Henry Huiyao Wang calls for rural homestead reform in China
During the time of the Two Sessions, CCG president proposes issuing property rights certificates for homestead lands to formalize the land rights of rural residents.
Henry Huiyao Wang, Founder & President of CCG, advocates for what he says will be a fourth significant reform initiative in the era of China's development, focusing on the homestead system reform to invigorate the economy and integrate urban and rural development. Against the backdrop of the approval of the Guidelines on Reforming Land Management System to Promote the Ability to Guarantee High-quality Development of Regions with Competitive Strengths by the fourth meeting of the Central Commission for Comprehensively Deepening Reform on February 19th, Wang emphasizes the current necessity for reform as well as rural land's economic potential to propel China towards a modernized economy that balances development and social equity. The key measures include: issuing property rights certificates to rural homesteads, enabling their legal transfer, rental, and mortgage outside collective organizations, and recognizing self-established land use rights through legal reforms.
The following article was written by Henry Huiyao Wang and originally published on CCG's WeChat blog.
On March 4th, the Chinese People's Political Consultative Conference (CPPCC) opened, marking the official commencement of the "Two Sessions" in 2024. This year celebrates the 75th anniversary of the founding of the People's Republic of China and is a critical year for achieving the goals of the 14th Five-Year Plan (2021-2025). Delegates from various regions and fields will focus on hot topics such as economic development and livelihood improvement, aiming to build consensus and offer suggestions.
Amidst the challenges of insufficient overall demand and an increasingly complex domestic and international environment, China is urged to introduce new favorable policies to unlock and strengthen productive forces and inject new momentum into the economy.
Recently, on February 19th, the fourth meeting of the Central Commission for Comprehensively Deepening Reform approved the Guidelines on Reforming Land Management System to Promote the Ability to Guarantee High-quality Development of Regions with Competitive Strengths, marking a new height in land reform. This could lead to the fourth breakthrough reform since China's reform and opening up, leveraging land system reform as a catalyst, advancing homestead system reform, and providing new strong momentum for the sustainable and healthy development of China's economy in the coming decades.
Three major reforms in the history of reform and opening up
Throughout the history of reform and opening up, China has introduced significant reform measures approximately every decade to elevate reform and opening up to higher levels, thus unleashing substantial dividends for economic development. These major reforms include the household contract responsibility system initiated in 1982, which liberated rural productivity; the urban housing reform in 1994, sparking many years of real estate market prosperity; and China's entry into the World Trade Organization in 2001, which marked its rapid growth to become the world's second-largest economy. China has continuously advanced on the path of reform and opening up, breaking through development challenges with innovation.
The establishment and promotion of the household contract responsibility system in 1982
China's reform and opening up began with rural reform, the first step of which was adjusting the relationship between farmers and land. Following the Third Plenary Session of the 11th Central Committee of the Communist Party of China (CPC), Chinese farmers developed production responsibility systems, primarily through household contracting. Deng Xiaoping's endorsement in May 1980 significantly propelled rural reform centered on the household contract responsibility system.
In anticipation of 800 million farmers, the 1982 No.1 central document officially affirmed the legitimacy of the household contract responsibility system. With continuous support from the central leadership, this system was quickly popularized, which mobilized the enthusiasm of farmers and significantly accelerated agricultural production. By 1987, 98% of rural households had adopted this system, vastly improving agricultural productivity. The implementation of the household responsibility system significantly empowered Chinese farmers with operational autonomy, invigorating their enthusiasm, liberating rural productivity, and marking a pivotal transition from scarcity to a prosperous economy. This reform was a critical turning point in China's rural land system, allowing China to achieve the remarkable feat of sustaining 22% of the world's population with only 7% of its arable land.
The urban housing reform in 1994
The development and success of rural reforms directly propelled the progress of urban reforms. During the planned economy period, the urban housing system implemented a welfare-based supply system. In 1980, Deng Xiaoping, the chief architect of reform and opening up, explicitly proposed the overall idea of reforming the urban housing investment, construction, and distribution system. The goal of the reform was to gradually achieve marketization. From 1980 to 1993, the urban housing system reform roughly went through three stages: the initial trial phase of housing sales (1979-1985), the phase of rent increases supplemented by subsidies (1986-1990), and the phase of promoting sales to escalate rents (1991-1993).
