The Chengzhongcun Land Market in China: Boon or Bane? — A Perspective on Property Rights

Authors

  • LI TIAN

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    1. Department of Urban Planning, Tongji University, Shanghai, China
      Li Tian (litian262@hotmail.com), Department of Urban Planning, Tongji University, 1239 Siping Road, Shanghai 200092, China.
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Li Tian (litian262@hotmail.com), Department of Urban Planning, Tongji University, 1239 Siping Road, Shanghai 200092, China.

Abstract

Abstract

With the rapid expansion of China's cities since the 1978 economic reform, more and more villages have been swallowed up by urban sprawl. The retention of collective land ownership in chengzhongcun has, on the one hand, made low-rent housing affordable for migrants; on the other hand, however, it has exposed chengzhongcun to many social, economic and environmental problems. Based on a case study of chengzhongcun in Guangzhou, and using an analytical framework of property rights, this article has found that maintaining collective land ownership in chengzhongcun has been socially and economically costly, but a redevelopment strategy without a complementary affordable housing scheme may be problematic. In order to solve the problems of chengzhongcun, an institutional reform of collective land is required.

Résumé

Les villes chinoises s’étant rapidement étendues depuis la réforme économique de 1978, un grand nombre de villages a été absorbé par les tentacules urbains. La préservation d’une propriété foncière collective dans les chengzhongcun a permis que les migrants accèdent à un logement à loyer modéré, tout en exposant cet habitat à de multiples problèmes sociaux, économiques et environnementaux. S’appuyant sur l’étude de cas du chengzhongcun de Guangzhou et sur un cadre analytique de droits de propriété, cet article montre que le maintien de la propriété foncière collective dans le chengzhongcun s’est révélé coûteux sur le plan social et économique et que, par ailleurs, une stratégie de réaménagement sans un système de logement complémentaire accessible pourrait être problématique. Résoudre les problèmes du chengzhongcun appelle à une réforme institutionnelle des terrains collectifs.

Introduction

Over the last two decades, China has witnessed rapid urban growth. With the surplus rural labour unleashed by the de-collectivization program in 1978, rapid industrialization and a continuing large income disparity between rural and urban residents, the massive rural–urban migration has been overwhelming since 1980 (Liu et al., 2003). With accelerating urbanization and city expansion, many villages that used to be located on the periphery of the city have been engulfed by urban development. When such villages are faced by urban development, Chinese local governments adopt two different approaches: one is to convert all the village land, whether farming or residential, directly into urban land; the other is to convert part of it, mainly the cultivated part, into urban land, but to leave the status of the residential land unchanged so as to reduce the compensation and time cost. It is this latter process that leads to the emergence of chengzhongcun in the inner city.

The term chengzhongcun may be literally translated as ‘villages amid the city’. In reality, however, they are ‘villages’ only insofar as they are places where the title to the land still belongs to a collective (Li, 2006). In this article, chengzhongcun are distinguished from what geographers call ‘urban villages’— where residents share cultural or racial characteristics (Johnston et al., 1995) — and also from villages on the city fringe, where land is often acquired at a low price, and compensation is not sufficient for former farmers to maintain their standard of living (Bao and Hu, 2003). Chengzhongcun are not common in China, but they are typical of some southern cities. The term mainly refers to villages with a heterogeneous population and land use that are encircled by the inner city but where ownership of the land is retained by village collectives.

In China, collective ownership and state ownership of land coexist. Under the Land Use Rights (LURs) system, urban land can only be acquired after paying LURs fees,1 but collective land is allocated to farmers and village committees free of charge. Once encircled by the city's built-up area, villagers in chengzhongcun have taken advantage of the fact that their land is located in prime positions and exploited it for profitable purposes, either by providing low-rent housing for migrants or by building structures for commercial use.

Recently there has been a crop of sociological studies about the urbanization of villages in China. Some focus on the reorganization of social-relations networks in villages within large cities (Ma and Xiang, 1998; Xiang, 1999; Liu et al., 2003); some are concerned with the social stratification of villagers (Li, 2002); some deal with the role of chengzhongcun in providing affordable rental housing (Zhang et al., 2003). Interestingly, the part that chengzhongcun play in city development has been quite controversial. Although the low-cost self-help residential units in chengzhongcun are regarded as a substitute for affordable and accessible state housing when none has been provided for rural migrants (Zhang et al., 2003; Li, 2004), the Chinese media are much more likely to criticize chengzhongcun for their problems, such as chaotic land use, dilapidated housing construction, disintegration of public security and the environment, severe infrastructure deficiencies, intensified social disorder, large windfall gains for urban villagers and the deterioration of the cityscape (Tian, 1998; Zheng, 2000; Gransow, 2002; Liu and Yang, 2004). Recent literature has provided a diversified understanding of social and economic life in these villages. Little research, however, has probed the rationale and problems of these villages from the perspective of property rights, particularly the core issue — conflicting legal and economic property rights covering the collective land in these villages. This article is an attempt to fill this gap by analyzing the ambiguity of collective land property rights in chengzhongcun.

