land were joined

together, which made farming easier and more efficient So the use of interdependent

groups was welcomed by farmers, and was growing quickly Table 2.1 below shows

the fast growing speed of interdependent group From 1950 to 1953, the number of

groups increased from 2.8 million to 7.45 million in only 3 years, and 39.23 percent

of farmers had joined the groups

The main purpose of the first Five-Year plan was to expand industry The Communists

designed as many as 167 industrial projects at that time However, after several

decades of social turbulence, the Chinese economy was stagnant and even declining

It was very hard to collect enough capital and to invest in industry So inevitably, the

government planned to intentionally centralize privately-owned farmland and transfer

extra agricultural values to industry This is not surprising since the land

administrative system in rural China was originally designed and carried out, to a

large extent, for the purpose of national industrialization (Qu, Heerink and Wang,

1995) Also, private ownership is regarded as a prerequisite of exploitation,

fundamentally conflicting with communist ideology

2.2 Collectivization and People’s Commune(1953-1978)

After 1953, the Chinese government gradually centralized private property by a few

steps Basically, farmers began to be required to join some organized collectives and

give up their land ownership to those collectives Also, their products were only

allowed to be sold to the government for low prices, which helped lower the cost of

living and production

Table 2.1: The Growth of Interdependent Groups, Junior and Senior Communes

1950 1951 1952 1953 1954 1955 1956 1957 Number (in 10,000) 280.2 423.7 802.6 745 993.1 714.7 85 0 Interdependent

Groups Average families in a group 4.2 4.5 5.7 6.1 6.9 8.4 12.2 0

Number (in 10,000) 18 12 0.4 1.5 11.4 63.3 21.6 3.6 Junior

Communes Average families in a group 104 12.3 15.7 18.1 20 26.7 48.2 44.5

Senior

Communes Average families in a group 32 30 184 137.3 58.6 75.8 98.9 158.6 Source: “50-year development of Chinese agriculture”, Ministry of Agriculture of PRC, http://www.agri.gov.cn/

2.2.1 Junior and Senior Corporation Communes

In 1953, when many farmers had become interdependent group members, Beijing

announced a decision that encouraged farmers to organize “corporation communes”

Because at that time the concept of commune a was different from later ones, we call

this type a “junior corporation commune” Compared with interdependent groups, its

characteristics were: 1) farmers used their lands as capital shares to join the

communes, meaing they kept property ownership but lands could be used by other

comrades; 2) at the end of each year the commune distributed a part of the outcomes

to members as dividends, and left the rest as public wealth; 3) farmers had the

freedom to stay in or leave the communes

By analyzing its characteristics, we can find that in the junior corporation commune

era farmlands were still privately owned, but the communes had the right to reserve

some outcomes, which indicated the collectivism had started to obtain some of the

generated values Also, through instructing farmers to work in a rural collective, the

concept of “private ownership” was weakened

Two years after the junior corporation commune was introduced into villages, another

type of organization was advocated, which was the senior corporation commune The

main difference between “junior” and “senior” was farmers had to submit all

properties in this “senior and advanced commune” Article 13 of the “Regulations of

Senior Corporation Commune” enforced “members have to give up their lands, as

well as other important implements to the commune” (Tian, 2001) Meanwhile, all

dividends were canceled, working for the commune became an obligation of every

member, and the working hour was the only measurement to give payment Unlike the

junior commune, senior ones were compulsive, meaning that every farmer was forced

to take part in one As a result, 33.14 percent of farmers who had never joined any

organizations were pushed into senior communes From Table 2.1 we can find that

interdependent groups and junior communities were restricted from 1955 and finally

ceased in 1957 Instead, senior communes represented 99.1 percent of Chinese

farmers This was a change in the Chinese history Private ownership in rural areas

was basically “diminished”, and collective ownership took its place Although senior

communities were larger than junior organizations in scale, another giant and more

radical commune soon came about

2.2.2 People’s Commune

People’s commune was an extreme example under central planning instruction It

began to emerge on the basis of the senior corporation commune In August 1958,

when many farmers had just given up their soils to join corporation communes,

central planners changed the policy again, asking several corporation communes to