In 1994, the State Council issued the "Decision on Deepening Urban Housing System Reform," clearly stating the need to establish a new urban housing system compatible with the socialist market economy system to achieve the marketization of housing. Based on over three years of reform practice, in 1998, then-Premier Zhu Rongji presided over the formulation of the "Notice of the State Council on Further Deepening Urban Housing System Reform and Accelerating Housing Construction," deciding to stop the physical distribution of housing and gradually implement monetary distribution of housing. At the same time, the employee housing subsidy and housing provident fund systems were established, creating conditions for advancing the marketization of housing.
Consequently, China's welfare-based housing distribution system officially ended, and the marketized housing market was formally opened. The real estate industry entered a fast track of development and quickly became an important pillar of the national economy. Moreover, the real estate industry is large in scale and has a long industrial chain. It directly drives manufacturing sectors related to housing, such as building materials, furniture, and wholesale, through investment and consumption. It also significantly boosts the tertiary industries, such as finance and business services, influencing and driving more than 50 upstream and downstream industries. According to statistics, real estate combined with upstream and downstream industries accounts for about 30% of GDP, having a systematic impact on the national economy.
Accession to the World Trade Organization in 2001
The World Trade Organization (WTO) is one of the three most comprehensive international economic organizations in the world today, alongside the World Bank and the International Monetary Fund, with its predecessor being the General Agreement on Tariffs and Trade (GATT). China was once one of the 23 founding contracting parties of GATT but lost this status due to historical reasons. On July 10, 1986, China formally applied to restore its status as a contracting party of GATT. In 1995, the WTO replaced GATT, and China's negotiations for re-association turned into negotiations for accession to the WTO. After many years of negotiations, China officially joined the WTO on December 11, 2001.
Before joining the WTO, China's foreign trade was conducted under a state monopoly, with only a dozen specialized foreign trade corporations affiliated with the Ministry of Foreign Trade and Economic Cooperation and their port branch companies operating foreign trade. Three years after joining the WTO, China fully opened up the right to trade. According to the Foreign Trade Law of the People's Republic of China, revised in 2004, starting from July 2004, the Chinese government changed the system of granting the right to operate foreign trade from an approval system to a registration system, allowing all foreign trade operators to engage in foreign trade according to the law. This cancellation of foreign trade operation rights approval promoted the formation of a diversified foreign trade operation pattern among state-owned enterprises, foreign-invested enterprises, and private enterprises. Subsequently, the continuous benefits from joining the WTO propelled the Chinese economy to soar, gradually becoming the "world's factory," "world market," and a major manufacturing country. In just 22 years, China's GDP grew from 1.1 trillion USD in 2001 to 18 trillion USD in 2022, achieving a nearly 17-fold growth miracle, becoming the largest trading nation and the second-largest economy in the world, contributing almost 30% to annual global economic growth.
In the new era, China needs to launch a fourth groundbreaking reform initiative
By 2021, having achieved a moderately prosperous society in all respects and lifted 800 million people out of poverty, striving for common prosperity has become another important strategic goal in China's new stage of development. Common prosperity is an essential requirement of socialism and a significant feature of Chinese-style modernization. From the medium and long-term perspective of economic efficiency and social equity, after fully building a moderately prosperous society, not only must we continue to push for economic development and prevent the resurgence of poverty, but we also need to focus on and enhance the proportion of low-income farmers and migrant workers within the middle-income group, promote the transformation of migrant workers into new urban citizens, and gradually break the constraints of the urban-rural dual structure on China's economic and social development. Recently, Premier Li Qiang, while attending the World Economic Forum's Annual Meeting in 2024, pointed out that the number of middle-income individuals in China is expected to double from the current over 400 million to 800 million in the next decade or so. Clearly, the nearly 300 million migrant worker group is a major component in increasing China's middle-income group from over 400 million to 800 million.
