If we compare rural-urban populations, since 1990s, the annual growth rate of
urban population in China has been 4.8 percent or more. This is fairly high by
international standards. Such rapid urbanization automatically
leads to expansion of urban city areas. It is estimated that a 1 percent increase in
urban population leads to an expansion of urban area by 2.26 percent in cities that
are above middle scale. Gigantic infrastructure projects also require land. How is
the land for such urban expansion and infrastructure construction obtained?
Under the land law, arable land is collectively owned, and cannot be sold or used
for another use. Only if the land is reclassified as to be under state ownership, can
it be legally expropriated for non-agricultural use.
If a town or village devises a plan to develop a certain land area for industrial
or commercial use, it must get administrative permission from a higher govern-
ment level. The level differs depending on the acreage, but it was generally the
county level or the provincial-level government which used to grant the
permission. However, in order to prevent abuses, the central government in 1999
moved the right to give permissions from the county level to the provincial level.
When permission is granted, the land is placed under state ownership. Once local
governments get the permission for development, the peasants on that land lose
all rights and are merely paid a certain sum for compensation prescribed in the
land law. The sum paid for compensation is usually six to ten times the annual
revenue derived from the land. In coastal areas an additional sum equaling to
four to six times of annual revenue is paid for resettlement.In the central and
western areas, the compensation is lower. The compensation is far lower for land
to be used for public use, such as infrastructure or construction of government
buildings. Since arable land cannot be marketed, peasants cannot reap capital
gains. The local governments choose the developers, and when the development
is completed, they sell the land to users. As already mentioned, most of the rev-
enue from sale goes to developers, local governments, and banks, leaving very
little for the peasants. In the case of land for public use, the land price is fixed at
negligible levels. This is one reason for the construction of wide roads and monu-
mental governmental and university buildings in China.
By the beginning of 2005, applications for the development of more than 850
industrial parks or commercial sites had been made by various local govern-
ments, including those of towns. This is because local governments hoped to gain
revenue through land management to pull themselves out of financial crisis. In
1994, the central government introduced a new tax system eliminating taxes that
had been lucrative for local governments. As a result, the financial performance
of local governments, especially town- and village governments, deteriorated rap-
idly. The accumulated debt of town and village governments is estimated to be
about 1 trillion yuan in 2005, equaling to 7.2 percent of GDP. This may be com-
pared with its 1998 value of 326 billion, equaling to 4.1 percent of GDP in that
year. More than 60 percent of these debts are considered to be bad loans. No
wonder that local governments try to generate revenues from land sales in order
to improve their financial position.
This is the background of the emergence of landless peasants. Their
emergence is the other side of the coin of the real estate investment wave. The
number of landless farmers increases as more fixed capital investment is carried
out. Their total number is now estimated to be between 40 and 50 million. They
receive no social welfare support from the central government and have difficulty
finding new occupations, as most of them are over 40 years old. Some scholars
call these people sanwu nongmin (peasants with no land, no social welfare, and
no occupation).
At the People’s Congress in March 2006, the central government decided to
abolish the agricultural tax and to give financial support to compulsory educa-
tion in rural areas. This is an epoch-making step in the Chinese history. However,
these two policies will not be sufficient to stop the immiserization of peasants.
The abolition of the agricultural tax will lead to a further deterioration of the
financial situation of town- and village governments, as this tax was one of their
most important sources of revenue. For many years,
education in rural areas was financed by rural communities rather than by the
central government. Given this background, the new policy represents a step for-
ward. However, it comes too late. This kind of policy should have been introduced
in the 1980s. There is still policy discrimination between rural and urban areas.
For example, people in rural areas have to construct infrastructure at their own
expense and receive no social welfare from the central government. The question
now is whether or not the central government will adopt a policy to redistribute
the gains from high economic growth to the underprivileged classes. If it fails to
do so, the new contradictions will become social or political issues. To prevent
this possibility, a basic financial reform is needed aimed at dissolution of the trin-
ity of local bureaucrats, developers, and state-owned banks.
