1. Tenure Integrity, Security and Forestland Transfer: Evidence from Jiangxi, China
Yuepeng Zhou, Dengyan Ji, Xiaoping Shi, Xianlei Ma, Satish Chand
Presented in World Bank Conference
23 March 2017

2. Contents Introduction Conceptual framework Data description
Empirical results
Conclusions
Policy implications

3. Introduction Forest in China: state-owned vs. collective forest (60%).
Efficient and sustainable forestry production is considered to be an important way to
Increase household income and combat rural poverty;
Maintain a friendly ecological environment (ecological service to the nature).
Forest property rights in China could be divided into two types, namely: state-owned forest and collective forest Because forest can provide significant ecological service to the nature and people's live, and so the collective forest tenure reform is also responsible for maintaining a friendly ecological environment.

4. Introduction However, forest in China is featured as:
Fragmentation (geographical factor and demographical factor);
Transfer market not perform well
Mismatch of production inputs: forestland, labor force, capital, management capability
Inefficiency of forestry production in China.
Solution: promote forestland transfer and develop large scale operation of forestland;
The role of forest tenure reforms ?
Forestland is fragmented because of two factors. On the one hand, a large amount of forestland is located in the mountainous area or hilly area, the geographical nature leads to forestland fragmentation. On the other hand, much similar to farmland management system, forestland is also divided into different categories according to its quality, and each category of forestland is distributed to households based on household size or labor size. So demographical factor plays an important role in fragmentation.

5. Introduction: collective forest tenure reforms
Decentralization –individualization (Household Responsibility System)
Some use rights granted/No logging/transfer rights/Have high tax
No significant improvement for production
1st reform ( ):
the "Three Fixes" policy
Transfer rights granted
However, heavy tax burden and restrained logging permits-lead to shortage of investment
Productivity decreased
2nd reform ( ):
forestry market reform experiment
Decentralization
Certificates issued
Longer contract period (30-70 years)
Granting logging/transfer/mortgage rights,…
3rd reform (2003-now,): marketization and forestland certification
The 1st reform is called the “Three Fixes” policy during In this stage, the reform is a decentralization process. Before 1979, both forestland and farmland were owned by the People’s Communes（village collectives). Since the late 1970s, China started to practice a dramatic land reform known as the Household Responsibility System (HRS), which has brought about remarkable success in agricultural productivity. Following the successful HRS in farmland, the “Three Fixed” policy also aimed to distribute the forestland from village collectives to individual households, and fixed three issues, which are clarifying rights to forests, delimiting the boundaries of private plots, and establishing a forestry production responsibility system. According to the “Three Fixes” policy, Farmers have been granted with some use rights, such as right to decide tree species. However, farmers in Southern China were not given by transfer rights and logging permits, but farmers had high forest taxes and fees in this period. So farmers did not perceived high tenure security in this stage of reform. Therefore, there is no significant improvement for forestry production in southern China response to the "Three Fixes" policy, like shortage of investment in forestry and low efficiency of forestland allocation.
China launched a 2nd reform during The target of this reform is to conduct an experiment on forestland marketization and realize economy of scale. In addition to use rights, farmers were further provided with transfer rights. However, the heavy tax burden imposed on the forest operators and difficulties in obtaining logging permits had discouraged them to invest in forestland.
the 3rd round of forest reform was introduced in This reform is also a process of further decentralization. According to the 3rd reform, forestland certificates were issued to individual households. The contract period is clearly specified from years, depending on different types of tree species. Households were provided with logging right, transfer rights and mortgage right.

6. Introduction
The new round of collective forest tenure reform (2003) : Granting more rights (use rights, transfer rights, logging right, mortgage right)--- Improve tenure integrity
Specifying contract period, issuing land certificates– Enhance tenure security
Massive literature focus on farmer’s incentive to invest,
but the relationship between forest tenure and forestland transfer are scant

7. Research Questions
Do forestland tenure integrity/security affect households' decisions to rent-in forestland?
To what extent?
In summary, compare to the 1st and 2nd reforms, the 3rd round of reform has granted more rights to farmers and enhanced forestland tenure security. But what question we are interested in is whether or not and to what extent the new round of forestland tenure affect forestland transfer activities.

