The loss of farmland to urbanization and the low productivity of much of the remaining agricultural land are dual problems constraining China's production capacity.
An article last year from China's Ministry of Land Resources called for addressing these problems by pushing a new compensation system for protecting cultivated land. The system recognizes that farmers play the key role in preserving farmland. Basically, wealthy provinces and regions with little farmland transfer funds to agricultural areas which are used to pay farmers to keep farming their land. Village and township governments also can get funds to encourage local officials to protect farmland and for investments in land improvements.
The system can be implemented at various levels: prefecture, province, and national. The Land Ministry article called for emulating the system set up in Chengdu and setting up a system at all three levels. Such systems have been set up in pilot regions. A national conference, also sponsored by the Land Ministry, held in Wuhan last November heard reports from five provinces (Hubei, Zhejiang, Hunan, Sichuan, Guangdong) and five cities (Wuhan, Haining, Chengdu, Hengyang, Foshan) describing their experience with land protection compensation mechanisms.
Regions are classified as agricultural land deficit areas (urbanized, rich regions) or agricultural land surplus areas (rural agricultural regions). Some land is designated as "basic agricultural land," and "permanently" agricultural. Funds are raised by setting aside proceeds from rental fees and taxes on users who have converted agricultural land to other uses. Intergovernmental financial transfers are made to rural governments. Farmers in "permanent" agricultural regions "are the main recipients of direct payments" for protecting agricultural land. There are also rewards for local governments that protect farmland since "some local officials lack enthusiasm for protecting farmland." Yunnan Province's No. 1 Document for 2011 included land compensation provisions like this.
This mechanism demonstrates that China is a policy wonk's dream-come-true. The mechanism is laid out in academic journal articles like this one from Nanjing Agricultural University's college of public management, describing externalities, Pigouvian taxes, property rights, and sustainable development. It's easier to adopt elaborate technocratic policy mechanisms when no one has to vote on them. The trouble comes when every local government adopts it on paper but then forgets about it and goes on with business as usual until the cadres from Beijing come down for an inspection tour.