Sunday, August 15, 2010

Land compensation reform, sort of

As China urbanizes, rural land is often requisitioned by local authorities for urban development. Compensation is paid, but it is funneled through local authorities who skim off or misappropriate the money.

According to an article in China Economic Times July 30, the Chinese government took a significant step toward resolving this issue in July when the Ministry of Land Resources issued a “notice on further improving land requisition management work” that requires local financial departments requisitioning rural land to pay compensation directly to farmers instead of issuing funds through township or village governments. The idea is to prevent township and village officials from skimming off of misappropriating funds before the money gets to farmers.

Experts say this is a step forward in helping farmers and reducing corruption. A Renmin University professor describes it as a “...big step in affirming farmers’ property rights, their right to know and preservation of their asset ownership, and reducing intermediaries..."

Ye explains that the system is a legacy of the planned economy when everything was reported up from level to level and funds were passed down through the levels of township and village to farmer. This creates an "...inevitable phenomenon of misappropriation; this is an important source of rural conflict."

This is another example of how the township level of government--formerly the commune under central planning--is an anachronistic vestige of central planning that functions mainly to suck up funds. Administrative and financial reforms have been moving toward cutting out the township as a level of government. Is this another nail in its coffin?

A lawyer concerned with rural affairs points out that this reform is not quite as big a boon for farmers as it appears. He points out that this is only a regulation, not a law, and its contents are very general. It applies only to procedures of paying compensation, but doesn't address the amount of compensation paid. Even if they get the money the amount may be much less than the land's market value.

The amount of compensation, says the lawyer, is at the heart of rural-urban income differences. He explains that local governments rely on buying land at low prices (i.e. low compensation to farmers) and selling it or auctioning it at a high price. With few other sources of income, local governments get 30%-50% of their income from this land price spread. The lawyer said, as long as governments have no other stable, reliable sources of income, this practice will continue.

The lawyer said, "For many years we appropriated farmers’ land at low prices, sacrificing farmers’ interests for industry and commerce profits, now it’s time to compensate farmers."

The lawyer explains that the land departments only set the procedures; the finance departments and developers have the money. If governments have to pay more for land, they will raise the selling price too, which translates to higher real estate prices.

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