8. What is tenure integrity or security? How to distinguish?

9. Definition 1: Tenure Integrity
A bundle of rights,
How many "sticks" in the bundle that a household holds, and,
To what extent that these sticks could be held by households.
—— FAO (2002)

10. Definition 1: Tenure Integrity
In particular, it is identified by 3 categories and 11 specific rights, namely:
(1) Use rights:
right to convert forestland into farmland,
right to change forest type,
right to decide tree species,
right to plant non-wood forest product,
right to abandon forestland,
right to cut down forest;
(2) Mortgage right - right to use forestland as collateral to obtain credit from formal and informal sectors;
(3) Transfer rights:
right to transfer-in(out) within village,
right to transfer in from outside village,
right to transfer-out to outside village.

11. Definition 2: Tenure Security
Security of tenure is the certainty that a person’s rights to land will be recognized by others and protected in cases of specific challenges (i.e. households’ eviction, village’s reallocation, government’s expropriation);
Tenure security cannot be measured directly and, to a large extent, it is what people perceive it to be.
——FAO (2002)

12. Definition 2: Tenure Security
Two indexes of perception:
Household expectations of forestland reallocations when contract period is due;
Household perceptions on forestland expropriation within coming 10 years.
Note: land reallocation- land is redistributed according to demographic change in order to maintain equitable rule.

13. Conceptual Framework

14. Decisions: Potential landlords & tenants
TCR effect VI
effect
TCR effect
In the conceptual framework, I identify two channels through which improved tenure integrity and security could affect forestland transfer activities. One is transaction-cost-reducing effect and value-increasing effect.
From the perceptive of tenure integrity, first, more complete rights, for instance, the transfer rights, logging right and the existence of right to convert forestland into farmland, right to change forest type, right to decide tree species, and right to plant non-wood forest products, all these rights have diversified the management of forestland and thus reduced the degree of asset specificity. For example, farmers can only plant their forestland by themselves, and obtain production benefit if they do not have transfer rights. However, when these farmers are granted by transfer rights, they can transfer forestland to other households, and obtain rental income. Transaction costs will decrease as the asset specificity reduces. Second, possessing more complete and clearer forestland rights implies that both potential landlords and tenants may spend less time/money on searching, bargaining and negotiation to reach an acceptable agreement. The reducing of transaction cost will increase the willingness to rent in or rent out forestland. So it is expected that there is a positive effect of tenure integrity on forestland transfer.
From the perceptive of tenure security, it could also reduce transaction costs by mitigating the disturbance of forestland transactions, and reduce the frequency of transaction. Why? The new forest tenure reform, which granted farmers with higher tenure security and longer contract period, would reduce the expectation of forestland expropriation and reallocation. As a result, the risk of losing forestland would decrease. On the other hand, according to Williamson's transaction cost theory, higher tenure security leads to lower transaction frequency, which may also stimulate households' incentives for forestland transfers.
Ok, let’s move to value-increasing effect, and see how it works.
First of all, from the perspective of tenure integrity, providing farmers with more forestland rights will raise forestland value and increase potential landlords’ anticipation of rental price. On the one hand, the increased rental price will reduce potential tenants' incentives to rent in forestland; on the other hand, the increased forestland value would reduce potential landlords' incentives to transfer out forestland if the tenants' willingness to pay (WTP) price is lower than the landlords' willingness to accept (WTA) price.
Secondly, households with mortgage right are more likely to use forestland as collateral rather than transfer out their forestland, which may also reduce potential landlords' willingness to rent out.
Third, in the absence of a well-functioning rural assurance system, land is the last resort for employment and income when rural households could not find jobs in cities. As a result, the increased value of forestland as insurance becomes more important for the potential landlords and thus may also inhibit the households’ incentives to rent out their forestland. So it is expected that there is a negative effect of tenure integrity on forestland transfer.
Similar to tenure integrity, tenure security would also induce a value-increasing effect by increasing potential rentals and enhancing the insurance function of forestland. VI
effect
Decisions: Potential landlords & tenants

