The Logic behind China's Rural Reform
Interview with Chinese rural affairs expert Zhong Zhen
The recently concluded “Third Plenum” has devoted a big section to China’s rural reform, which is set to have far-reaching implications for the country’s economic prospects. Also, two weeks after the meeting, the cabinet-esque State Council released a “five-year action plan for people-centered new urbanization,” which set the country up for lifting its urbanization rate to 70% by 2029. To better understand the logic behind China’s rural reform, we interviewed Zhong Zhen, deputy dean of Renmin University’s School of Agricultural Economics and Rural Development, to provide insights on the country’s path to urban-rural integration. The following is the full text of the interview, conducted by Xinhua journalist Xu Zeyu on July 24.
Xu Zeyu:
Compared with the resolution (“决定” in Chinese, which was still translated as “decision” prior to this meeting) adopted at the Party’s reform-themed “third plenum” in 2013, what is new in the segment of urban-rural development this time? What signals has this new resolution sent to the agricultural and rural reform at the next stage?
Zhong Zhen:
The resolution adopted at the third plenary session of 2013 stressed “development towards urban-rural integration”城乡一体化发展. It has later evolved into the idea of “urban-rural integration”城乡融合, which is now enshrined in this year’s resolution. If dating back further, an earlier version was “coordinated urban and rural development”城乡统筹 proposed in Hu Jintao’s era. There has been a gradual evolution of the three expressions over time.
The Chinese leadership tends to deal with urban and rural areas, the two relatively separated sectors, in this manner: First, overall plans were made to coordinate the development of the two areas. Then, the development was aimed at narrowing the gap and granting equal treatment. Now, on top of all that, further integration and mixture are required. This makes “urban-rural integration” a pivotal strategic decision to break down the urban-rural dual structure.
It has been over three years since the concept of “urban-rural integration” was first proposed. When we formulate urban policies, we also take rural policies into account, and vice versa. Especially when it comes to policies such as urbanization, factors including land, money, and human resources are often drawn from rural areas. On the other hand, the development of rural areas often relies on the government’s finances that are generated from the industrial sectors, the secondary and tertiary industries. There must be a connection between rural and urban areas. Development towards urban-rural integration requires narrowing the gap between rural and urban in medical care, housing, education, and other social benefits.
Thanks to years of agricultural and rural subsidies, Chinese farmers actually fare quite well. They are better off than some low-income city dwellers. So it is necessary to facilitate a two-way integration, with a more vibrant flow of the factors of production. In this way, a new type of relations between industry and agriculture, and between urban and rural areas can be built. This set of new relations, proposed in the fifth plenum of the 19th CPC Central Committee in 2020, should be built on agricultural and rural modernization, in addition to industrialization, urbanization, and informatization. So it has to be a process of integration of all that. Therefore, this year’s resolution is very accurate in using the expression “urban-rural integration,” which has far-reaching implications.
Xu Zeyu:
You just talked about the change in the official expression of urban-rural development, and also about the process of urbanization. However, there long remains a gap between the ratio of urban residents常住人口城镇化率 and that of urban residents with hukou registration户籍人口城镇化率, which has been over ten percentage points for the past decade. Can we see any moves in the resolution that might effectively narrow the gap between these two indicators?
Zhong Zhen:
The gap between these two figures has largely been formed by the 300 million or so rural migrant workers, or the migrant population. In fact, we have been working in several directions over the years to bridge this gap. We want both the urban and rural areas to be desirable places to live, and their differences will only lie in locations and environment, not in public service or infrastructure. That is our goal. But judging from reality, people still tend to go to large- and medium-sized cities, like Beijing. The third- and fourth-tier cities are still sparsely populated. So there is still a long way to go. In the past few years, the government has done two things in this regard.
On the urban front, the aim is to better accommodate rural residents for them to become citizens and register as urban hukou owners. The problem is that most migrant workers earn salaries in the cities without paying social insurance. Their salaries also hardly reach the threshold of paying taxes. This means their contribution to the city finances is limited. But if they decide to reside in cities, the municipal government is liable to provide all sorts of public services including medical care, food, transport, and so on. For local government officials, they have to consider the fairness of the city's revenue and expenditure. Cities like Beijing, Hangzhou, and Shanghai have millions of migrant people, so the burden of providing public services is staggering. Therefore, our imminent task now is to welcome the migrant population to cities without discrimination, and to facilitate this process by providing corresponding financial support, so that rural residents could settle down in cities with reassurance.
