Henry Huiyao Wang calls for easing strict restrictions on rural homestead land in China
CCG president proposes allowing rural landowners to lease, transfer, or mortgage their homestead land to narrow rural-urban income gap and manage a soft landing for China's property sector.
Wang Huiyao, President of the Center for China & Globalization, recently argued in an article on www.zhonghongwang.com, a media outlet under the auspices of the National Development and Reform Commission (NDRC), for reforms in China's strict homestead land policy. He advocates for policies that would allow leasing, transferring, and mortaging of homestead land, aiming to update the system in line with the current economic context and emerging opportunities.
In today's post, we are publishing a summary — not a translation — of the original article. It includes omissions and additional context, highlighting the significance of such reforms in the broader framework of China's rural development and urbanization processes.
In China's current land ownership system, as defined by Aricle 9 of the Land Administration Law of the People's Republic of China (2019 Amendment):
Land in urban districts shall be owned by the State.
Land in the rural areas and suburban areas, except otherwise stated by laws and regulations to belong to the State, shall be collectively owned by peasants including house site, land and hills allowed to be retained by peasants.
Despite this collective ownership, rural residents in China face stringent restrictions in leasing, transacting, and mortgaging their land, including rural homestead land allocated solely for residential purposes.
The homestead land system is a unique design in China's rural governance, characterized by its approach to collective ownership. It mandates that land usage is restricted to members of the collective community, with each household being allocated a single patch of homestead land. Furthermore, there is a maximum limit imposed on the size of each homestead land plot. Stringent planning and regulation measures are in place to govern these lands and only internal transfer of homestead lands is allowed.
Initially designed to prevent urban and wealthy individuals from taking over rural land resources, the homestead land system has been crucial in ensuring rural inhabitants' basic residential rights, maintaining rural stability, and preventing the rise of large-scale slums in the urbanization process, according to the Chinese authorities.
Nonetheless, the homestead land system in China has encountered a growing set of challenges in practical implementation, owing to significant demographic shifts in rural areas.
Recent research indicates that rural homestead land spans more than 133,000 square kilometers, and yet less than 40% of the rural population currently reside in these areas on a long-term basis. Consequently, tens of millions of mous of homestead land remain either underutilized or idle [10 million mous is approximately equal to 1.65 million acres].
The rural homestead land system, which does not allow for free transactions in an open market, has significantly hindered the ability of rural residents to generate additional income from their allotted land. In contrast, urban residents in China enjoy the freedom to buy and sell urban residential properties, thereby creating an inequitable urban-rural divide.
Facilitating the leasing, transfer, or mortgage of rural homestead land would serve to mitigate this urban-rural disparity, while also contributing to the creation of a more unified market.
Homestead system reform is imperative to adapt land policies to the new status quo
Significant transformations in China's economic and social fabric have increasingly made the drawbacks of the homestead land system—particularly its role in widening the rural-urban income gap—overshadow its benefits. These changes include:
Diversification of income structure
Rural households in China have transitioned away from a primary reliance on agriculture. In 2022, wages and salaries from working in the cities account for 50.8% of the average rural household income. However, income generated from property comprised only 12.1%. Lifting restrictions on homestead land transactions is highly likely to unlock greater potentials for property-related earnings among rural residents, thereby boosting their capacity to accumulate wealth through more diverse avenues.
A new generation of urban residents
As the urbanization process continues, an increasing number of rural residents who have relocated to cities with the aim of settling down are showing a strong desire to establish a solid financial foundation or obtain startup capital for their new urban lifestyles. Without the option of generating income from the transfer, lease, or mortgage of their rural homestead land rights, securing such funds becomes especially challenging.
Financial challenges for rural households
Economic downturn has placed many rural homebuyers under significant pressure from mortgage payments, unstable income, or the risk of unemployment. There is a strong demand among rural populations for expanded homestead land transfer rights to unlock property income.
Given the current circumstances, reforming the homestead land in rural China by allowing it for rental, transfer, or mortgage can enhance farmers' land property income and protect their interests. Restricting these transfers under the guise of protecting farmers' interests actually harms them by blocking channels for property income, depriving them of freedom of transactions.