15. Net effect: which effect is dominant
Conceptual Framework
Net effect: which effect is dominant
Decreased transaction costs
Less searching/negotiation costs
Less asset specificity/disturbance
Increased forestland value
Insurance
Mortgage
Rising rentals
Integrity
Security
Rent in??
In general, we see that transaction-cost-reducing effect has a positive effect on transfer activities, while value-increasing-effect has a negative effect. And whether a household decides to transfer in and how large he will transfer in depend on the net effect of transaction-cost-reducing effect and value-increasing-effect. In other word, it depends on which effect is dominant in the specific context.
(rent in +)
(rent in -)

16. Data Source Surveys in Jiangxi province in 2011 and 2013 ,
14 villages in Suichuan county,
15 villages in Fengcheng city,
A total of 289 households.
Fengcheng
Suichuan

17. Descriptive statistics
Dependent variables:
Variable
Definition
Mean
S.D.
Renting in dummy
1= if the household transferred in forestland in 2010；
0= otherwise
0.18
0.38
Rented area
Total area of land rented in by renting household (mu)
66.30
135.44
Notes: 1 We focus our analysis on the demand side of the forestland rental market. The supply side is usually under-enumerated in rural household surveys because households who are not found at home at the survey time are not interviewed. As a result, households that migrated elsewhere and rented out their forestland to other households are excluded from the sample ha = 15 mu.

18. Descriptive statistics
Tenure integrity:
Variable
Definition
Mean
S.D.
Use rights
Average perception on use rights in the village based of the other sampled households that live in the same village as the surveyed household
2.18
0.39
Mortgage right
Average perception on mortgage right in the village based of the other sampled households that live in the same village as the surveyed household
1.29
0.44
Transfer rights
Average perception on transfer rights in the village based of the other sampled households that live in the same village as the surveyed household
2.36
Notes: if a household considers not to hold such right, 1 - if he/she is not sure to have such right, 2 - if he/she holds the right with village committee's approval, and 3 - if he/she holds the right even without village committee's approval.
2 We use village-level perceived tenure integrity as proxy to handle the potential endogenous issue.

19. Descriptive statistics
Tenure security:
Variable
Definition
Mean
S.D.
Village perception on land reallocation
Average perception on land reallocations in the village based of the other sampled households that live in the same village as the surveyed household
1.13
0.31
Village perception on land expropriation
Average perception on land expropriations in the village based of the other sampled households that live in the same village as the surveyed household
1.19
0.24
Notes: if a household perceives that forestland is possible to be expropriated/reallocated, 1 - if he/she is not sure whether forestland is possible to be expropriated/reallocated, 2 - if he/she perceives that forestland is impossible to be expropriated/reallocated.
2 We use village-level perceived tenure security as proxy to handle the potential endogenous issue.

20. Rent-in dummy (Probit)
Empirical Results
Variables
Rent-in dummy (Probit)
Rent-in area
(Tobit)
Forest tenure integrity
Use rights
-2.514***
***
Mortgage right
-1.810*** *
Transfer rights
-0.332
22.718
Forest tenure security
Village perception on land reallocation
1.899*** **
Village perception on land expropriation
1.675 *
Notes: Robustness-check for the results obtained above is conducted. And the results from robustness-check procedures are almost consistent with that from the probit/tobit models.

21. Conclusion
Households with higher perception of use rights and mortgage right would reduce the probability and intensity of transferring-in land;
(dominant value-increasing effect)
However, households with lower anticipation of forestland redistribution or expropriation are more likely to transfer in more forestland.
(dominant transaction-cost-reducing effect)

22. Policy Implications
Forest tenure reforms would put more emphasis on the enforcement mechanism, and increase household perceptions on tenure integrity and security.
In order to reduce the difficulty of matching partners in the forestland market, some measures are important to supplement the forestland tenure reform in China, for example:
Forestland transfer platform
Social insurance system
provide farmers with more subsidies

23. Thanks for your attention!