merge to large People’s Communes At that time, the whole of China was dreaming of

entering a Communism Epoch, in which Communists said people would have

enjoyable and completely equal living conditions Nobody could doubt this utopian

idea and no central orders were disobeyed To realize the Communism dream, the

Great Leap Forward started Unfortunately, the result of property collectivization and

centralized production proved to be a huge tragedy

The characteristics of the People’s Communes directly indicated the quality of

Communism: 1) Those Communes were often very big; usually several villages were

a commune 2) In the organization everything was collectively owned, not only land,

livestock and other producing capitals but also personal goods, such as beds and

tables Most communities built public eateries, and members could eat as much as

they wanted 3) The Communes denied any differences and insisted on equality

Members in the same Commune were divided into a few groups according to their

gender and physical condition, and in each group members got the same rewards no

matter how much they actually produced In some places, local policy makers even

required equality among Communes 4) Each People’s Commune was not only a

production unit but also a political region in rural areas, which resulted in the

phenomenon that local governors usually used political commands to dictate

economic activities

As we could easily conclude, there were some fundamental problems in this system

The most serious problem probably was that farmers were deprived of property

ownership Although the ownership still belonged to the collective and they were

members, which meant they were nominal owners, it was the commune leaders who

were able to decide what to produce and how to allocate the benefits Since each

People’s Commune was both an economic and a political unit, the second problem

was using political aims as a guideline to instruct economic activities, ignoring

economic principles, resulting in inefficiency The last point was, the farmers’

enthusiasm was depressed, and the establishment of the equality system and the

public eateries denied the discrepancy of personal efforts and discouraged any idea of

hard working

2.2.3 Evaluation

A series of collectivization movements since 1953 have built the basis of the Chinese

land administration system In spite of their harm to the economy, those movements

were foreseeable after the Communist takeover To understand this question,

Lawrence Lai argued:

Communist ideology condemns property ownership as the basis of class

exploitation Ownership of land by the original proprietors was accordingly

abolished However, in practice land did not thereby become ‘common

property’ …… the reason is simply that this scenario would, under

competition, reduce the worth (economic rent) of the property to zero ……

this process is called ‘rent dissipation.’ (Lai, 1995)

According to Lai’s opinion, the purpose of all land reforms was serving the goal of

industrialization Qu, Heerink and Wang came to the conclusion by saying “collective

land ownership, direct land allocation by the state and simple land relations will

transfer more and more funds from the agricultural sector to the industrial sector” (Qu,

Heerink and Wang, 1995)

Even if the intention of collectivization was to develop industry, we cannot ignore its

disaster: In 1959 the crop production had decreased by 15 percent, in 1960 it had

dropped by 10 percent, and it was estimated over 20 million people died from famine

between 1960 and 1963 (Wei, 2002)

2.3 Reversion to Private Property Rights (1978-Present)

The highly collective property ownership led to a serious decline in agricultural

production which furthermore triggered starvation But the problem in the land

ownership system was not revised until Mao’s era was over In November 1978 in

Xiaogang Village, Fengyang County, Anhui Province, 18 families secretly signed a

contract Through this contract, they would get some farmlands to which they had

exclusive land use rights, and their annual incomes would depend on how much they

actually harvested from their lands This new method brought on an outstanding

growth rate in production and attracted others’ attention Some villages began to adopt

Xiaogang’s idea, and more and more joined in However, at the beginning this new

land administrative system was strongly forbidden by the central government due to

ideological reasons The government realized that centralization had resulted in

disasters, but they did not intend to make any big changes because centralization was

the soul of Marxism The situation was finally shifted in 1982, not only because the

new system results in good performance but also due to the courage of Deng Xiao

Ping He confirmed the advantages of the evolution, which started to be called the

