Anticipation of land reform is running high in China, where a unique land system has hobbled urbanization.

Whether farmers will be granted the right to more money through trading their land is key to revitalizing the rural economy and speeding up urbanization, which the government has been pushing for years.

Details of land reform are widely expected to emerge from the plenary session of the 18th Communist Party of China Central Committee.

The land system is a fundamental institution that affects a country’s overall economic development. The ruling party’s decisions on land reform will change the current land laws and regulations, said Zheng Fengtian, vice dean of the School of Agricultural Economics and Rural Development at Renmin University of China.

According to Chinese law, urban land is owned by the state and rural land is under collective ownership. Farmers use the land but have no right to sell or develop it.

Since the 1990s, the property market has flourished in cities and has been a major engine of growth, while ownership rules for rural land have not changed in decades, constricting rural development.

Urbanization means hundreds of millions of farmers leaving the land to work in cities. As the profits from farming are far less than income from working in the cities, much land is now left uncultivated.

Aware of the problems, the government has experimented in many regions with new systems for rural land transfers. Now, farmers can only lease their land to other farmers or to rural cooperatives. For example, a vegetable cooperative at Shichaomen Village in Chongqing Municipality has more than 1,000 mu (66.7 hectares) of land under cultivation, originating from almost 700 farmers.

“Rent has risen to more than 600 yuan a year per mu (US$98) this year from 400 yuan in 2009,” said He Guoquan, head of the cooperative. “Farmers also share in the dividends.”

Restrictions on land transfer limit the rent farmers can make from their land. With no right to trade the land, those who move to the cities often live precariously, contribute little to domestic demand and do not enjoy the privileges of urban residents because of their rural origins.

With no hukou (urban household registration) in big cities, migrants cannot buy houses or register cars, nor avail themselves of medical care and education.

More secure foothold

Dismantling the hukou system would allow farmers transplanted to cities to exchange rural property rights for a more secure foothold in the metropolis. It could also provide the boost to consumption that the Chinese leadership fervently wants.

In a tour to the city of Wuhan this July, President Xi Jinping listened to reports on the progress of rural equity transactions, saying that the transfer of land must be done while respecting the will of rural residents, protecting farmland, ensuring food supplies and increasing rural residents’ incomes.

Xi called for further research on the relationship between ownership, contract rights and management rights of rural land.

On the back of galloping economic growth since the start of reform in 1978, China has urbanized. The urbanization rate has increased from just under 18 percent in 1978 to over 50 percent in 2012, but if you strip away migrant workers with no hukou, the “real” rate is much lower.

Speeding up urbanization is at the top of the agenda to boost domestic demand in a country determined to change an aged development model still based on exports and investment.

Urbanization means modernization and land reform holds the key to urbanization, claims Hu Shuli, a renowned economic columnist, in an article in the South China Morning Post.

Restrictions on land development must be eased, rules for land acquisition simplified, standardized registration of ownership introduced, and full rights awarded to farmers to freely trade land on the market, she said.

While farmers cannot trade their land, the law allows the government to acquire land for public use after compensating occupants. It may then legally change the land use, transferring the title to real estate developers at a substantial profit. This is currently a major source of income for some local governments.

Compensation to farmers is often insubstantial, and breeds simmering discontent and friction between farmers and local governments. Compensation for one mu of land is usually between 30,000 yuan and 50,000 yuan in villages while the profits at auction could be millions of yuan.

“Local government profiteering not only threatens food security but drives farmers to protest,” said Zheng Fengtian.

More money to farmers

A lot of farmland has been requisitioned in the past decade, generating enormous earnings for local governments while leaving farmers almost excluded from the revenues. The priority is to improve the farmers’ share by formalizing their rights of ownership, he said. Farmers have the right to use land but no specific tenure of ownership.

Gu Yikang, a professor at Zhejiang University, suggests farmers be given deeds of ownership. For those migrant farmers living in the cities, their ownership and management rights should be guaranteed.

Giving more money to farmers means breaking the government monopoly on land supply and reducing their earnings, so resistance from local governments is likely, said Zheng.