One way to turbocharge the Chinese economy

As more than 360 of the Communist Party’s most senior members prepared to hold a much-trumpeted gathering in July, some Chinese experts called for a big overhaul of the rural-property-rights system. The moment seemed apt. The secretive meeting, known as the “third plenum" because of its position in the party’s five-yearly cycle of policy pow-wows, was expected to focus on economic reforms, including in the countryside. State media stressed its importance by recalling that it was at a third plenum in 1978 that reform and opening officially started (although it wasn’t until the early 1980s that reforms to agriculture took hold).

As it turned out, last month’s plenum gave little sign that any sweeping change was in the offing, either in the rural domain or any other. It re-emphasised the well-known policy preferences of China’s leader, Xi Jinping, who wants a technology-led economic recovery and tighter party control over everything. The meeting’s pronouncements offered no promise of what some Chinese commentators see as the most badly needed ownership right for farmers: the freedom to sell their homes to whomever they wish. Since the 1980s, about 300m rural residents have moved to cities to work. As a result, about one-fifth of China’s rural homes are unoccupied or abandoned. Their value, and that of the land they occupy, is being wasted.

Those calling for change include Meng Xiaosu, a former official who was one of the government’s main advisers on property matters in the late 1990s when it decided to privatise urban housing and allow it to be freely traded. Those reforms unleashed a property boom that powered China’s economy until 2021, when the market slumped. GDP growth is now faltering. In February Mr Meng told a forum that if rural housing could be sold in the same way as urban homes, “I believe it could drive China’s economic growth to over 8% for more than 20 years." Such a rate has not been achieved since Mr Xi assumed power in 2012, apart from a surge in 2021 as China recovered from the initial shock of the pandemic. Last year’s growth was 5.2%.

Another outspoken advocate of reform is Wang Huiyao, who heads the Centre for China and Globalisation, a think-tank in Beijing. Freeing the rural-property market, says Mr Wang, would be “low-hanging fruit" that, if plucked, would trigger the “next revolution" in China’s economy, comparable to the rural reforms of the 1980s, urban-housing reform in the 1990s and China’s emergence as a trading giant following its accession to the World Trade Organisation in 2001.

It would not be straightforward, however. Urban land is owned by the state but is leased to homeowners, typically for 70 years, with an assurance of automatic renewal. That is enough of a guarantee for most city-dwellers—hence house prices in the biggest cities that (despite recent falls) are among the world’s least affordable. In the countryside, land is owned by the “collective" (the village). Rural households have a right to use a piece of land to build their homes, but may not sell their property to people elsewhere. In practice some do, especially near cities where demand is high for cheaper homes or rural retreats. But buyers beware: when disputes arise courts usually rule that non-villagers have no right to the houses they have paid for.

Change has been slow. The government fears that lifting restrictions would encourage more farmers to sell and thus deprive them of a safety-net if they lose their urban jobs. It worries that cities may fill with large numbers of destitute people, potentially triggering unrest. Another concern is that a surge of new supply could deal a further massive blow to China’s crashing property market. There is an ideological restraint, too: the notion of collective ownership in the countryside is dear to the party. Admitting it is flawed would challenge a core ideological belief.

Since 2015, reforms have been carried out in more than 130 counties and a handful of prefectures, a tiny fraction of the total. Rarely have these involved relaxing the ban on selling to non-villagers, and even then only to others in the same area. More often the changes have focused on encouraging farmers who have moved to cities to give up their rural homesteads in return for compensation. In some cases farmers relinquish their land so that it can be used for commercial projects from which they get dividends. In other cases counties offer cash in return for housing—usually very little. In Fengyang county in Anhui province villagers can get an extra 50,000 yuan ($7,000) if they buy a new flat locally.

In the neighbouring county of Quanjiao, officials have been inspecting properties to check who owns what and then issuing hongben, or red booklets, as proof of ownership. These look just like urban-property certificates. In one village, however, residents are unable to produce them—they say they are being stored by the village authorities (a clue, probably, to who really controls the rights). In a nearby village where the majority of houses are empty, residents say that big changes have happened in the management of their agricultural land. The central government is encouraging experiments with the pooling of fields to make farms bigger and more efficient. Now all of the village’s rice paddies are being tended by two people. But hongben have yet to be handed out. Villagers suspect that local officials have a tourism project in mind and do not want NIMBY-ish hongben-waving residents to block it.

State media have suggested that the recent third plenum may ultimately result in further reforms. But if the plenum in 1978 is any guide, they could be slow to unfold. On July 24th, six days after the meeting ended, the agriculture ministry’s party chief, Han Jun, told reporters that reforms would be “carried out cautiously". Just to be clear he added: “The right to use homesteads is a right enjoyed by members of rural collective economic organisations, meaning that non-members of these organisations have no right to obtain or indirectly obtain these rights." In other words, do not bet the farm on a breakthrough.

© 2024, The Economist Newspaper Ltd. All rights reserved. From The Economist, published under licence. The original content can be found on www.economist.com