Formalizing agricultural rentals in China: Does local public action help?

Abstract

SummaryMotivationFrom 2002, local governments and village collectives in China have been allowed and encouraged to facilitate and formalize agricultural land rentals. Before, most temporary land transfers within villages were informal agreements between farmers who knew each other well. Changes were introduced to make it easier for outsiders to rent land, and thereby bring capital and know‐how to the village.PurposeThis study tests whether public intervention increases market‐based land rentals and how it affects rentals among acquaintances.Methods and approachDrawing on data from the 2017 and 2019 China Family Panel Surveys conducted in 29 provinces, ordinary least squares and fixed effect models are used to test the effects of public intervention in agricultural rentals.FindingsPublic intervention increases land rentals and the widespread use of written contracts for defined periods. Rentals between acquaintances within the same village have become more formal, with rents at market levels. When local authorities facilitate land rentals in villages, all rentals become more formal, with market‐based rents.Policy implicationsPublic intervention in Chinese agricultural land rental has reduced transaction costs for outsiders, has led to more market‐based rentals, and has facilitated land transfers—in a setting where some farmers are looking to switch from farming to off‐farm work. Policy changes have worked.