Currently, China's economy is in a transition period, with the real estate industry, a pillar of China's economy, showing clear signs of weakness, posing a significant risk to China's economic operation. Faced with the impact of the pandemic, significant demographic changes, and strict regulatory policies, China's real estate market is confronting unprecedented challenges. In recent years, China's economic downward pressure has increased, and the real estate market has experienced its most intense adjustment since the housing reform in 1998. A number of leading private real estate companies have faced financial difficulties, the expectation that housing prices will only rise and never fall has vanished, real estate demand has significantly decreased, and incidents of unfinished buildings and halted supplies have continued to emerge. By the end of 2022, it is estimated that the number of unfinished housing projects in China may have reached 3.5 million. Since 2022, China has introduced new real estate policies, but rounds of strong "market-saving" policies have not been particularly effective. In July 2023, the Political Bureau of the CPC Central Committee held a meeting and clearly stated the need to "launch more affordable housing projects to increase supply," "put into use and transform" the idle properties, and "effectively guard against and defuse local debt risks."
The Central Economic Work Conference held in December 2023 pointed out that further promoting economic recovery and improvement requires overcoming some difficulties and challenges, including "lack of effective demand, overcapacity in some sectors, lackluster social expectations, certain risks and hidden problems, bottlenecks in the domestic circulation, as well as rising complexity, severity and uncertainty of the external environment." On December 23, 2023, Lou Jiwei, Chairman of the Global Wealth Management Forum and former Minister of Finance, stated at the 2023 China Wealth Management 50 Forum Annual Meeting that when the population is no longer distinguished by urban or rural household registration and can be converted mutually, allowing the transferred population from rural to urban areas to obtain equal public services and market access rights, they will feel secure buying homes in urban areas, which could potentially increase consumption demand by nearly 30%. At the same time, the free transfer of a vast amount of rural homestead lands and self-built houses, and the effective utilization of land and property, will provide initial assets for rural migrants to settle in cities. This could also increase arable land, benefiting food security.
As early as 2016, I called for further relaxation of restrictions on the transfer of rural homestead lands in an article published in the Global Times. According to the article, China's "Land Management Law" stipulated that the method of acquiring homestead lands was through gratuitous use and allocation, similar to the provision of urban housing by units and the state before the 1990s. Rural homestead lands lacked a market price, and it was argued that homestead lands should be marketized, allowing rural people to have the same rights to use and dispose of homestead lands as urban residents, and to gain the property value from the appreciation of land transfers. The movement of rural populations to cities to purchase second-hand homes was also supposed to drive urban residential conditions improvements and promote the de-stocking of real estate. Land, with its limited supply, cannot continue to be distributed to the rural population indefinitely. This solution also makes the population owning homestead lands bear the cost of land use rights, reasonably reflecting the scarcity value of land.
Promoting common prosperity still poses the most arduous and heavy task in rural areas. Over the past few decades, along with the reform of China's housing system and the prosperous development of the real estate market, real estate prices in China have generally seen significant increases. This has, to some extent, exacerbated the imbalance in resource allocation and widened the wealth gap between urban families with housing and rural families without urban housing. Currently, housing assets account for about 70% of the total assets of urban families in China, making real estate the main asset of Chinese households. However, while many urban families have enjoyed the era's dividends of welfare housing and rising house prices, most rural families have not gained asset-based income from homestead lands and other land or rural houses. The urban-rural dual system, a product of China's historical development, has made an indelible contribution to China's economic and social development but is also a fundamental factor in the significant income gap between urban and rural residents. According to the National Bureau of Statistics, the absolute value of the income gap between urban and rural areas reached 29,150 yuan [4107.72 U.S. dollars] in 2022, up from 15,738 yuan [2217.75 U.S. dollars] in 2012, highlighting the persistent issue of income distribution disparity between urban and rural areas.
Currently, the ratio of per capita property income between urban and rural residents in China is as high as 10.29 times, far exceeding the 2.39 times ratio of per capita disposable income. Researchers have pointed out that the current non-tradeable characteristics of homestead use rights and restrictive transfer model have hindered the realization of the economic value of homestead lands. Excessive transfer restrictions and a lack of exit mechanisms have blocked the path to wealth for farmers, making it difficult for them to realize property income. This has impeded the transfer of surplus rural labor and has become a significant obstacle to breaking the urban-rural dual social structure and advancing the urbanization process. Moreover, with the acceleration of urbanization, an increasing number of "new urban citizens," considering factors such as obtaining start-up capital for settling in cities, are inclined to transfer their homestead use rights. The demand for transferring homestead use rights is growing stronger, and the scale of homestead lands intended for transfer is also increasing. According to incomplete statistics from the Ministry of Natural Resources, there are at least 70 million vacant rural houses and 30 million mu [approximately 2 million hectares] of idle homestead land nationwide.
