Back to the land – again

China's latest land reform may improve the efficiency of agriculture but cause an unwelcome drift to the cities

China started its current economic reform from a small village called Xiaogang in eastern Anhui province in 1978. Eighteen farmers risked their lives to sign a secret agreement, which divided communally-owned farmland into individual pieces.

Now, after 30 years of high-speed growth, China needs to start a new round of reforms from where it began: the rural land. China's economic engine has gradually lost momentum and the nation needs new initiatives to maintain its economic growth. The widening rural-urban income gap has also pushed the ruling communist party to map out new efforts, to win accountability among the 700 million farmers.

This is the background to China's latest rural land reform approved on October 12 at a meeting of the party's policy-setting central committee, but announced one week after the meeting. There's no official explanation on the one-week lag, but analysts generally believe that it reflects disagreement within the party on the new reform.

Chinese farmers currently have 30-year limited leases to use their land, while the land belongs to the state. Although the new policy stops short of outright privatisation, it extends the farmers' land leases to 70 years and allows them to subcontract, sublease, exchange and swap their land lease.

Rural land transfer and lease have become common in recent years. The new policy will encourage more farmers to transfer their land, thus creating larger, more efficient farms with the increased productivity China's agricultural sector needs. It protects the farmers' interests by establishing transparent land transfer market systems. In recent years, many social conflicts originated in the rural areas while local officials abused their power to transfer rural land to property developers and paid little compensation to the farmers.

The effects of the land reform will be widely felt. It will push massive rural land into the market transactions, creating a business worth trillions. Millions of farmers will move to cities after leasing or transferring their land. Cities will have to be enlarged even further while the educational and medical facilities will have to be expanded. The speeding-up of urbanisation would help to sustain China economic growth.

The land reform will also have important political implications. It is possibly one of the most important policy changes in the 59-year history of the People's Republic of China, a horn that signals the start of a new round of overall reforms. Farmers and workers used to be the two pillars of the communist party. Their support made it possible for the party to win a civil war in 1945-49 and establish the current administration. However, as the country moved forward towards market-oriented reforms, they have become the groups who lost most.

Some of the policies the party adopted, including the Revitalisation of the North-east Industrial Bases and the West Development, were intended to increase the workers' social benefits and narrow the wealth gap among social classes. However, those measures didn't work as well as expected. In the cities, residents complain about rising living costs and keep questioning the accountability of the ruling party. That's why, in spite of the fierce resistance from entrepreneurs, the new labour law was introduced early this year. The communist party is trying to win back the support of workers.

The party's effort is now focusing on gaining the support from farmers as their huge population means they are a determining factor in the country's stability. It is a challenging task. Whether enough facilities and jobs can be created for those moving to the cities remains a big question. There is a real danger that those farmers who have sold their land will become jobless, possibly homeless, migrants, threatening social stability and the ruling of the communist party.

If the rural reform is successful, the next major reform on the horizon would be the long-awaited political reform. Don't hold your breath though.