I haven’t come across any reports of what I think is a pretty momentous section of the Decision of the recent Third Plenum of the 20th Central Committee [English | Chinese], so here’s my own belated take.
The Decision is long on generalities and short on specifics, and so it will be hard to measure progress toward stated goals or indeed to say whether or not they have been achieved at all by the stated target date of 2029 (subsec. 3 of the Decision). Surprisingly, however, the Decision does make one specific and measurable promise: “We will develop a unified market for urban and rural land designated for construction” (构建城乡统一的建设用地市场) (subsec. 6).
What does this actually mean? As nobody to my knowledge is proposing substantial reforms to the urban land use system, developing a “unified market” can only mean bringing the rural land system into conformity with the urban land system, at least as far as non-agricultural land is concerned.
In the urban land system, the state, personified by a local municipal government, sells long-term leases called land use rights (LURs) (70 years for residential use, 40 years for commercial use, and 50 years for other uses such as industrial), with the revenue split 30-70 between the central and local government.
What would it mean to bring the system to rural construction (i.e., non-agricultural) land? And can it be done in five years?
It is worth noting at the outset that a 2019 revision to the Land Administration Law essentially said that LURs to rural construction land could be granted “with reference to” the procedures of the urban land regime, with concrete rules to be formulated by the State Council. The State Council issued the promised implementing regulations in 2021; they also state that matters such as the maximum term should be determined “with reference to“ the rules applying to urban land for the same type of use. Thus, this land reform has been in the works since at least 2021. What the Third Plenum Decision suggests is that the Party wants the reform to be complete by 2029.
Fully implementing this land reform means some big changes. Importantly, it means that market pressure to put rural land to high-value residential, commercial, or industrial use will no longer necessarily mean what it does now: the state nationalizes the land in order to convert it to urban land (paying the residents compensation based on the previous low-value agricultural use) and then sells an LUR to a developer, with the developer and the state pocketing the difference between the compensation paid and the market value of the LUR. Under the new system, not the state but the collective owner (typically, the administrative village) will get paid for the LUR. How much of that fee might eventually trickle down to the members of the collective is, of course, a question mark. It might get embezzled along the way.
Whatever happens to those revenues, it’s interesting to note the difference between urban LUR revenues and rural LUR revenues. Urban LUR revenues belong to the state, representing 1.4 billion citizens. Even if the revenues from a sale are used entirely for their benefit, with no corruption, each citizen’s individual benefit is less than trivial. Rural LUR revenues, by contrast, belong to the collective, which usually means an administrative village. The population of the typical administrative village is on the order of 1,000. Thus, any given LUR sale stands to bring a significant benefit to individual villagers and village leaders, even if it is spent (non-corruptly) on collective goods. Given the way rural residents have so far been shut out of the great wealth creation machine that has been urban real estate, one can only hope that this reform in practice realizes its potential to work to their benefit.
Another byproduct of the reform might be the disappearance of minor property rights (小产权) (MPRs), a type of home-made “ownership” in which villages “sell” (I use quotation marks because they have no legal right or ability to do so) rural land—sometimes purporting to do so for an infinite term—to urbanites seeking a bargain that’s cheaper than land that qualifies for a proper urban LUR. MPRs are cheaper because they cut out the middleman: because the land is never converted into state-owned land, the state gets no cut. But they are of course riskier: the “ownership” is not recognized under Chinese law.
If rural land can now be directly and lawfully sold as (for example) a 70-year residential LUR, there’s no need for MPRs any more. The state middleman can be lawfully excluded.
In summary, it will be a major change in the rural land regime if LURs in rural land can be sold the same way as LURs in urban land. Let’s see what happens to the revenues. When an urban LUR is sold, the fees go into the bank account of a city government—say, Guangzhou or Nanjing. They are controlled by city government officials and subject to the various audits and controls that apply to government money generally. Thirty percent is to be passed up to the central government, where it’s under the control of central government officials in the same way.
The picture for revenues from the sale of rural LURs looks, as far as I can tell, totally different. The fees belong to the administrative village, a tiny entity relative to a city. It is not even considered a formal part of the state apparatus. The village’s bank account is controlled by village leaders. The village is very unlikely to have sophisticated auditing and control mechanisms to regulate how that money is spent. The new revenues will likely represent a huge increase in the amount of funds under village control. Will they—can they—manage them non-corruptly?