Public and self-organized land readjustment in rural China − A comparison

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Abstract:

The role of land readjustment for urban and rural development has attracted more and more attention worldwide. Research on how land readjustment can be organized most effectively, however, is still in its infancy. This paper firstly develops a framework for comparing different organization modes of land readjustment based on transaction cost economics. It then introduces and compares two different modes of land readjustment that have recently been developed in China, i.e., a public mode and a self-organized mode. We argue, and provide evidence from two case studies in Zhejiang Province and in Sichuan Province, that the (mis)fit between the transaction attributes of land readjustment and the adopted readjustment mode greatly affects their performance. Our findings are intended to serve as a reference both for further research and for policy making on land readjustment.

Introduction:

A new mode for acquiring, assembling and redeveloping land, called land readjustment, is increasingly emerging across the globe. Its institutional design aims to reduce the transaction costs involved in market-driven and government-driven property exchange and land redevelopment, and to achieve a more equitable distribution of the value gains. In particular, it is meant to lower the transaction costs of coordinating property exchange in land assembly, to lower the up-front capital needs, and to make the land owners share in the value gains of redeveloped land. The basic principle is that of land for land swapping, where owners receive a smaller piece of land (either at the same location or a different location) with an equal or higher value after redevelopment in exchange for the piece of land that they give up. The land that is saved in this way can be used for infrastructure development or be sold to others as a way to (partly) recover the development costs. Collective action by the owners plays an important role in this approach, with majority rules and special laws being used to instigate dissenting owners to either concede or to sell their property and to determine compensations.
The literature about land readjustment mainly focuses on its legal and technical aspects. A major exception is the book by Hong and Needham (2007), focusing on the institutional settings of land readjustments. Using evidence from a number of case studies of land assembly for urban development and redevelopment, Hong (2007a) argues in the concluding chapter that land readjustments may greatly reduce holdout problems and also contribute to a more equitable distribution of the value gains of land assembly and redevelopment over owners, government and private developers. Given the limited number of cases that are examined, Hong recommends carrying out more research to identify appropriate enabling institutions for land readjustments and examine the interactions among these institutions.
A novel mode of land for land swapping can be observed in China in recent years. This mode, called ‘Linkage between urban land taking and rural land giving (LUTRG)’, links the redevelopment of rural construction land, and the farmland gained in that way, to the expansion of urban land areas (see Tan and Beckmann, 2010, Liu et al., 2014, Yuen, 2014).1 ‘Urban-land taking’ refers to a legal urban expansion project occupying farmland, while ‘rural-land giving’ means that the same amount of farmland is gained elsewhere by reducing the size of rural construction land (usually farmers’ residential land) so as not to reduce the total size of arable land available for farming. The remaining rural construction land is used in a more efficient way, e.g. by demolishing unused rural housing land or building high-rises apartment blocks (Long et al., 2012). Due to state ownership of urban land and collective ownership of rural land, the government plays a leading role in this type of land readjustment. At the same time, however, the government permits experiments with self-organization of land readjustments by farmers and the private sector in designated pilot areas.
The co-existence of public land readjustment systems and self-organized land readjustment systems under a uniform legal system provides an interesting basis for a comparative study aimed at providing insights into the benefits and disadvantages of both types of institutional organizations. Findings of such a comparison may offer important inputs into the design of policies aimed at promoting the optimal governance structure of land readjustments that take into account efficiency and equity.
The purpose of this paper is therefore to make a comparative analysis of these two novel land readjustment systems in China, i.e. the public and self-organized LUTRG systems, and to use its findings to formulate policy recommendations for further improving the governance of rural-urban land swaps in China. Our analysis will largely be a theoretical analysis, based on transaction costs economics, and will focus on the rural side of the systems, as the main innovations can be found at that side. Available evidence from two case studies, one for a public LUTRG system and one for a self-organized LUTRG system, will be used to substantiate our arguments.
The remainder of the paper is structured as follows. The second section discusses the principles of land readjustment and the benefits and disadvantages of different governance modes, and develops a framework for comparing different modes based on transaction cost economics. The methods of case selection and information gathering are introduced at the end of that section. The third section gives more detailed descriptions of land readjustment in China and its two modes of implementation, i.e. the public mode and the self-organized mode. The fourth section presents a comparative analysis based on the two case studies, and draws conclusions from this comparison. The final section draws inferences for policy making from the main findings in our study.

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