1. Land Tenure Dualism in China How the Dichotomy between State and Collective Ownership Has Shaped Urbanization and Contributed to Wealth Inequality and Shaped Urbanization John W. Bruce, Former Visiting Professor, Renmin University, Beijing, China Land and Poverty Conference, March The World Bank, Washington DC

2. Land Tenure Dualism
Land tenure dualism is the co-existence of two different land tenure systems in a single polity, often the result of land rights legislation that seeks to advantage one area and its landholders over another.
Common case is colonial land tenure. Strong tenure rights are given to colonists but customary rights of colonized are unrecognized in law and denied marketability.
Land of colonized thus easily taken for little or no compensation.
Dualism is not characteristic of socialist states; in the former Soviet Union, all land -- rural and urban – is state-owned.
But in China, urban land is state-owned while most rural land is owned by rural collectives, a system enshrined in 1982 Constitution.
In 2014, state-owned land accounted for a third of China’s land mass, including mountains, forests, grasslands, wetlands and land under state cultivation.
But the state’s ownership share in arable land is only 5.1%. Farmland is overwhelmingly collectively owned.

3. User Rights, Land Value and Value Capture
Over the years, the rights that individuals and households can hold within those ownerships have been strengthened -- in different ways:
The seventy-year urban lease, a marketable asset, and
The rural use rights of 30 to 70 years, depending on land use category, with marketability tightly restricted.
That difference in marketability creates a dramatic difference in the value of these land rights:
for urban land, it is determined by a dynamic market for rights in urban land and real estate, but
for rural land, by a legal formula based on the value of X years of ag. production.
A parcel, classified as state-owned urban land, is worth many times the value of that same piece of land, rural and collectively owned.
After a 1994 tax reform, municipalities expanded rapidly and systematically exploited this difference to capture value, taking cheap rural land rights and selling expensive urban land rights.

4. How Big? Land and Revenue
From 2005 to 2011, 27,200 square kilometers of rural land were requisitioned and converted to urban state ownership. From 2008 to 2013, rural land requisition increased sharply to 4,460 square kilometers annually.
The sale of these lands as urban land during that same period ( ) generated 50-70% of municipal revenue
In 2010, the total government revenue from the reported sales of expropriated land in the 120 largest cities in China reached roughly $300 billion.
In 2014, China’s Development Research Center and the World Bank concluded in Urban China that
land requisitions had become “delinked from the real demand for urban and industrial land or infrastructure needs as local governments” and was now being driven by the revenue needs of municipalities, and
very substantial amounts of the expropriated land had been going into “land banks” under municipal development corporations, allowing municipalities to borrow against that land. Land requisitioned substantially exceeded the increase in urban construction land.

5. Dualism-Fueled Growth - Economic Distortions
The major increase in municipal revenue has enabled a dramatic expansion of urban infrastructure -- even over-investment in recent years. It has funded an urban transformation.
“Cheap land” for urbanization has created strong financial incentives for municipalities to expand into rural land rather than to intensify the use of urban land, enlarging their “urban footprint”;
That expansion has placed serious pressure on farmland, threatening the “red line” of 1.8 billion mu of prime farmland, as well as the principle that for every bit of farmland that becomes construction land, new farmland must be created.
Municipalities have developed a dependency on land revenue for 40% and even larger percentages of their revenue, a dependency which Government has declared unsustainable.
Borrowing against banked land contributes to alarming municipal debt levels.

6. Dualism-Fueled Growth -- Inequality
Government has been alarmed by the rapid growth of inequality in China in recent decades. Government figures suggest an income Gini co-efficient of .49, the Livelihood Survey of Beijing University .67. Maybe
The wealth Gini coefficient of China was 0.73 in 2012.
The 90/10 ratio of wealth in 2012 was 32.9, so the wealth of a household at the 90th percentile point was about 33 times higher than the wealth owned by a household at the 10th percentile point.
In 2012 the richest 1 percent owned more than one-third of the total national household wealth, while the poorest 25 percent owned less than 2 percent.
Housing assets, which accounted for over 70 percent, were the largest component of household wealth, and the primary factor accounting for rural/urban wealth differences.
The divestiture of state-owned properties, esp. residences, has made many urban residents very rich, through appreciating value of urban real estate, rents from tenants, and investments using loan funds secured by realty.
But also: requisitioned land sales = massive wealth transfer from rural communities to cities, estimated by one economist at two trillion RMB since 1978, into superior personal wealth, infrastructure and services for cities.

7. An Unsustainable Model
This approach to land value capture has become unsustainable:
socially, because of the conflict it is generating and the increasingly strident calls for fairness for rural landholders,
economically, because of recognition of the distortions it is creating in incentives, and its contribution to a dramatic rise in wealth inequality.
environmentally, because it is threatening farmland preservation, a national security concern, and
fiscally, because de facto costs of expropriation are growing rapidly due to:
growing scarcity of farmland on the urban fringe,
extensive informal development on rural land, and
development of informal markets in rights to rural land..

8. The Land System Reforms
The current land system reforms, announced in 2013, are to reform compensation for takings of rural land, register household land rights, gradually introduce marketability of rural land rights, and unify the market for rural construction land and urban land.
Pilots are going forward, but the reform is being outstripped by events.
If rural use rights registered and marketability achieved, households could reap benefits of new market value.
But piloting is still going on, and urbanization pulling labor out of agriculture, and the Ministry of Agriculture is pushing “scaling up”.
Local officials are administratively consolidating holdings for long-term leasing to large mechanized operations.
Those contracts and organizational forms are complex, difficult for villagers to understand; local officials strike self-serving deals.
Those who have left may receive nothing. Abuses abound.
Many may exit agriculture without ever receiving value for their land.

9. An Incomplete Reform
Under the land system reform as it stands, duality will be reduced but not eliminated.
The distinction between state-owned urban land and collectively-owned rural land will continue to exist.
Land right transactions will not be allowed to move land from one use category to another, so land right markets will play no role in changing patterns of land use. This is expressly prohibited, in the interest of farmland protection.
The new markets in rural land rights will be segmented by land use, and it is only for construction land that real unification of rural and urban markets are urged.
The reform is incomplete and the continuing duality is reflected in a strategy used by some townization projects to leverage that duality to generate project funds.

10. What Would Unification Look Like?
Would the two ownerships need to become one? Not necessarily.
What matters is the uniformity of the rights of land users and their marketability.
But rules and rights are only a part of tenure; the other part is institutional, the management entity. In urban areas, municipal land governance/in rural areas, village committees.
Should rural collective land rights become like use rights in state land? Should a national bureaucracy, a Ministry of All Land, manage a national system of user rights?
Or should the urban state land become urban collective land, owned by urban “communities”, the basis for a new decentralized system of urban governance? Would more

11. Assessing Dualism
Dualism in China has played its classic role, advantaging one sector (urban) to the disadvantage of another (rural).
It has done so successfully, and made a great contribution to building modern China, but perhaps it has done so too successfully, and the time has come to phase it out.
This is proving a complex task, and many local officials are not anxious to see it go.
Reform is moving more slowly than opportunists on the ground, and so the delivery of the benefits promised by the reform are in doubt.
Some regret the reform for paternalistic reasons, but it is the very fact that this land has been kept cheap that makes it a target for land-grabbing.
A painful choice: accept markets and risks they pose, or accept low values that encourage land-grabbing.