According to the Constitution and the property law of China, rural land is owned by "collective economic organizations" including natural villages, administrative villages and towns, according to circumstances. But in practice it is the administrative villages that usually take charge of rural land. Land was contracted out to rural households after 1978 under the "household-based contract system". This system gave farmers a contractual right to manage land, that can be defined as a sort of usufructuary right in terms of property law. These land management rights were exclusively available to villagers, as members of the economic organization, and gave them rights to possess, utilize, and profit from their contracted land for the term of their legal tenure. The tenure was initially set at 15 years, but when that term expired, the tenure was extended for another 30 years. In 2008, the central government, for the first time, announced that land rights would be fixed, and remain in force for much longer tenure periods. The process of land confirmation and registration is, therefore, of vital importance for each household, because the exact location and area of their contracted land needs to be clearly defined before it can be fixed, as in many cases boundaries have not been identified clearly by the farmers themselves, nor have they been registered formally by the authorities.

The ambiguity and instability of contractual land rights fundamentally hinders the circulation and trading of agricultural land and, therefore, the realization of economies of scale. According to recent data, over half of the rural labor force has already left the villages to work in urban areas, but only about 25 percent of agricultural land had been transferred by the end of 2013. On the one hand, farmers, unsure of their contractual rights, prefer to leave land in the hands of their elderly relatives, who farm it inefficiently, rather than transfer it to others who could farm it profitably, or they let out their land to relatives and acquaintance for short periods, because they are worried they may not be able to get their land back after leasing it. On the other hand, it is difficult for investors to assemble scattered plots of land from different households into units of a size that would allow for mechanization and the application of economies of scale. Furthermore, short tenancy agreements mean they have no incentive to invest in soil improvement, irrigation systems and other infrastructure.

Another effect of the ambiguity and instability of contractual land rights is that farmers cannot use their land in practical ways such as pledging it, or houses constructed on it, as collateral for loans, pooling land and becoming a stakeholder in larger holdings, and so on, because the law either restricts these options or provides no clear guidelines as how to implement them. And despite the fact that farmers possess notionally valuable property in land, when they become migrant workers, many cannot afford to settle in cities because they derive little benefit from their contractual land rights under existing land ownership institutions. This in turn slows down the urbanization process and economic development in general.

Although it is clear that rural land policy reform is necessary, the central government still needs to proceed cautiously, and enact legislation only after first conducting successful pilot programs.

The author is PhD student at the Rural Development Institute of the Chinese Academy of Social Sciences.