Real land reform requires more than words

Governments at all levels must find new strategies to assimilate 100 million migrant workers into a flourishing urban society

The central government unveiled its first detailed national urbanization plan last month, which aims to allow 100 million migrant workers to achieve urban residence status (hukou) by 2020. Those newcomers will be eligible for subsidized housing and the other social benefits of city life, such as access to medical care and education.

Unlike previous initiatives, this plan focuses more on the "how" than the "why", and it requires local governments to put public welfare ahead of economic growth.

Local governments will have to find new ways to generate revenue rather than relying on the usual method of acquiring land cheaply from farmers and selling it at high prices to real estate developers.

It's a reliable source of income for local governments as well as corrupt officials, but things will change if farmers get full ownership of their land.

Land reform, proposed during the Third Plenum of the Communist Party of China's 18th Central Committee last November, will aid that process if properly implemented.

Recognizing farmers' property ownership over their land is a practical method of narrowing the welfare gap between urban and rural hukou holders.

Under the land reform plan and the urbanization plan, the government will allow farmers to mortgage and rent their contracted land to qualified financial institutions and tenants, without changing the land's use, in order to improve the efficiency of land use, foster a modern agricultural sector and help turn farmers' property rights into tangible profits.

But land reform still largely exists on paper.

From 2000 to 2011, China's urban construction area increased 76.4 percent, and the urban population, including migrant workers, rose 50.5 percent. Driven by governments' thirst for revenue and growth, cities expanded beyond their real needs.

City governments used urbanization as a pretense to portray farmers defending their land as opponents of a national strategy set by the central government.

Under the current law, only the government has the right to buy rural land from farmers at prices that it can set itself. If the law isn't revised, there won't be any change in the government's position as the largest stakeholder of rural land

To break the deadlock, the central government needs to give its local counterparts more legal channels with which to raise funds.

Apart from allowing local governments to issue bonds, an idea that's strongly supported by those governments, analysts believe the central government should encourage local governments to rely more on private capital to provide for new residences, under close judicial supervision.

The private sector not only contributes capital; it also generates much-needed jobs for the new urban residents.

According to Wei Jie, an economist at Tsinghua University, from 2004 to 2013, the private sector accounted for 63 percent of economic growth, 60 percent of tax revenue, 80 percent of the jobs created and most of the patented technology in China.

Already a pillar of the national economy, private enterprises deserve fairer tax, market and policy environments, compared with State-owned enterprises.

The demand for financing for urbanization is also far beyond governments' ability to raise funds.

According to the Ministry of Finance, it will require about 42 trillion yuan ($6.78 trillion) to raise China's urbanization rate to 60 percent by 2020.

A market-based approach, rather than an administrative one, can accelerate and ease the process of urbanization by allocating resources more effectively.

Only after all these concerns of local governments are fully addressed will those governments support farmers' land rights. And giving farmers ownership rights over land is a prerequisite for phasing in their rights to urban hukou. Under the government's urbanization plan, migrant workers with stable work and living conditions will win their urban residence permits first.

Cities and towns should establish specific criteria for farmers to obtain a local hukou. The largest cities, such as Beijing and Shanghai, need to clarify the requirements for their residence permits, which aren't full hukou but an intermediate status intended to cushion the impact of the new residents.

Analysts think this is a practical process, based on the current situation.

This intermediate status "gives migrant workers a reliable expectation. This is a clear signal for local governments as well, which should change their attitude toward their new citizens and prompt them to equalize their public services," said Li Tie, a rural work researcher at the National Development and Reform Commission, the top economic planner.

NDRC Vice-Minister Xu Xianping told a forum in late March: "Half of the 270 million migrant workers will earn urban hukou within five years, and the other half living in big cities will enjoy basic public services as a result of their applications for residence permits within seven years."

There are many views of the urbanization process.

"A market economy leads to urbanization, not the other way around," said Xu Xiaonian, an economist at the China Europe International Business School. "Recognizing farmers' property rights over their land and abolishing the hukou system can naturally promote market-driven urbanization."

Migrant workers are not necessarily financial burdens. Property rights over land make them potentially powerful consumers and create the necessary conditions for them to receive better education.

But the government shouldn't wait years to improve migrant workers' educational levels. The nation can't upgrade its industrial structure without improving quality of industrial workers.

At present, 70 percent of migrant workers only have a junior middle school education or less, and 70 percent of migrant workers haven't had formal vocational training.

According to the NDRC, the central government will increase subsidies for migrant workers' vocational training and encourage employers to do so as well.

Chen Yuyu, an economist at Peking University who has criticized Chinese governments' heedless investment, said: "Inputs into education for farmers and migrant workers will be the best investment the government can make."