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Land Reform. It's A Coming. Sort Of?

By Dan Harris and Steve Dickinson

Not sure why the huge interest in this subject, but I have probably received more emails/comments asking if I am going to write about this than probably anything else ever. The "this" is China's expected changes to rural land laws. I was going to write about it after speaking with some of our food business clients who work with China, but I figure doing so now will stop the emails, so here goes. Forbes Magazine did a nice piece on this, and not just because they extensively quoted CLB's own Steve Dickinson in it. The article is entitled, "China Farmers Granted More Freedom On Land Rights," and it calls the anticipated laws a "major initiative to marketize China's countryside." It describes the reforms as follows:

The reforms, approved at a Oct. 9-12 party meeting led by President Hu Jintao, still need to be greenlighted in March by the National People's Congress, China's legislative body, which has traditionally been a rubber-stamp institution. Land will remain owned by "the people," under China's constitution and effectively controlled by the state, with 30-year use rights granted to rural households. The new policy, if implemented, would allow China's 800 million peasants to lease their land use rights to other individuals or companies, such as big farm contractors, or to exchange them.

The article goes on to say that these reforms are intended to increase agricultural production:

The agricultural sector is dominated by households operating on small parcels of land allocated by the state. The new policy likely will open the way for more U.S.-style industrial-scale farming by agricultural companies. The government wants to keep food production steady, a goal that is getting more difficult amid rapid urbanization. The country's agricultural deficit with the United States has ballooned to record levels (see "Fertile Opportunities For U.S. Agribusiness In China"), and China cannot produce close to all the food it consumes.

Philosophically and politically, this looks like a huge deal to me, but I am going to leave those areas to others. My real question is how is this going to affect foreign and Chinese food businesses. I think it will lead to bigger farms in China and increased efficiency, and with that, increased exports of food, but I am not sure. Is there a farm economist out there who can help me on this? Steve Dickinson had this to say:

But the land system will remain only partially open, as farmers will not lose rights to land that they lease out. "Even though they use the term 'mortgage,' the terms are so restrictive that it is not a true mortgage market," said Steven Dickinson, a longtime China lawyer for Harris & Moure. "There is no mention of 'sale' in the list of transactions. A mortgage on land that cannot be sold is not a mortgage in any sense that we understand it." He and some rural policy researchers worry that farmers may now lease their land for quick, easy cash but will have nowhere to turn if they cannot find or keep employment year-round. "The fact that people can always go back to the farm is a primary source of social stability in China at this time," Dickinson said. Allowing farmers to sell their land, he remarked, is just too risky a move for the party to take.

What do you think?

Full post as published by China Law Blog on October 14, 2008 (boomark / email).