Rural land property rights transactions need financial supports

Recently, the Wenzhou Municipal Government released a circular, stating that twelve types of rural land property rights could be traded publicly on rural property exchanges, which include contracted rural land operation rights, forest land use rights, ownership of rural housing land, and use rights of rural collective construction land. This is another important reform since the pilots of rural land property rights transactions in areas of Chengdu, Chongqing, and Wuhan etc.

The public mostly hold the attitude of praise to this land reform in Wenzhou. Especially, this reform allows the ownership of rural house transactions, and the public think that it is an important step for rural land becoming assets. However, the Agriculture Office of Wenzhou Municipal Party Committee has officially emphasized that rural housing land only can be traded among rural residents, not including urban residents.

Even so, the transactions for rural house-ownership still have triggered various heated discussions. The assentors believe that the reasonable flow of house resources can lower the house prices in cities; but the opponents believe such reform expanding the transfer scope of rural land breaks the related land law, and it must be prevented. Though legally there are no definite regulations for houses built on collective land, from the official expression, the so-called “limited property houses” have always been struck. Therefore, does the reform in today’s Wenzhou mean the local government’s acquiescence for it?

But in my opinion, the most important question does not lie in whether transactions can be carried out for “rural house-ownerships,” but how transactions can be carried out for them? As everyone knows, in the transactions of commercial residential housing, except the very few people who pay in full immediately, most transactions need to rely on the mortgage. If the rural house property transactions in Wenzhou cannot rely on such financial means, then the reform may be hard to be really implemented.

It is well-known that house prices in Wenzhou are very high. Just because of this, the so-called “rural houses” in Wenzhou is also not cheap. For many rural houses located along streets of villages and towns, or houses with stores in Wenzhou, their prices can easily reach several million yuan; though there are cheap non-commercial houses purely for living, the total price can also reach nearly one million yuan. Such high asset prices mean that if there are no financial tools like bank mortgage etc., these assets can hardly be vitalized, and the peasants are unable to gain benefits from them.

In fact, peasants are unable to carry out transactions with their assets owned with the help of financial means, and it has always been the failings in our country’s financial system. For the reason that farmers can’t get the access of financial service, the ideological self-restraint is an important one: many people think that if the rural land can be mortgaged for financing, any carelessness in the operation of farmers may shock social stability, especially when the rural social insurance system has not yet been established completely. Just because of this reason, though contradictions exist between great demands for rural financing and the farmers’ lack of effective collaterals, the pilot of transfer and mortgage for the use right of homestead haven’t been released all the time.

In the book The Mystery of Capital written by DeToso, a phenomenon is described that in almost all developing countries, there is a so-called problem of “dead capital,” and it means that many assets have very high wealth value, but due to the system defects, they are unable to be transformed into capitals. He once carried out an investigation in Haiti, and found that 68% of the urban residents and 70% of the rural residents were living in houses without any certificates of ownership. Though these houses individually were not valuable, their total amount was huge: in Haiti, the value of houses with unclear ownership in cities and countryside was around $5.2 billion, this value exceeded four times assets of all companies in legal operation in Haiti, 9 times the value of all assets owned by the government, and 158 times all the direct foreign investments received in the history of Haiti up to 1995.

Such a phenomenon does not only exist in Haiti, and it almost exists in all developing countries. Just due to this, he appeals that in order to solve the poverty problem of these developing countries, firstly, what should be carried out is to awaken these “dead capital,” and the financial tools is absolutely necessary. In fact, the reason why China’s countryside is in poverty, it is also because of the lack of financial tools to a certain extent.

One rather simple example is that when rural people build houses on their homestead, they often have to rely on their own accumulation and loans from relatives and friends, they are unable to rely on bank loans, and this has reduced the process of wealth accumulation. At the same time, the houses that have been built with hard work can only be utilized for living, but cannot be used for gaining the funds required by starting a business and agricultural production through the ways of mortgage etc.. In other words, for farmers living in the suburbs of cities, though living at the place full of opportunities, they can only feel powerless and frustrated due to the lack of the supports of financial means.

But since this year, there have been signs that such phenomenon has changed. In June, The Guiding Ideas on Supporting Economic Structural Adjustments and Transformation and Upgrading by Finance, it has been made clear to enhance the support of credit for the fields of “agriculture, farmers and rural areas,” and encourage pilots of bank loans by using rural land use rights and homestead use rights as mortgage. Many departments and institutions including the Ministry of Land and Resources, the People’s Bank of China, the Legislative Affairs Office, and China Banking Regulatory Commission etc. are required to be responsible for the reform according to their respective duties.

But it is strange that in this circular of Wenzhou Municipal Government, the problem of how finance supports the rural property rights is not mentioned. For the reason why there is no content of regulations on this aspect, maybe the national ministries and commissions haven’t made clear regulations for it, and under the current relationships between the central government and local governments, the local governments do not have relevant functions and powers, but as the pilot site of financial reforms set by the State Council, Wenzhou cannot avoid such a great problem, it is really regrettable. In my opinion, if there are no financial supports, then finally the land reform in Wenzhou can’t actually work as supposed.

Originally published on Southern Metropolis Daily | 2013-9-6