A reform that could turbocharge the Chinese
economy
Why won’t the government give farmers more freedom to sell their homes?

China’s “reform and opening” policy began more than four decades ago in
the countryside. It involved dismantling Mao Zedong’s disastrous “people’s
communes” and giving farmers their own plots of land to tend. Food
production soared, as did farmers’ incomes. Now some Chinese leaders want
to disentangle rural property from a web of Mao-era restraints on ownership
and let villagers enjoy another boom. The impact could be as far-reaching as
those changes in the 1980s. But this time officials are proceeding more
gingerly.
As more than 360 of the Communist Party’s most senior members prepared
to hold a much-trumpeted gathering in July, some Chinese experts called for
a big overhaul of the rural-property-rights system. The moment seemed apt.
The secretive meeting, known as the “third plenum” because of its position
in the party’s five-yearly cycle of policy pow-wows, was expected to focus
on economic reforms, including in the countryside. State media stressed its
importance by recalling that it was at a third plenum in 1978 that reform and
opening officially started (although it wasn’t until the early 1980s that
reforms to agriculture took hold).
As it turned out, last month’s plenum gave little sign that any sweeping
change was in the offing, either in the rural domain or any other. It reemphasised
the well-known policy preferences of China’s leader, Xi Jinping,
who wants a technology-led economic recovery and tighter party control
over everything. The meeting’s pronouncements offered no promise of what
some Chinese commentators see as the most badly needed ownership right
for farmers: the freedom to sell their homes to whomever they wish. Since
the 1980s, about 300m rural residents have moved to cities to work. As a
result, about one-fifth of China’s rural homes are unoccupied or abandoned.
Their value, and that of the land they occupy, is being wasted.

Those calling for change include Meng Xiaosu, a former official who was
one of the government’s main advisers on property matters in the late 1990s
when it decided to privatise urban housing and allow it to be freely traded.
Those reforms unleashed a property boom that powered China’s economy
until 2021, when the market slumped. GDP growth is now faltering. In
February Mr Meng told a forum that if rural housing could be sold in the
same way as urban homes, “I believe it could drive China’s economic
growth to over 8% for more than 20 years.” Such a rate has not been
achieved since Mr Xi assumed power in 2012, apart from a surge in 2021 as
China recovered from the initial shock of the pandemic. Last year’s growth
was 5.2%.
Another outspoken advocate of reform is Wang Huiyao, who heads the
Centre for China and Globalisation, a think-tank in Beijing. Freeing the
rural-property market, says Mr Wang, would be “low-hanging fruit” that, if
plucked, would trigger the “next revolution” in China’s economy,
comparable to the rural reforms of the 1980s, urban-housing reform in the
1990s and China’s emergence as a trading giant following its accession to
the World Trade Organisation in 2001.
It would not be straightforward, however. Urban land is owned by the state
but is leased to homeowners, typically for 70 years, with an assurance of
automatic renewal. That is enough of a guarantee for most city-dwellers—
hence house prices in the biggest cities that (despite recent falls) are among
the world’s least affordable. In the countryside, land is owned by the
“collective” (the village). Rural households have a right to use a piece of
land to build their homes, but may not sell their property to people
elsewhere. In practice some do, especially near cities where demand is high
for cheaper homes or rural retreats. But buyers beware: when disputes arise
courts usually rule that non-villagers have no right to the houses they have
paid for.

Change has been slow. The government fears that lifting restrictions would
encourage more farmers to sell and thus deprive them of a safety-net if they
lose their urban jobs. It worries that cities may fill with large numbers of
destitute people, potentially triggering unrest. Another concern is that a
surge of new supply could deal a further massive blow to China’s crashing
property market. There is an ideological restraint, too: the notion of
collective ownership in the countryside is dear to the party. Admitting it is
flawed would challenge a core ideological belief.
Since 2015, reforms have been carried out in more than 130 counties and a
handful of prefectures, a tiny fraction of the total. Rarely have these
involved relaxing the ban on selling to non-villagers, and even then only to
others in the same area. More often the changes have focused on
encouraging farmers who have moved to cities to give up their rural
homesteads in return for compensation. In some cases farmers relinquish
their land so that it can be used for commercial projects from which they get
dividends. In other cases counties offer cash in return for housing—usually
very little. In Fengyang county in Anhui province villagers can get an extra
50,000 yuan ($7,000) if they buy a new flat locally.

In the neighbouring county of Quanjiao, officials have been inspecting
properties to check who owns what and then issuing hongben, or red
booklets, as proof of ownership. These look just like urban-property
certificates. In one village, however, residents are unable to produce them—
they say they are being stored by the village authorities (a clue, probably, to
who really controls the rights). In a nearby village where the majority of
houses are empty, residents say that big changes have happened in the
management of their agricultural land. The central government is
encouraging experiments with the pooling of fields to make farms bigger
and more efficient. Now all of the village’s rice paddies are being tended by
two people. But hongben have yet to be handed out. Villagers suspect that
local officials have a tourism project in mind and do not want NIMBY-ish
hongben-waving residents to block it.
State media have suggested that the recent third plenum may ultimately
result in further reforms. But if the plenum in 1978 is any guide, they could
be slow to unfold. On July 24th, six days after the meeting ended, the
agriculture ministry’s party chief, Han Jun, told reporters that reforms would
be “carried out cautiously”. Just to be clear he added: “The right to use
homesteads is a right enjoyed by members of rural collective economic
organisations, meaning that non-members of these organisations have no
right to obtain or indirectly obtain these rights.” In other words, do not bet
the farm on a breakthrough. 


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