“household contract responsibility system” (HCRS), and encouraged the whole nation

to learn from Xiaogang Village’s experiences Meanwhile the People’s Commune was

ceased After a few trial years, policy makers found that the 2-3 year contract period

seemed to be too short, since farmers had to frequently sign contracts and each time

farmlands were reallocated due to the change of population Farmers often felt

uncertain about their future Accordingly, the government suggested the contract

could be extended to 15 years in 1984, and in 1993 prolonged the contract to 30 years

Under HCRS, farmers’ lives are changed and the collective farming has been given

away Every single rural family becomes a producing unit After crops are ripe and

reaped, a certain amount will be paid to the government as agricultural taxes or fees

The rest can be kept as personal incomes The related price reform has done a great

deal to give farmers greater production incentives as well In recent years farmers

have been able to take their products to cities and sell them directly to urban people

The new reform has lead to very positive results For example, from 1978 to 1993

grain outputs grew from 304.8 billion kilos to 456.5 billion kilos, increased by 49.77

percent Cotton rose from 2.167 million tons to 3.739 million tons, increased by 72.5

percent The growth in agricultural products has successfully solved famine problem

and provided farmers with increasing incomes (Wei, 2002)

HCRS has given farmers use rights, but laws still protect collectives’ land ownership

and forbid privately conducted sales and purchases Hense, the Chinese government

created a new department monitoring and unauthorized farmland transactions

The key character of Chinese land reform after 1978 is separating land use rights from

property rights and returning the use rights to farmers On one hand, the government

quickly solved the problem of starvation which bothered China for decades while still

insisting on centralized ownership On the other hand, farmers’ enthusiasm was

aroused by getting land tenure rights and land benefit rights, and their willingness

under this more flexible system also brought them a tremendous increase of income

3 Land-to-lease System and Its Compensation Policy

The Household Contract Responsibility System, which is considered a land-to-lease

system as far as land ownership is concerned, has made historical contributions to

agricultural output growth However, it is not a perfect system, and some serious

problems began to emerge after a few years This chapter will focus on the drawbacks

of the land-to-lease system, and has two parts The first part will analyze limitations

of the current land-to-lease system, and the second part will examine the

compensation policy

3.1 The Land-to-lease System and Its Disadvantages

3.1.1 Blue Print

The land-to-lease system, as explained before, came from the secret idea of 18

farmers of Xiaogang Village But when it had been nailed down by law, the Chinese

government adopted many important rules from the Hong Kong land-to-lease system,

which has existed for decades Those rules include: 1) only leasing land use rights,

ownership is excluded; 2) the obtained use rights are only valid in certain years and

for certain purposes; 3) the Hong Kong government reserves the right to get the lands

back after the contract is expired (Yang and Liao, 2005)

However, the success of Hong Kong’s economy does not indicate its land system is

perfect Actually, its land-to-lease system was designed during the colonial era To be

more specific, according to the treaty between Chinese government of Qing Dynasty

and British government in 1898, Chinese had to lease Xin Jie (91 percent of Hong

Kong territory) to Britain for 99 years In other words, Hong Kong was nominally

owned by China, which could explain why the British-controlled Hong Kong

government never sold any ownership to individuals

Hence, the Hong Kong’s land-to-lease system is not a good example to learn from

Hong Kong was a part of a Chinese territory rented to Britain, not an independent

country, and it has neither complete land ownership nor unattached policies Adopting

its land system was done only because among all the successful economic entities,

Hong Kong’s idea was the best to fit the characteristics of Socialist property

ownership, which was based on centralization

3.1.2 Fundamental Problem

Undoubtedly, farmland is the property of peasants This is not only the rule in the long

feudalistic history, but is also admitted by current laws However, after entering the

1990s, due to the massive use of land eminent domain, about 40 to 50 million farmers

lost their land with unfairly low compensation (Zhao, 2005) The primarily systematic

reason is the individual farmers are not the owner of specific land, while the

landowner in law, the farmers’ collective, is a very ambiguous and imprecise

definition

On one hand, any relevant laws stipulate that land ownership belongs to the rural

collectives Article Ten of the Chinese Constitution stipulates that “except in cases of

legally defined state ownership, land in the countryside and urban suburban areas

belongs to collectives, so does the land used for housing and that reserved for

individual farmers” (Law Press, 2002) To be more specific, rural collectives include

three types: village collectives, town collectives and farmers’ collectives composed of

two or more economic entities within each village Article 74 of the 1987 Civil Law

states that “land under collective ownership is operated and managed by rural

collective economic organizations such as the village agricultural production

cooperatives or villagers’ committees The land that already belongs to any county

rural collective economic organizations may be owned by (county) rural collectives”

