Tackling land abuse problem By Zhou Tianyong (China Daily) Updated: 2004-04-16 09:16
[The author is a researcher with the Central Party School.]
The central government is coming to grips with excessive land use and runaway
industries such as steel, cement and electrolytic aluminium, as worried scholars
and regulatory agencies have warned of the symptoms of unbridled economic
growth.
But a precondition of correct regulation is full understanding of the real
nature of the so-called "overheating" in some sectors, whereas
one-size-fits-all policies are uncalled-for.
How far are those sectors overheated? What are the causes, and how should we
cope? These questions require objective assessment of the current situation.
The abnormal boom in some sectors is mainly a result of some local
governments' investment mania, while investment from non-government sources is
not really overheated.
In particular, some local governments have launched major projects like
squares, skyscrapers and landscaped roads on borrowed capital without solvency
concerns.
Some State companies have also been reckless in investing - in many cases on
bank loans - which has brewed huge risks of creating distressed assets for State
banks.
The fever of economic growth will cool down when the excessive investment
from government-related sources is brought under control.
China is undergoing an age of heavy and chemical industries, with an
urbanization rate narrowly above 40 per cent. Colossal use of steel, aluminium
and cement is inevitable.
Years ago the administration tightened up the approval of power plants as it
feared their mass construction would lead to a surplus of electricity. As a
result, wide power shortages occurred amid the economic boom last year,
resulting in heavy losses.
Such lapses should be avoided now when it comes to handling the so-called
overheated industries.
Compared with the government's planning agencies, non-State investors who are
willing to put multi-million dollars in heavy and chemical industries are more
attentive to the market outlook and profitability of their ventures.
As long as the reckless bankers lending to these industries can be
restrained, there is no reason to impose tough control on investment from
non-State sources. Otherwise China's industrialization and urbanization drive
may suffer from a shortage of raw materials. Such control might also sour
international manufacturers' efforts to establish operations in China.
The industrial boom has been coupled with large-scale land development.
Considering the rise of grain prices and the growing number of farmers whose
land has been occupied by business projects, some analysts have suggested all
land use applications be subject to approval of central government agencies to
stop the abuse of farmland.
It is impossible to build up industries and metropolises without taking over
farmland, because farmland is mostly in plain areas and thus economical for
development.
Admittedly, problems accompany land development in many places. Too much
farmland has been occupied, and farmers lost their land so easily that they
barely received adequate compensation or economic guarantees.
But the real question for us to contemplate is: What is the root cause of
such abuse?
In my opinion, it is because of the land system which grants farmers no real
claim of land and permits the government's mandatory requisition of rural land.
If there was a clear-cut land property system that ensures fair land trade,
how could local governments and developers have afforded to procure so much land
from farmers to build luxury golf courses?
The compensation rate stipulated in the law for land requisition is too low.
That local governments - even for commercial purposes - can forcefully take over
rural land at a low cost is unfair. That farmers have only temporary, rather
than long-term right to use rural land is equally unjust.
In a market system, key economic resources like land, labour and capital are
distributed in line with market demand as well as price fluctuations.
Shall we solve the current land problems by building a sound property
system based on the market system, or simply by relying on the ways we used to
have in the age of a planned economy?
Past experience has proven that under circumstances in which distribution of
labour and capital has become market-oriented, centralized administration of
land use will distort economic operation and create a string of troubles.
It may take a foreign investor one or two years to go through all the
approvals with local and central administrations for only several hectares of
land to build a workshop. Capital lays idle, and a prime business opportunity
may well slip away.
It is also impossible to have a central bureau to deal with every land use
case rising from the fast changing economy. The centralized system by no means
guarantees efficiency and fairness, and is vulnerable to irregularities.
Worse, such a system will do immeasurable damage to the country's drive
towards industrialization and urbanization. Lengthy approval procedures,
especially in land-thirsty coastal areas, will hamper investment, which in turn
will prevent rural labourers from securing employment in cities.
However, once the rigid land use regulation slackens, problems such as
surplus rural labour forces, urban unemployment and stubborn non-performing
loans will worsen.
When navigating the economy in 2004, the government should differentiate
between government projects and non-government investment, and introduce a
market-based land use system.
The prime job of the government's regulation is to control projects launched
by local governments on borrowed money, especially those with poor solvency or
involving backpay to workers.
In contrast, the control on non-State or foreign-funded projects, even those
in steel, aluminium and cement, can be loosened so that the government incurs no
risks. But loans to these projects should be limited to no more than half their
capital portfolio in order to prevent financial risks being shifted to domestic
banks.
Another imperative is to reform the rural land system. A system for leasing
in perpetuity is advisable in order to allow farmers to enjoy permanent
interests from the transfer, lease and mortgage of land.
In particular, approval of land use should be handled by governments at
different levels according to the size and purpose of the land. The key is to
respect market rules and the property system.
There is no need to impose uniform regulation on the development of farmland,
which could affect China's great drive for industrialization and
urbanization.
