Twofish's Blog

Notes on the Chinese rural land tenure system

I’ve blogged pretty extensively on the Chinese rural land system, and most news reports get it wrong because they don’t provide the background for what the system is.

Chinese rural land is managed as part of a village pool.  Each individual farmer is assigned a plot with a long term lease (30 years) from the village pool, and they get to keep anything that they produce from the plot.  When this system was established in 1978, it created a huge burst of productivity since it gives the farmer an incentive to work hard and maximize output.  It also gives the farmer some security.  You can go the the city, rent out your plot to someone else or give it up, and if you come back, then you still have a right to a plot of land to farm.

Now as far as what people are protesting over.

This really isn’t a “poor peasant revolution” story.  The land in interior China is pretty worthless.

Where the big fights are in the richer provinces (Guangdong in particular) where land is being converted from agriculture to industry.  If you move to a system of individual tenure would actually *decrease* compensation because as it is right now, when land is taking out of the system, everyone in the village starts screaming, whereas a system of individual property would allow people to picked off one by one.  Also, right now, its pretty much impossible for a peasant to everything, since once land is taken out of the pool, the remaining land gets redistributed.  If it were, then you have to create a social welfare network to deal with all of the people that completely lose their land.

Labor intensive agriculture isn’t very efficient, and right now Chinese agriculture is basically a make work welfare jobs program (not that there is anything wrong with that).
Now there is another piece of the puzzle which a lot of news reports don’t mention and that is that rural governments are broke.  They don’t have tax authority, and in the 1990’s there was this effort to raise money through fees which the central government cracked down at.  Land sales are basically the only way a lot of these governments can raise money.  Some of it goes to corruption, but a lot of it goes to things like schools and basic health care (both of which have fallen apart).  If you raise the price that goes to farmers, then you have to figure out how to fund local government.  Again, some of the solutions may be worse than the disease.  Local governments basically can’t be trusted to tax and borrow.  What has been done is for the central government to start picking up the tab for a lot of these functions.  This reduces pressure on the local governments to sell land, which reduces the number of protests.

One thing that *hasn’t* been very much in the news is that the number of protests in 2006 have dropped off from the number in 2005, partly because the central government has started instituting direct funding of local governments.  For that to happen, it took about a decade of trial and error, but the system seems pretty solid since all of the bugs have been removed.


  1. So how does the new system of direct funding work – is it just a transfer of tax yuan from the cities to the countryside?

    Comment by Beefeater — February 26, 2008 @ 2:45 pm

  2. Basically, there is a value added tax on goods and services, which gets split between the central government and local governments (details are in the Ministry of Finance website). This has resulted in a large boost in income to the central government, which appears to be large enough to subsidize the poorer rural areas.

    This is the first time in five thousand years of Chinese history that the Central Government has been able to tap into commercial growth through tax revenue, and it’s the reason that after two thousand years of Chinese history that the government has gotten rid of the land tax.

    My belief is that taxation is an underappreciated force in world history. It was England’s success at putting together a central tax system in the 17th and 18th century and China’s failure to do so, that led to China’s troubles in the 19th and 20th century. If you don’t have taxes, it’s hard to raise an army.

    I’m curious when and if the government will be able to get rid of the salt monopoly which has also been in existence for about two thousand years.

    Comment by twofish — February 27, 2008 @ 11:22 am

  3. Medici sold bonds to raise mercenary armies. The Glorious Revolution 1886 led to BoE bonds. One effect was to drive a wedge between classes who otherwise might have joined in revolution; another, corruption of bond holders and govs who had loosened critical restraints.

    Thanks for your thoughts.

    Comment by de — August 20, 2009 @ 7:42 pm

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