Rural homestead lands and farmhouses are essential living materials and significant properties for farmers. However, under the current system, transactions of rural homestead lands are limited to members within the village collective organization. There is a lack of effective market and institutional support for the transactions of homestead lands, making them neither marketable nor usable for financial mortgages, thereby preventing farmers from earning property income. If urban housing reform in the 1990s allowed the sale, property rights, and privatization of housing distributed by work units, could the same transformation apply to rural homestead lands and farmhouses, allowing farmers to sell or convert them? Issuing property rights certificates for farmers' homestead lands and farmhouses to enable transactions of use rights could provide farmers with their first pot of gold for establishing themselves in cities.
Urbanization is an essential path to modernization and a crucial means to expand domestic demand and promote industrial upgrading. By 2022, 140 million rural migrant populations in China had settled in urban areas, and the urbanization rate of the resident population increased from 17.92% in 1978 to 66.16% by the end of 2023. The level and quality of urbanization have significantly improved, and the system and mechanism for integrated urban-rural development have been essentially established. However, in 2022, the total number of migrant workers in China was still close to 300 million, and the urbanization rate of the registered population was only 47.7%, showing a significant gap compared to the urbanization rate of the resident population. Taking Guangdong, a province with a large inflow of population, as an example, in 2022, the resident population was 126.568 million, while the registered population was 100.497 million. According to the data from the seventh national census in 2020, Guangdong had the largest migrant population in the country, with an external population totaling 29.622 million, accounting for 23.5% of the total population, top of the country. This indicates that among nearly 30 million external populations in Guangdong, more than 20 million people, including a large number of migrant workers and their descendants, do not have local household registration.
From an international perspective, the urbanization rates in European and American countries are generally stable at around 80%. It is estimated that China's urbanization rate needs to reach at least 75% to be fundamentally stable. In the future, there is still significant room for improvement in China's urbanization rate, containing huge potential for domestic demand and strong developmental momentum. This is essential support for the development of China's real estate market and the economic transformation and upgrading of China.
Advancing the homestead reform will unleash the endogenous driving force for economic development
The land system is a foundational and comprehensive system for any country. China has long implemented a dual urban-rural land system, where rural land can only enter the market for transfer transactions after being requisitioned. This has resulted in a relatively small scale of residential land entering the market despite the economic development's need for a large amount of industrial land after the reform and opening-up. This situation might lead to rising housing prices in some big cities due to the limited supply and the difficulty in realizing the value of rural land.
Currently, issues such as the entry of rural collective construction land into the market and the transfer, mortgage, voluntary compensated exit, and compensated use of farmers' homestead use rights are being explored and addressed. In 2015, the Chinese Central Government initiated three pilot reforms of the rural land system, including the reform of the homestead system, to explore and perfect the protection of farmers' homestead rights and improve the management system of homestead lands. Building on the practice of these pilots, the No. 1 Central Document of 2018 proposed "the system for separating the ownership, contractual, and management rights for contracted rural land." In recent years, the CPC Central Committee has repeatedly called for a "cautious and steady reform of the rural homestead system". From the pilot practices in many places, it is clear that the reform of rural homestead lands is a breakthrough in integrating urban and rural elements under the construction of new urbanization and a key step in implementing the rural revitalization strategy.
On April 25, 2023, the Ministry of Natural Resources announced that China had fully achieved the unified registration of real estate. This marks a decade-long effort from fragmentation to unity, from urban housing to rural homestead lands, and from real estate to natural resources, covering all national land space and encompassing all real property rights, thus comprehensively establishing a unified registration system for real estate. This not only helps protect the significant property rights of the people, ensure transaction safety, and reduce government governance costs but also lays the foundation for the market trading and transfer of homestead lands and the timely introduction of a property tax. In July 2023, the Ministry of Natural Resources issued a notice to continue promoting the integration of housing and land homestead rights registration and certification work, clearly accelerating the cadastral survey of integrated housing and land homestead lands and promoting the orderly progress of rights registration and certification.
