Property Rights Reforms in China

The New York Times has a story todayon important property rights reforms that are being considered in China. Right now all rural lands are state owned, but under the control of village governments. Individual peasant cultivators could enter into long term leases with their local governments, but they had relatively little in the way of protection for their investments (e.g. the local government could revoke the lease) and little or no ability to lease out or sell the rights to their rental. This appears to be about to change. Lease lengths may be lengthened and it seems households will be able to sub-lease or perhaps even sell their 'rights' to the lease. This is a long (but still cautious) step toward establishing a land market. As the article explains:

Many farmers work on tiny, state-allocated plots of land for a small fraction of the year, investing little in agriculture. While they are entitled to 30-year land-use contracts, the state retains ownership of rural land, and local officials often seize or reallocate it to suit their development priorities.

Development economists say 'institutions' and property rights matter. If so, then these reforms should matter. The concerns, as always is how will these reforms be implemented.

If done right this could give property rights to the rural tillers of the land in ways that create more secure property rights and incentives for investment and wealth accumulation and stimulate rural activity, and lower income inequality.

Officials are eager to stoke new consumer activity at home, and one potentially enormous but barely tapped source of demand is the peasant population, which has been largely excluded from the raging growth in cities.

Average income in rural areas lags far behind the average in cities, giving China one of the starkest income gaps in the world, according to government estimates.

If done wrong, say by giving land to party-connected insiders and developers, peasants who have de facto access to land now, will be in effect expropriated and end up with fewer and less secure property rights. This is already a problem:

Rural land disputes are perhaps the biggest source of social unrest in China. Protests and riots in rural areas number in the thousands each year, according to national police estimates. They are often incited by allegations of corruption and illegal land seizures.

And interesting area of research in economics involves measuring the impacts of land reforms of this sort, and who benefits. It's not as straightforward as you might imagine. Much more on this topic here (by yours truly) and in this will be a class topic.