The Guangdong directive gives rural residential landholders the formal right to sell (or "transfer") their land to residents of the same township, rather than only to residents of the same village — thus providing legal protection for an already common phenomenon. Theoretically, this will encourage the growth of more robust rural real estate markets and, in turn, help boost rural incomes. Through small measures like this one, which steadily boost the legal rights and economic opportunities available to rural landowners, Guangdong's (and the nation's) leaders hope to mitigate the growing rural unrest over issues of land expropriation, local government corruption and the urban-rural wealth divide. But just as important as what the mandate provides is what it leaves out: the sale of rural land by the rural landowners themselves to urban residents and, by extension, to urban property developers and speculators.
The omission is not accidental. As Beijing is aware, any move to fully open rural-to-urban real estate markets (that is, to allow rural property owners to sell their land directly, on open markets, to urban developers) is politically and economically impossible, at least for now. It would effectively cut out local governments, which for the last decade have been the essential middlemen in China's real estate system, relying largely on land sales for revenue generation since Beijing's centralization of tax revenues in 1994.
Certainly, efforts to reinforce rural landowners' legal rights are not limited in scope to property markets. The question of rural land ownership and development must be seen in the context of much broader issues like agricultural modernization and urbanization — both of which hinge, in large part, on where China's 700-million-strong rural populace moves and works over the coming decade. Nonetheless, the near-term consequences of such directives will be felt most strongly by local governments and the property markets they rely on to fuel both their expenditures and their mounting debt.
Under the current system, only land designated as urban can be sold for urban property development, and only urban local governments can legally sell it. This creates a number of problems, especially as cities expand physically and use up the designated urban land. With less and less free urban land at their disposal, local governments have been forced to look beyond their traditional urban borders for land to sell.
For many local governments, the logical alternative has been to buy and sell rural land in surrounding areas to turn a profit. Often, they expropriate this land from rural landholders either directly, through eminent domain and the use of force, or indirectly by dramatically undercompensating farmers for their land. For years, land expropriation has been a source of low-level social tension in rural communities across China. But the issue gained new traction in late 2011 and early 2012, when villagers in Wukan and its neighboring towns in Guangdong launched large-scale protests and sophisticated media campaigns drawing international attention to local government power abuses. Following Wukan, the central government, fearful of appearing complicit toward local governmental corruption and land expropriation, has put land reform — and in particular the strengthening of rural landowners' rights — at the top of its domestic policy agenda.
As the central government understands, the only way to effectively solve the problem of land expropriation is to reduce local governments' reliance on land sales as primary sources of revenue. Likewise, the central government knows that eliminating this dependency is not feasible as long as the country's tax structure remains highly centralized (currently, more than 70 percent of tax revenues are retained by the central government). Reform of the tax structure is a complex task and in an economy the size of China's will take time. In the meantime, this leaves Beijing with few alternatives other than to continue letting local governments satiate their revenue needs through the best means available to them. And as long as local governments retain a structural dependency on land sales and high land values, Beijing has no option but to tolerate the inflated and increasingly unsteady property markets that dot the Chinese urban landscape. Land seizures and expropriation, as Beijing understands, are on some level the inevitable, if unintended, byproducts of its own policies: first the centralization of tax revenues in the 1990s, and now, on a much larger scale, the program of rapid urbanization.
Policy directives like the one published by the Guangdong provincial government on Aug. 5 must be understood in this context. They are intentionally miniscule in scope and intentionally more dramatic sounding than they ever could be in practice. The Aug. 5 directive will certainly help rural landowners, especially if and when it becomes implemented beyond pilot zones like Guangdong. It will widen, marginally, the markets on which they can sell their land, and in theory boost the profits they retain. But it is important to understand how short this mandate falls when compared to the structural reform Beijing continues to promise — the kind widely considered essential to the larger project of "economic rebalancing," which would require re-engineering China's property markets to cater toward first-time home buyers rather than speculators and land-hungry local governments. It is equally important to understand that this narrowness does not reflect a technocratic lack of imagination on the part of China's policymakers (as has often been charged in the past), but a sober reckoning of the extraordinary and often unavoidable structural barriers to reforming a political economic system as complex and interconnected as China's.