On the rural front, the government’s effort is focused on dispelling rural residents’ worries when they mull over becoming urban dwellers. They dare not relinquish their property resources in the countryside, nor are they willing to do that. If they give up their rural hukou, they will consequently lose farmland, homestead, and other property rights granted by rural collective bodies. If the city is unable to compensate them accordingly with social security and other public services, the rural residents have no reason to turn into urban hukou owners. They would rather live and work in the cities without household registration, leaving their farmland and homestead idle.
In addition to these two aspects, the related policy initiatives should also be factored into the equation. Ever since 2004, the government has been pushing the supporting systems to strengthen agriculture and benefit farmers强农惠农政策, featured by subsidizing farmers and abolishing the agricultural tax. Two decades into this policy, the farmers now tend to keep their farmland and homestead in the countryside even if they are properly employed and housed in the cities. They expect to get a sum of compensation once the local government purchases their land for construction purposes. If they don’t go to the public security bureaus to register as city dwellers, the number of registered urban residents won’t increase, despite the rise in actual urban residents. So it is very difficult to bridge the aforementioned gap between the two indicators.
However, there is no need to be obsessed with the ratio of urban hukou owners. What matters is the size of actual urban residents. Once the actual urban population is large enough, with more people working, living, eating, and receiving education in cities, the consumption will bulge and the economy will therefore be more vibrant. If calculated on this basis, China’s urbanization rate has long been over 60%. In this regard, China is actually very close to the developed countries, whose urbanization rates usually stand at 70% to 80%.
Xu Zeyu:
You mentioned the efforts on two fronts. Let’s go a bit deeper into the urban front. This year’s third plenum resolution has specifically referred to the equalization of public services between urban and rural areas. But you said the local municipal government lacks incentives to provide those for rural migrants. Plus, the mounting financial difficulty among the local authorities makes them all the more reluctant to do that. How do you think the plans outlined in the resolution could be implemented under this circumstance?
Zhong Zhen:
The cities are liable to public services for those who come to work. What if the local finance is not in good shape? Then the central government should rise to the occasion and provide support through transfer payment. The key to better settling former rural residents in cities is that the social security system should be a coordinated national response. Another issue is housing. But in the small- and medium-sized cities, the government is encouraging farmers to buy houses. So it is not a problem at hand.
Therefore, the key problem is three-fold: medicare, elderly care, and education. There is huge progress in the first two sectors. The city dwellers always enjoy the basic endowment insurance for the urban employees城镇职工基本养老保险 and the basic medical insurance for urban employees城镇职工基本医疗保险. Ever since 2009, a set of similar system was established in the rural areas known as the new rural social endowment insurance for rural residents新型农村社会养老保险 and the new rural cooperative medical system新型农村合作医疗制度. Even though the rural system grants far less reimbursement in comparison, it is still a big step forward.
Recently, the urban and rural systems have been merged in many places, like Beijing and some provinces in east China. Many other provinces are also moving in this direction. This is an astounding achievement. If the entire country is eventually placed under one wholesome system, it doesn’t make any difference in which city you choose to go to the hospital. By then, if you are a rural migrant working in Beijing, you could still get the reimbursement after medical treatment even if you don’t have Beijing’s hukou. Beijing and Zhejiang have achieved the stunt of merging, but there are still many other provinces lagging behind. The government proposed the unification of these two basic social security systems between urban and rural areas over ten years ago, so China will manage this feat in due time. Once the merger is accomplished, there won’t be any problem for migrant workers to settle in the cities.
The same logic applies to education. First, we need to achieve education equality within one province. Beijing has designed a rotation mechanism for teachers in urban and rural areas. The efforts will meet headwinds because of vested interests and institutional barriers. But there is an incremental change through experiments. In the future, the country’s education resources, especially those of teachers, will be coordinated on a national level and therefore equally distributed. It is still a long shot, but we expect to move in the direction of bridging the education gap between urban and rural areas, and even between different regions.
If there are no barriers to choosing one’s living place, it is left to the local municipal governments to compete against each other to attract residents. This conforms to the law of economics. Although there is a long way to go to attain this goal, China has leaped over a lot of institutional hurdles to get close to that. And this is what China’s reform is all about.
Xu Zeyu:
Let’s switch to the other front, in the rural areas. You said farmers are unwilling to give up their benefits granted by the rural collective economy, and the land is the lion’s share of the benefits. China has been pushing the rural land reform in recent years. Actually, the resolution of the 2013 third plenum specifically mentioned the reform of the rural homestead system. This year’s resolution stressed that “we will promote orderly reforms for market-based transfers of rural collective land designated for business construction and improve the mechanisms for distributing returns realized from the appreciation of land.” Do you think this is a sign of a comprehensive overhaul of the rural homestead system in the direction of the “three rights separation”三权分置?