On February 19, 2024, the Central Commission for Comprehensively Deepening Reform approved the Guidelines on Reforming Land Management System to Promote the Ability to Guarantee High-quality Development of Regions with Competitive Strengths at its fourth meeting. President Xi Jinping, presiding over the meeting, emphasized the need to establish and improve a land management system that can more effectively dovetail with macroeconomic policies and regional development, so that the land element can be allocated more accurately and utilized with higher efficiency; efforts should be made to promote the formation of a territorial space development pattern that imposes effective constraints on the main functions and guarantees coordinated and orderly land development; the land element's ability to guarantee high-quality development of regions that enjoy competitive strengths should also be strengthened. This major reform policy introduced by the Central Government at the beginning of 2024 indicates that the fourth land system reform since the founding of the People's Republic of China may be fully underway.
Reform, development, and stability are the three crucial pillars of China's socialist modernization. After years of reform practice and experimental preparation, it may be possible to take more significant and faster steps in the new phase of land system reform. The practice of the Chongqing land ticket system [a mechanism for converting cultivated land rights into tradable assets] shows that the implementation of the land ticket system, achieving a balance between land occupation and compensation, has played a positive role in protecting the red line of arable land [a policy threshold set to ensure the minimum area of arable land at no less than 1.8 billion mu or approximately 120 million hectares], opening channels for the market-based allocation of urban and rural construction land, facilitating the integration of agricultural transfer populations into cities, and optimizing the national spatial development pattern. Now, with conditions more mature for accelerating the reform of the land system nationwide, the experiences of Chongqing's land ticket system and the "system for separating the ownership, contractual, and management rights for contracted rural land" in various places could be referenced. The integrated rights registration and certification for rural housing and land homestead lands nationwide could be completed sooner, issuing property rights certificates for homestead lands to farmers and migrant workers in rural areas across the country. Just as the cancellation of the agricultural tax in 2006 brought tangible benefits to millions of farmers, the issuance of homestead property rights certificates could also benefit farmers, allowing them to obtain homestead lands at lower prices.
Additionally, rural homestead lands can be granted the same usufructuary rights, complete rights to earnings, and complete security rights as urban residents, allowing the legal rental, transfer, and mortgage of farmers' homestead use rights outside of collective economic organizations. It permits urban residents to buy or rent houses in rural areas and to rent homestead land for building houses, officially recognizing the construction land use rights spontaneously established by rural collective landowners on their own land, which are recognized through legal amendments. The reform of the homestead system can be accelerated in phases, regions, and conditionally based on pilot situations, gradually expanding the subjects and scope of homestead use rights circulation conditionally, ultimately transitioning from restricted circulation to free circulation. Simultaneously, gradually open the rental, mortgage, and transfer markets for homestead use rights, and after the rural social security system is perfected, completely open the commercial circulation market for homestead use rights.
Revitalizing rural idle land through reform, on one hand, can provide policy support for urban residents to go to the countryside for retirement, leisure tourism, and develop rural economy, and policy convenience for leading enterprises in agricultural industrialization to grow and strengthen modern large-scale agriculture, thereby injecting capital flow, talent flow, information flow, technology flow, and material flow into rural revitalization, promoting the integrated development of urban and rural areas and driving rural revitalization through urban-rural integration, advancing the construction of new rural areas, and stimulating new growth spaces and development potential. On the other hand, it can empower the second and third generations of farmers inclined to live in cities and the older generation of farmers, allowing them to gain asset income through rural idle homestead lands and farmhouses, enhancing their confidence and foundation to integrate into the city, and injecting new momentum into the urban real estate market, supporting the stable and healthy development of the real estate market.
Thus, without compromising the red line of 1.8 billion mu of arable land, the reform of the homestead system can be used as a significant breakthrough for the fourth reform in the new round of urbanization construction. Promoting the coordinated and integrated development of urban and rural areas can greatly unleash China's domestic demand potential, injecting new vitality into the sustainable and healthy development of the Chinese economy for at least the next twenty years.