Potential benefits of lifting restriction on rural homestead land transactions
When farmers transfer their homestead land and acquire funds, it could accelerate urbanization and spur home buying in cities, thus stabilizing the real estate market.
The real estate sector has significantly contributed to China's economic growth. Since being recognized as a pillar industry in 2003, it has seen rapid development over nearly 20 years. Urbanization and the aspiration for urban home ownership among rural populations have driven demand in China's real estate market for decades.
Currently, ensuring a soft landing of China's real estate market to avoid sharp price drops and mitigate negative impacts on economic growth is a priority. With urbanization rates increasing to 65.22% in 2022, there is still room for growth compared to the 80% average in developed countries.
Currently, younger generations may face challenges in home buying due to job pressures and lack of parental support. For those whose parents were rural residents or migrant workers, there is less likelihood of returning to rural areas after moving to cities. Enhancing their income expectations and willingness to buy homes is crucial for stimulating real estate demand.
Reforming the homestead system by building on current policies
Unified national market
In 2022, the Communist Party of China (CPC) Central Committee and the State Council decided to accelerate the construction of a unified national market. The core objective is to eliminate systemic and institutional barriers that hinder the market-oriented allocation of production factors and the circulation of goods and services, ultimately leading to a reduction in transaction costs within the system.
Not allowing free transactions of the homestead land represents a significant obstacle to the unrestricted movement of resources within the unified national market. Therefore, addressing this issue should be considered a political and policy priority.
"Three rights separation"
In 2015, the CPC Central Committee launched three pilot reforms of the rural land system, including the rural homestead system, to explore ways to improve farmers' rights and the management of homestead land. In 2018, the "No. 1 central document" [the first document issued by China's central authorities in a year] proposed the innovative idea of "separating the ownership, contractual, and management rights for contracted rural land". This concept laid the theoretical foundation for the transfer of management rights.
In 2019, the CPC Central Committee and the State Council issued "Opinions on Establishing and Improving the Mechanism and Policy System for the Integrated Development of Urban and Rural Areas." This document proposed the cautious reform of the rural homestead system and the establishment of a market system for collectively-operated construction land.
By 2020, pilots were initiated in 104 counties and 3 cities, focusing on the implementation of this "three rights separation." The 20th Party Congress report in 2022 emphasized comprehensive rural revitalization and deeper land system reforms, granting farmers fuller property rights. In 2023, the No. 1 central document continued to emphasize, for the third consecutive year, cautious reform of the homestead system, aiming to clarify property details, expedite the integration of housing and land rights, manage standards, resolve historical issues, and explore effective ways to implement the "three rights separation."
After several years of pilot programs, reform should advance to strive for innovative breakthroughs, which constitute the core of genuine reform. On one hand, pilot experiences that can be extrapolated nationwide and have universal applicability should be systematically summarized, serving as the foundation for the next wave of land-related legal amendments. On the other hand, pilot measures should undergo timely practical scrutiny, and any unreasonable measures should be repealed.
Unified real estate registration system
On April 25, 2023, China's Ministry of Natural Resources announced the nationwide implementation of a unified real estate registration system, including homestead land. This comprehensive establishment of a unified real property rights registration system for all types of real estate, including homestead land, lays the key logistical foundation for the transferability of homestead land in China.
Homestead system reform is the next important step of reform and opening up
Observers note that since China's reform and opening-up policy was introduced, approximately every ten years, the country has significantly advanced these reforms.
Since the beginning of the 21st century, especially after joining the World Trade Organization (WTO) in 2001, China has rapidly grown into the world's second-largest economy. Since the 18th National Congress of the Communist Party of China in 2012, the country has pursued unprecedented reforms across various fields, leading to historical changes, systematic reshaping, and overall reconstruction, thus creating a new phase in reform and opening-up.
The Third Plenary Session of the 18th CPC Central Committee in November 2013 passed a significant decision on comprehensively deepening reforms, which was widely praised both domestically and internationally.
Over the past 40 years, especially the last decade, China has faced and overcome various external risks, primarily by focusing on internal reform. Reform has been key in liberating and developing productive forces, driving national development. Facing the future, China should recognize that deepening reforms and opening-up is the only way to tackle development challenges, mitigate risks, and capitalize on the advantages of its socialist system for sustained and healthy economic and social development.