Zhong Zhen:
As I have said, the efforts on the rural front should be focused on better protecting rural residents’ property rights in the countryside in the process of urbanization. Their rural property rights are three-fold: homestead land宅基地, contracted farmland承包地, and the right to share in the proceeds from rural collective operations集体收益分配权. It is imperative that there should be institutional protection of these rights, and the key function of this institution is to hold the bottom line. In 2014, during the household registration reform, the State Council made it clear that forfeiting the three major rural property rights should not be the precondition for rural residents’ settling down in the cities.
Moving a step further, we should help farmers cash in on their property rights or get these properties appreciate in value. So we talk about three kinds of land: homestead land, contracted farmland, and collective construction land for business purpose集体经营性建设用地. When the municipal government wants to purchase rural land for urban construction, it is mostly the contracted farmland. The land purchasing reform征地改革 was already underway when Wen Jiabao was the Premier, and it was generally finished during Li Keqiang’s term. For a long time before that reform, the compensation for one mu of farmland (1/15 of a hectare, or about 666.67 square meters) was calculated by the value of the average harvest on this land for the previous three years multiplied by 30 times. If the land was planted with grain, that means farmers would give up one mu of farmland for only 400 kilograms of grain. The purchased land would then be transferred for urban construction purposes, which means its value would soar through the roof. But the rural areas benefited very little in this process. Now, things have changed. The system is now changed to the one called “same land, same price”同地同价, where farmers can bargain for higher prices. Another principle of “dynamic equilibrium”增减挂钩 has also been enshrined, which stipulates that the local government that purchased the farmland for urban construction is obligated to reclaim a piece of farmland of the same size and same quality elsewhere. The system for farmland purchasing is very much mature by now.
It is still very difficult to push the marketization of the other two kinds of land, the homestead land and the collective construction land for business purposes. The reform on that score has been inching forward at best. The situation is not gratifying now, but the prospect is really clear. The problem now is the slow progress. The reform was first initiated in 2015, and formally promulgated in 2018. From 2018 to 2021, two things were accomplished: an overall check of total rural assets, and identification of rural collective membership. Therefore, the No.1 Document of 2022 urged efforts to consolidate the results of reform on the rural collective property rights system. That should be done by generating profits through marketization. The future direction of reform for these two kinds of land is clear: clearly defined property rights and rational income distribution. This expression can be found in this year’s resolution.
With regard to the two kinds of land you mentioned, the eventual purpose of the reform is to provide a transaction market. It is relatively an easier task when it comes to the collective construction land for business purposes, because there is already demand in the market for the shops, factories and warehouses built upon it. The problem is that the lands of the same nature in rural and urban areas are not at the same price. The pricing of land should be based on its location and environment, not the systematic discrimination against rural ownership.
The real challenge lies in the marketization of homestead land. The land is not tradeable, and it has no market even if it is. The task now is to explore its market by allowing the transfer of the use right. The farmers could then lease their homes on the homestead for hostels, retirement housing, and many others. After all, these untradeable lands are still designated by the state for construction purposes. The bottleneck of the reform is how to unify the market of urban construction land and rural homestead land. And the government ought to build a transaction platform for homestead land, just like the one for contracted farmland. It is quite simple to build such a platform, but the consequences will be huge. There will be a lot of shenanigans that expedite land annexation. In that case, if the farmers don’t fare well in the cities, they will have nothing to fall back on in the countryside. That is why China has been taking baby steps in the marketization of homestead land.
Xu Zeyu:
The “three rights separation” reform on contracted farmland was put in place in 2016, which means its management right has since been open to market transaction. What implication does it have for China’s urbanization?
Zhong Zhen:
The heyday for farmland transfer was around the year 2010. The laws and institutions are sometimes behind actual practices. The 2016 reform was only set to acknowledge and legalize the practice of farmland transfer that had been active for decades. It dates way back to 1986, when the No.1 Document encouraged the concentration of arable land to large-scale land growers. The trend was intensified by the rise of migrant workers in the 1990s. By the 2000s, the farmland transfer reached a new height thanks to the booming property sector and the hectic-paced urbanization. After 2010, China put forward more policies to facilitate farmland transfer, and the transfer market was more vibrant than ever. After 2017, however, the statistics show that the ratio of the nationwide transferred farmland has never meaningfully surpassed 40%. And we believe 40% could be the ceiling for China’s farmland transfer. This means, even if 40% of the 12 million hectares of contracted farmland has been sublet to large-scale land growers, small rural households are still in possession of the remaining 60%. If the land transfer rate we saw ten years ago still stands now, what could have been left for the small households might be just 30%. The fact that the ratio of transferred farmland has hardly changed since 2017 shows that there is a limit to the scaled agricultural operations. Therefore, it is unlikely that cities absorb all rural residents through farmland transfer.
