Impacts of Property Rights Reform in Peri-Urban China: Evidence from the Chengdu National Experiment Klaus Deininger - World Bank Songqing Jin - Michigan State University Shouying Liu – Dev. Res. Center, China State Council Fang Xia – Central Univ. of Finance and Economics

Motivation and Background Challenges of China’s current land policy – The separation of land markets between rural and urban create serious problems for China’s future economic development: Over-supply of land at low-cost to attract industries that is then linked to sprawl, high cost of infrastructure provision; conflictive conversion of rural land for industrial purposes; Undersupply of low-cost housing, reliance on land finance to provide infrastructure; and collateralization of land banks with unsustainable debt accumulation. Farmers under-compensated; benefit from industrialization and land value increases not shared by rural residents; expansion of rural residential land (empty villages); long-term investment and agricultural productivity undermined (out of fear of conversation); social unrests ensured. Reform piloted in various areas with the following objectives: – Equal rights and opportunities for state-owned and collectively owned land and land owners; – Integration of rural and urban land markets; – Fair sharing of incremental land values brought about by urbanization and construction of infrastructure.

The Chengdu Experiment The Chengdu experiment – Chengdu prefecture was, in 2008, named as a pilot area for the comprehensive reform. Chengdu prefecture includes 20 counties/districts and has a total area of 12,000 km 2, and a total population of 11 million, of which 5 million are categorized as rural residents. – Three key changes were introduced. A participatory effort to title all land (agricultural, construction, forest, and waste) and to establish a registration system to accompany it was implemented and has been completed. Tradable development rights were introduced to allow voluntary, market-driven access to land for non-agricultural purposes. Hukou restrictions forcing rural residents to give up their agricultural or construction land when acquiring urban residency were eliminated and regulations to allow easier transfers of rural construction land were passed.

Anecdotal Evidence on impacts of the Chengdu Experiment The experiment has drawn great attention from policy makers, scholars and media inside and outside of China Anecdotal evidence suggests positive reform effects. – Significant income effects (Wu 2010; Zhang, Li, Zhen 2012); increased income from land leases, local off-farm and migration; – And significant increase in land transfer (to agricultural companies), significant local employment generated – Reform also encouraged migration as farmers are not worrying about losing their land (Li 2012). – While little mortgage of agricultural land, 18,000 mortgages of collective construction land, with a volume of Y 3.3 billion; 2,500 mu of land converted back agriculture cultivation with development rights transferred

Hypothesized impacts of the experiment While the anecdotal evidence is informative, it may be biased and non-representative. Studies using more rigorous approaches and more representative sample are warranted: We expect the reform to lead to – (i) a reduction in the extent of expropriations and reallocations; – (ii) an activation of informal and formal land rental markets; – (iii) greater efficiency in allocation of land, particularly for non-needed residential land; – (iv) an increase in enterprise formation and economic activity; – (v) a higher level of agricultural productivity and household welfare.

Village-Level Analysis A village survey administered by DRC (Development Research Center, the State Council) in May – Regression discontinuity design 288 villages inside Chengdu (the treated group) and 241 villages outside Chengdu (the control group). Villages were selected along the boundary separating Chengdu preference from its neighboring prefectures (see a sketch on next slide) Mean distance between villages on both sides approx. 3 km. – Key results Significant reduction in reallocation Higher level of land transactions Increased formation of agricultural enterprises Greater use of land for agriculture & other construction Significantly higher village income (50%)

Geographical Discontinuity Design

Empirical Strategies (village level analysis) Difference-in-difference (DID) approach: – (i) A standard DID compares outcome variables between treatment and control villages before- ( ) and after- ( ) the reform. – (ii) A DID with block fixed effect compares the outcome variables between treated and control villages within the same neighborhood constructed by the geographic distance (10-30 km) before and after the reform. Placebo tests compares the outcomes between two pre-treatment periods ( vs ). Heterogeneous impacts in terms of traveling time to the center of Chengdu (1.43 hours on average).

Nature of the Certification Process

Econometric Results (Village)

Household-Level Analysis Household panels from income and consumption survey conducted annually by the National Bureau of Statistics. – Purpose: Get at income effect – Sample size: 7 counties (3 inside Chengdu and 4 outside Chengdu); representative villages were randomly selected within each county; 10 households were randomly drawn from each selected village. – Panel periods (two separate representative panels): Pre-reform panel ( ): 274 treated (inside) and 442 non- treated households (outside Chengdu). A panel from post-reform period ( ) includes 251 treated households and 367 non-treated households. – Key variables and results: Significant increase in yield and agric. income Consumption increase by about 5% This increase was strongly pro-ppor

Household-Level Sample

Empirical Strategies (HH level analysis) A triple difference approach including – (i) difference between the first and the second years of each panel within the same household (2005 vs. 2006; 2011 vs. 2012). – (ii) difference between treated and non-treated households. – (iii) difference between pre- and post-reform periods ( panel vs panel). Heterogeneous impacts in terms of initial human capital and physical assets.

Descriptive Statistics (Household)

Trend before and after reform

Econometric Results (Household)

Conclusion and Policy Implication Land reform has significantly enhanced tenure security and reduced land expropriation. The effects tend to be stronger for villages that are closer to the center of the city. Land reform promote formal and informal land transfers of arable land. Land reform also increases the terms of informal transfers by reducing free transfers and increasing rental transfers with outsiders (though effect smaller as travel time to the city center increases). Reform also increased the transfer of construction land. Land reform also increased the start-up of local agricultural enterprises (floral, large-scale horticulture plantation, etc.). Land reform significantly increased the total amount of arable land and to some extent the construction land, but significantly reduced residential land. Reform significantly increased non-labor input use and productivity but significantly reduced labor use in agricultural production. Those with less education and more production assets benefited proportionately more from the reform. This is expected as those who are less educated and have more production assets have comparative advantage in farming. Reform also significantly increased the total consumption of those with less education and fewer assets.