(Law Press, 1987)

On the other hand, none of the rural collectives has clear legal definition The

collective ownership is the result of serial reforms, from interdependent group to the

People’s Commune, and the people’s commune does not exist any more and the rural

collective has become an invisible and undefined term For instance, the law does not

define whether a group of farmers who corporately plant a large piece of land is a

collective, or a group of farmers who raise pigs in a village is a collective In other

words, we would rather say the farmland is a kind of property with no specific owner

(Yao and Sheng, 2004) Consequently, villagers’ committees or other privileged

groups have numerous opportunities for rent seeking and/or heavy-handed

manipulation while farmers have little or no say in the decision-making process The

so-called collective land ownership is actually in the hands of individual local

officials (Hong, 2004)

The villagers’ committee, however, is not a rural collective economic organization

Rather, it is a self-governed commune that does not have legal status as a property

owner (Kelliher, 1997) Nowadays, town governments directly appoint most of the

villagers’ committee leaders, and few committees are elected by farmers, hence the

villagers’ committee becomes a government agency, answering to its superior

Because farmers are usually poorly educated, and have less information, they do not

know how to better protect their benefits (Yuan, 2004) When the villagers’ committee

is provided with the land ownership, the foreseeable result is that the government

always easily obtains collectively owned farmland at very low prices while farmers

can hardly secure their property For example, on May 28th 2003, Shiliangtang

Villagers’ committee, Qingdao County, Shandong Province, informed the farmer Tang

Hongfa, “The 2.67 mu farmland you leased has been expropriated by country

According to the government decision, you have two options: either re-rent your land

to government at the rest period of our contract, getting yearly paid by 33.33

RMB4/mu; or accept one-time compensation of 4,800 RMB and permanently rescind

the 30 year contract, this option will not provide you with any other social security

welfare Please make your choice in three days” (Lv, 2004) Definitely, farmers will

feel extremely unfairly treated when the government deprives them of their land

through a simple notice like this Usually the government forces farmers to give up by

using police to arrest resisters, which intensifies the conflicts between the government

4

1 RMB was approximately equal to 0.1212 dollar in 2003

and citizens

Some scholars cite the People’s Republic of China’s Rural Land Tenure Law, which

allows those who have land tenure to “transfer, rent, exchange, or other transaction of

their lands” (Hong, 2004), and argue that despite the fact that Chinese farmers do not

have land ownership, they could buy or sell land use rights freely for fair prices But

two factors have showed this idea is just utopian

First of all, some other laws, including the constitutional amendment, the Civil Law,

and Land Management Law set up various restrictions to limit farmers’ rights by

forbidding any organizations and individuals to buy, sell, transfer, rent, and mortgage

their land (Beijing: Law Press, 1987 and 2002) Article 2 of the Land Management

Law states “the People’s Republic of China implements a socialist public ownership

of land, that is, a state’s ownership or a collective ownership No work units or

individuals are allowed to forcefully occupy, buy, sell or transfer land in any

unauthorized forms The state can lawfully acquire land eminent domain from the

land under collective ownership for public interests.” Article 47 states that “the illegal

gains from land sales or other forms of land transfer are to be acquired Newly

constructed buildings and other infrastructure on the land obtained through land sale

or any other forms of land transfer are to be either demolished within a certain time or

acquired The offenders are to be punished The personnel in charge are to be

administratively punished by his/her work unit or a superior organization”.5 If we

compare Land Management Law with Rural Land Tenure Law, we may realize that

5

China Election and Governance Website, 23 September 2003 [document online]; available from