Xu Zeyu:
Does it mean that there is also an upper limit of China's urbanization rate?
Zhong Zhen:
Definitely. According to our earlier estimates, China's urbanization rate will probably top out at 70%-75%. It is impossible for Chinese farmers to go extinct in rural areas. China has a population of 1.4 billion, and there will always be 300 to 400 million people living in the countryside.
Xu Zeyu:
This year’s plenum resolution mentioned new urbanization新型城镇化, yet again. That phrase already paraded into the 2013 resolution. In 2022, the National Development and Reform Commission, China’s state planner, released a plan themed with the new urbanization. It stipulated that the county seats should be the crucial platform of China’s new urbanization以县城为重要载体. This year’s resolution urges “to see that cities of different sizes and small towns develop in coordination with each other to form efficient and closely knit layouts.”引导大中小城市和小城镇协调发展，集约紧凑布局 Does this mean China’s urbanization is pivoting smaller cities, counties, and townships? How do you understand the change of expressions?
Zhong Zhen:
From the mid-1990s to the early 2000s, there was a wave of urbanization centered in small and medium cities, county seats, and townships. Farmers were encouraged to live in those urban areas, and their children were allowed to receive education there. Another wave around 2010 was driven by the real estate boom, along with the great advance in industrialization, which siphoned farmers into big cities. Up till now, especially after the leadership brought up “rural revitalization”乡村振兴, China’s urbanization has returned to the coordinated development of large, medium, and small cities. The focus changes over time. But this is only my observation, as the authorities have never endorsed an urbanization strategy focused on big cities. Big cities can leverage the concentrated resources and population to pursue development, like in the Greater Bay Area, the Yangtze River Delta, or the Beijing-Tianjin-Hebei Circle. But if you look westwards, it is imperative that a bunch of small and medium cities mushroom in these less-developed regions.
Investment is one of the three drivers of the economy, but the room for investment in developed urban areas is dwindling. China has long pursued the strategy of constructing a “socialist new countryside”社会主义新农村建设 and now the “rural revitalization.” These two strategies include billions of dollars of investment, and they turn out to be very effective in managing macroeconomic risks. It has created a stabilizer for the economy when the overseas cycle is disrupted. In the meantime, the massive infrastructure building in the countryside helps revive the industries of steel, cement, electricity, and many others. The record manifests that the investment and consumption in rural areas will be a major source of future economic growth. But where is the main platform in central and west China? Big cities like Chongqing and Chengdu? No. The answer will be small and medium cities, county seats, and townships.
Therefore, the No.1 Document of 2023 clearly stated that the main battlefield of rural revitalization is the county regions乡村振兴的主战场在县域. It relies on the countryside to promote all-around rural revitalization. This third plenum has urged the coordinated development of new industrialization, new urbanization, and rural revitalization. The county regions and county seats are crucial to all three prongs of the grand strategy. I think the idea that there should be a focus region of China’s urbanization is a pseudo-proposition. People will vote with their feet. They might be attracted to mega-cities, where there are employment opportunities, good living conditions, and adequate public services. They might also be drawn to central and west China, where there are natural resources, a pleasant environment, and potential for upstart business. That is counter-urbanization. When the countryside is able to optimize the overspill from cities, or even take the initiative to attract factors of production, then the urban-rural integration is accomplished. The third plenum resolution has made it clear that there should be a “two-way flow” between urban and rural areas. The future path to integration hinges upon the invisible hands of the market and the government’s guidance. We can now put a stop to the debate about whether big cities or small ones should take the lead in urbanization.
This is China’s answer to the urban-rural dual structure. It has set up an example among the emerging economies, and even to OECD countries, which also lack effective solutions to this issue. Only China can manage to solve this intransigent problem properly, because it has a government with unlimited liability. The Chinese government is liable to “pay the debt” which was created decades ago. Using a term like this would be unthinkable in Western liberal democracies, where the incumbent administration won’t hold themselves accountable for their predecessors’ mess. But China has the capacity to organize and mobilize in order to fill in the yawning gap between urban and rural areas, and the integration will eventually lead to what the leadership called “common prosperity.”
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Subscribe to Sinical China for more original pieces to help you read Chinese news between the lines. Xu Zeyu, founder of Sinical China, is a senior correspondent with Xinhua News Agency, China’s official newswire. Follow him on X (Twitter) @XuZeyu_Philip
Chen Pu is also a journalist with Xinhua and a researcher at Sinical China. Huang Xumeng serves as an intern at the institute. They have contributed to this interview.
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