On the Transaction Values of Land Use Rights in Rural China

Abstract

Land Use Rights (LURs) in China affect farmers’ productivity through investment incentives and the way land is allocated across households. LURs have implication and trade-offs between equity and growth. This paper examines how Chinese farmers might respond if the Chinese government made it legal for farmers to buy or sell LURs. The current policy direction in China is ambiguous and not at all settled. Reports in 2008 and 2009 indicated that the China would indeed allow farmers to sell LURs while simultaneously extending the rights to 70 years. However in 2010/2011 there appeared to be some rescission in the policy directions, perhaps as a result of needing to rethink how disassembling the current policy would conflict with managed growth in planned urbanization. Modern economics would suggest that tenure security and land ownership would encourage agricultural investment and enhance rural economic growth, but the economic reality in China’s agricultural economy is too complex to accept this outcome as a matter of course. Livelihood choices, labor substitution, market infrastructure, a lack of property right protections, entrepreneurship, bureaucracy, and political will are all influential factors that will determine whether such a program would work. The purpose of this paper is to examine the economics of transaction in LURs, estimate the value at which LURs could transact in equilibrium, and to analyze factors that would affect these price changes. We evaluate farmer’s intention to buy and sell LURs and how much they are willing to pay and receive for LURs.