<www.chinaelections.com>; Internet; accessed 23 December 2005

they have provided with confusing information The former law bans any

unauthorized forms of land transaction In other words, it only allows land

transactions conducted by the government, while the latter one allows whoever has

land tenure to transfer, rent, exchange, or other transactions of their lands For local

governments and the villagers’ committees, they will only choose the laws that can

maximize their profits and ban any individual land transactions

Besides the contradiction in laws, sometimes local officials and interest groups use

their power to grab benefits regardless of laws For example, some firms leave

acquired land unused for future resale after the land price increases, which is clearly

banned by the Land Management Law (Wang, 2004), and the local government

becomes a party taking part in compensation division Farmers always have less

power, so their property rights are rudely deprived in legal and illegal land eminent

domain That is to say, not only do farmers feel unable to protect their land tenure,

they are also unable to secure other basic rights such as land disposal and profit To

prevent their farmland from being occupied, many farmers take defensive actions

such as staying at their lands day and night That may put them into a more dangerous

situation For example, in 2005 the government of Dingzhou County, Hebei Province

planned to acquire a piece of land at Shengyou Village to build a factory In order to

squash the farmers who guarded the land 24 hours a day because of unsatisfying

eminent domain compensation, the factory leaders organized over 200 armed men to

attack the farmers on June 11 2005 This disaster killed 6 farmers and injured 48

others (2005) The farmers’ legal rights have been ignored to a very appalling degree

To sum up, the law does not protect the individual farmer’s status of landowner, but

instead protects rural collectives that do not have any legal representation that enables

them to own, manage, and oversee rural land So the villagers’ committees that mainly

represent government’s benefits take control of the property With time going by,

farmers gradually changed their understanding of landowners The Development

Research Center of Chinese State Department did a survey by sending questionnaires

to 800 rural families, asking who they believe is the owner of farmland The result

shows, 48.3 percent of farmers think the land belongs to the government and only

46.5 percent of them correctly believe the land belongs to the collectives Even among

those 46.5 percent farmers who have, 80 percent misunderstand villages as collectives

(Qu, 2004)

3.2 Compensation: Rules and Practices

3.2.1 Compensation Policies

The policy makers have implemented quite a few laws to protect farmlands as well as

peasants In particular, to deal with the problems emerging after land eminent domain

became frequent, the Land Management Law that became effective in 1999 has

precisely regulated the details in land eminent domain

First of all, the law has stipulated only the rural collective has lawful rights to

determine the future of land, and villagers’ committee is unable to represent

collectives According to the Article 15 of the Land Management Law, “No decision

regarding land tenure by individuals or entities outside of the farmers’ collectives can

be made without the consent of two thirds of the participants at the village conference

or two-thirds of the village representatives”.6

Secondly, since the land-to-lease contract restricts the lease period to 30 years, the

potential yield of 30 years has been considered as the maximum cap for compensation

Article 47 of the Land Management Law states that “the compensation for land

eminent domain has to include that for the land itself, supplementary expenses for

farmers’ resettlement, the replacement value for the crops, and other materials

attached to the land The compensation for land itself should range from six to ten

times the average annual value of production based on the calculation of the previous

three years prior to the land acquisition; the compensation for farmers’ resettlement

should be no more than fifteen times the average annual value of production… If the

total compensation regulated above is still not enough to keep the landless farmers

living in previous condition, province governments could increase compensation

amount within thirty times the average annual value of production”7 That is to say,

the compensation is no more than the value of thirty years of agricultural product

Thirdly, the laws have clarified the responsibilities of court, local government and

construction firms and forbidden land speculation Articles 73 to 83 of the Land

Management Law regulate that “any construction firms and interest groups that

illegally transact and build on farmland will face administrative punishments,

penalties or even criminal accusations” Article 84 states “if the land administrative

officials scrimshank, misuse of authority, or have fraudulent practices, will be

punished by upper government or court”.8

Through the rules in law we may notice land eminent domain compensation is

dependent upon the annual value of agricultural production Possibly, the values of

outcome may be influenced by farmland conditions, climates, levels of local

development, and price levels Consequently, compensations may vary from place to

place, and local governments, especially those metropolitan governments, have

flexibility to decide compensations In this section, we will use the Municipality of

