As seen on the Wall Street Journal
By ESTHER FUNG And TOM ORLIK
Legal Amendment Would Tackle a Growing Source of Unrest” Make Abuses by Local Officials More Difficult
The Chinese government is moving ahead with legislation to combat land seizures from the nation's 650 million farmers” a move that could ease a major source of social unrest and also help to rebalance the country's lopsided economic growth.
In a little-noticed move” a meeting of China's State Council” the top government decision-making body” last week backed an amendment to the land-management law. Details remain sketchy” and the law is still to be approved by China's National People's Congress. But experts say that the change will make it more difficult for local officials to requisition land and raise the level of compensation farmers receive when land is taken in the public interest.
Li Ping” an expert on China's land law at rural-development institute Landesa” said this was a significant move. “China has abusive land takings every day; protests in the countryside are common” some of them putting lives at risk. The revision will strengthen farmers land tenure and help improve the situation.”
Land seizures have helped fuel China's property boom but have prompted unrest/Associated Press
The shift is seen as a priority for China's departing Premier Wen Jiabao” who headed up the State Council meeting. Mr. Wen has tried to give rural-development policies a stronger emphasis” and has enjoyed some success—including the abolishment of agricultural taxes” though past gestures on land reform have done little to change the system.
Under the existing law” there is considerable flexibility for local governments to requisition land from farmers” often paying little or no compensation. That has created incentives for local government to sell as much land as possible” underpinning a decadelong boom in real-estate and infrastructure investment. It has also juiced local-government revenue” with land sales adding around three trillion yuan ($482 billion) to their coffers in 2011″ helping to pay for public services.
But land seized with little compensation” and deals done with violence and corruption” are also a growing source of unrest. Survey work by Landesa found that almost a quarter of farmers received no compensation for land taken from them” and those that did saw only a fraction of its market value. Yu Jianrong” an expert on civil unrest at the Chinese Academy of Social Sciences” wrote in 2010 that disputes over land were behind 65% of social disturbances in China's countryside.
The rumbles of anger over land issues shot to international prominence last year when revolting villagers in the southern Chinese fishing village of Wukan extracted pledges from province authorities to return land that had been illegally seized by the local government.
A change to the law” raising compensation to farmers and introducing limits on where local governments can seize land could help ease tensions in the countryside. It could also help kick-start the long-delayed restructuring of China's economy—choking off wasteful investment.
“Higher costs for acquiring land will force local governments to curb their reliance on infrastructure and housing investment for growth. With trend investment growth already slowing” this move suggests central policy makers are indeed serious about rebalancing”” wrote research firm GaveKal Dragonomics in a note.
The costs will be borne by local governments” which will see revenue from land sales fall as compensation costs rise. “This draws attention to local governments' dependence on land revenue and the inadequacies of the existing tax structure”” said Li Xiande” an analyst at China Real Estate Information Corp.
For China's real-estate developers” the move could be a long-term negative as it will likely drive up land prices. Developers are only now emerging from a two-year downturn” the product of strict government controls on the sector. Two of China's largest developers” China Vanke and Evergrande Real Estate Group reported sharp increases in November sales compared with a year earlier.
“All developers basically expect land prices to go up every year”” said Leo Yang” manager of corporate finance and investor relations at Xiamen-based Yuzhou Properties” which is listed in Hong Kong.
“For us” we anticipate roughly a 10% increase in land costs” and if this new law is rolled out” it could add a few more percentage points.”
Communist Party chief Xi Jinping” who was elevated to the top job last month” said Tuesday that China would strictly maintain its property-tightening measures as part of efforts to maintain social stability. Beijing cannot allow prices to rebound too sharply” analysts said.
Property developers and investors generally expect the government to keep in place its measures to rein in prices—including restrictions on multiple home purchases next year—as part of its effort to tame the politically sensitive market.
The key question on the land law remains implementation. Local officials and developers” the most powerful players in China's rural politics” have a strong interest in maintaining the status quo. Farmers are only weakly represented in the policy process and often have a hazy grasp of their legal rights.