Hangzhou as an example

On the east coast, Hangzhou is the capital of Zhejiang Province, which is one of the

most developed regions with the highest GDP per capita in China Located in the

Hangjiahu Plain of the lower reaches of the Yangtze River, Hangzhou’s agriculture

benefits from plenty of sunshine and rain, and as a result mostly produces vegetables

and rice The urban area of the Hangzhou Municipality, composed by 6 districts

Jianggan, Gongshu, Xihu, Shangcheng, Xiacheng, and Binjiang is mainly supported

by its tourism industry and thus has few farmlands The majority agricultural output

comes from its 7 rural districts/counties, Xiaoshan, Yuhang, Tonglu, Chun’an, Jiande,

Fuyang and Lin’an Tables 3.1 and 3.2 record the changes of areas of cultivation from

1990 to 2004, and the areas of cultivation by region in 2004

Table 3.1 generally describes a decreased tendency of the cultivated area Since this

8

Same as above

paper intends to analyze the compensation under land eminent domain, the most

meaningful data set are the decreased cultivated area due to capital construction

Beginning in 2000, capital construction has gradually become the main factor in

farmland decreases, and it has exceeded 50 percent of the decreased farmland areas

since 2002 Table 3.2 confirms the same information, Xiaoshan, Yuhang and Xihu are

the three districts that transfer the most cultivable areas to capital construction, and

these three regions are all located in the suburban areas of Hangzhou Because of its

fast urbanization, Hangzhou Municipality Government made clear regulations to

compensate landless farmers in 2000, and amended the regulations only after two

years The compensating standards in 2000 consist of four parts, which are land,

supplementary expenses for farmers’ resettlement, the replacement value for the crops,

and other materials attached to the land and these articles are listed in Table 3.3, 3.4,

3.5 and 3.6

Table 3.1 Areas Under Cultivation

Per Capita Cultivated Area (in Total Population) 0.035 0.032 0.031 0.03 0.03 0.028 0.028 Per Capita Cultivated Area (in Rural Population) 0.051 0.048 0.048 0.048 0.048 0.045 0.042 Source: Hangzhou Statistical Yearbook 2005, http://www.hzstats.gov.cn

9

1 hectare is approximately equal to 15 mu

Table 3.2 Areas Under Cultivation by Region (2004)

Note: Two urban districts, Shangcheng and Xiacheng have no areas under cultivation, and thus are not included in this table

Source: Hangzhou Statistical Yearbook 2005, http://www.hzstats.gov.cn

Table 3.3 Compensating Standards on Land

in RMB/mu

Land Quality Level Land Sorts Output Values Times Compensating Standards

Paddy & Dry Fields 2900 8 23200

Notes: 1 Fishing ponds and tea fields use the standards of vegetable fields

2 Woodlands use the standards of fruit fields

3 If other non-cultivatable lands are acquired, use 0.5 times the standards of paddy fields

Source: Hangzhou Municipality urban land eminent domain compensating and taxation standards 2000(3), www.hangzhou.gov.cn

Table 3.4 Supplementary Expenses for Farmers’ Resettlement

Resettlement Types Personnel Types Compensating Standards Offering jobs plus monetary compensation

Male age 16-40, Female age 16-35 17,000 RMB/person Offering monetary compensation All farmers 17,000 RMB/person

Developmental compensation All farmers 10,000 RMB/person

Notes: 1 This compensating resettlement standard is calculated based on the living expense of 215 RMB/month·person

2 If the compensation given according to this standard is not enough for resettlement, landless farmers can get extra compensation, but the total amount must not exceed 30,000 RMB/person

3 Farmers’ resettlement compensation is given based on farmers’ population The deciding rule is: cultivated area under land eminent domain/per capita cultivated area

4 The total amount of compensation for land and resettlement generally should not exceed 25 times annual output values Paddy fields, dry fields, vegetable fields and other sorts must not exceed 30 times

5 Developmental land eminent domain means, the government will leave 10 percent of cultivated areas to farmers for living purposes

Source: Hangzhou Municipality urban land eminent domain compensating and taxation standards 2000(3), www.hangzhou.gov.cn

Table 3.5 The Replacement Value for the Crops

Notes: 1 Dry fields use the standards of paddy fields

2 Tea fields and fishing ponds use the standards of vegetable fields

3 Fruit fields and mulberry fields use the standards of fruit fields

4 Large area woodlands (>0.5 mu) use the 2 times the standards of vegetable fields, which is 6000/mu

5 No compensation will be given for the young plants put in after the confiscation decision is announced

Source: Hangzhou Municipality urban land eminent domain compensating and taxation standards 2000(3), www.hangzhou.gov.cn

Table 3.6 Other Materials Attached to the Land

Items Compensating Standards

Outdoor Ground Cement ground 40 RMB/Sqm, clay ground 18 RMB/Sqm.

Tomb Varies from 60 to 350 RMB each.

Notes: 1 Telegraph pole 100 RMB/each, ditch 30 RMB/cube meter

2 Compensating houses use “Hangzhou Municipality Pricing Standards on Rebuilding House”

3 Major irrigative facilities use other compensating regulations

Source: Hangzhou Municipality urban land eminent domain compensating and taxation standards 2000(3), www.hangzhou.gov.cn

Table 3.3 indicates in Hangzhou, the compensations given for the confiscated lands

are purely based on the annual output value times a certain index, which varies

according to the land quality levels Usually this index is higher (=8) if the land

quality is better, or lower (=7) is the land quality is worse This standard accords

with the Land Management Law which regulates the land compensation should be

six to ten times the average annual output value Among four land sorts, vegetable

fields generate the highest output values, this is because comparing with rice, fruit

and other agricultural products, vegetables have the shortest growing circle and

farmers can harvest vegetables several times a year

Table 3.4 listed three possible resettlement plans Among those plans, one of the

three is designed exclusively for young farmers Comparing with older farmers, male

farmers with the age between 16 and 40, and female with the age between 16 and 35

could get same amount of compensation even after being offered a new job

Considering job offer as a type of compensation, this policy implies that farmers are

compensated upon their productivities Developmental compensation plan is under

the situation that farmers can still keep a certain area of land to plant for themselves,

so the compensation amount is reasonable lower

Table 3.5 describes how the compensation for the lost crops will be given In general,

compensation value equals to half of the annual output, except for large area of

woodlands Theoretically speaking, this standard is clear but rough, it does not take

in to account that crops have different growing stages

Table 3.6 includes the compensating standards of the other facilities attached to the

land, with clear and complete classifications

Tables 3.3 - 3.6 list in detail the compositions of a landless farmer’s compensation

From the different characteristics of the objects that are compensated for, we may

separated compensations into two categories: immediate compensations and long

term compensations Immediate compensations are paid to make up for the loss of

crops and other materials attached to the land, whose values are usually valid within

a certain period and easy to estimate by using the market prices of the lost objects

Long term compensations are paid for land and resettlement expenses Unlike the

immediate loss, these damages are long term, in multi-aspects, and sometimes

difficult to detect As a result, long term compensations contribute much more to a

landless farmer’s income, which explains why the Land Management Law only

clearly regulates the upper limit of compensations for long term objects10 Suppose a

farmer has to give up his vegetable field Theoretically on average he is able to

receive 56,460 RMB for long term compensation11, while the amount of immediate

compensation will be around 10000 RMB (Hu and Yao, 2003)

After this regulation became effective in 2000, the Hangzhou Government amended

some articles and significantly raised the compensating standards in 2003, in order to

offset the increase of landless farmers’ living expenses In comparison to the former

regulation, the new one keeps the compensating standards of crops and other

materials attached to the land, and enhances the long term compensating standards

Moreover, it has simplified the rules and provided a more general guideline by

combining four compensating tables into one, which is listed in Table 3.7