This research is based on several sessions of field work undertaken by the author in Guangzhou, as well as the scrutiny of relevant policies. It is organized as follows: the next (second) section examines the institutional background of dual land ownership in China; the third section briefly traces the emergence of chengzhongcun. The following section describes the socio-economic characteristics and problems, taking Guangzhou's chengzhongcun as case studies, while the fifth analyses the collective land in chengzhongcun from the perspective of property rights. The sixth section considers the attitudes of the government and indigenous residents towards the renovation of chengzhongcun, and the seventh concludes with the policy implications for regenerating chengzhongcun.

Dual land ownership: institutional arrangements in the emerging land market

The role of property rights in reducing transaction costs and facilitating economic growth has been emphasized by many scholars (Demsetz, 1967; Furubotn and Pejovich, 1972; North, 1981; Cheung, 1982; Bromley, 1991; Eggertsson, 1993; Barzel, 1997). They state that a complete and definite specification of individual property rights diminishes uncertainty and tends to promote the efficient allocation and use of resources. Nonetheless, in an imperfect world, the transaction costs of establishing clearly defined property rights may be astronomically high. There are two aspects to property rights, economic rights and legal rights, which Barzel (1997) defines as follows. Economic rights over an asset consist in the individual's ability to consume the services of that asset. According to this definition, an individual has fewer rights over a commodity that is prone to theft or restrictions in its exchange. Legal rights are defined as what the government delineates and enforces as a person's property. Legal delineation is both costly and incomplete, and rights to assets will not be perfectly delineated when transaction costs are positive. Since property rights have never been perfectly delineated, some valued assets will be left in the public domain, subject to open access. Capture of values in the public domain is nevertheless not costless, and the resources spent by competing parties are sometimes dissipated since these assets are not secured.

Moreover, in reality, property rights are far from being flexible. Eggertsson (1990) emphasizes that property rights often lag behind changes in the environment and act as brakes on economic development and growth. North (1996) argues that the introduction of particular formal rules is sometimes futile because where there is a mismatch between formal and informal rules, the formal rules will not be enforced. Conversely, a better understanding of the role of informal institutions could be of help in designing formal rules that would take advantage of existing informal rules and could rely extensively on self-enforcement.

Compared with other radical departures from the past, change in the area of property rights has been ambiguous in China (Li, 1996). Cheung (1982) argues that the Chinese government deliberately created a vague property rights system to leave the state free to alter the rules at will. What role property rights have played in China's reforming economy is very debatable. On the one hand, institutional changes have been regarded as paving the way for China's successful economic reform, and they have removed constraints on local government autonomy and injected strong economic incentives for local government to be entrepreneurial (Oi, 1996). On the other hand, Chinese reform has been often criticized for its unsystematic approach, and the rules are not clear. This ambiguity increases uncertainty, encourages corruption, raises costs, and reduces the incentive to invest (Rawski, 2001).

Under the trial-and-error approach adopted for economic reform, gradualism, involving the coexistence of new and old systems, has been reflected in major economic and institutional changes. The land market is no exception. The coexistence of collective and state ownership in land has been designed to develop the agricultural economy and alleviate the rural–urban income disparity. According to the revised 1998 Land Administration Law, all urban land belongs to the state while land in rural districts and villages belongs to collectives. Collective land belongs to various farmers’ economic units such as farmers’ cooperative societies or village committees. Besides, Article 43 stipulates that ‘Any individual or work unit requiring the use of state land has to apply for planning permission to the relevant government departments; the construction of village-enterprises, farmers’ housing, and village public facilities on collective land, however, can be exempted from this application’. The 1998 Land Administration Law, therefore, manifests a double-track system in both land ownership and land use management. While the establishment of the Land Use Rights System in 1988 has allowed the lease, transfer and sale of urban land at different time limits, in rural areas collective ownership has allocated farmers plots of land that they can use for cultivation and for building their own houses (this land is called zhaijidi in China). Collective land can be inherited, but it cannot be converted to urban use without going through legal procedures. Through strictly drawing a line between urban land and collective land, the Chinese government has created a dual land management system.

The double-track land use system is uniformly implemented all over the country. Ho (2001) reveals that central government has deliberately avoided systematic land registration and left collective ownership legally undefined. The reasons behind this are fear of large-scale social conflict, on the one hand, but also a wish to create space for regional experimentation with tenure arrangements. The poverty in many rural areas and the long tradition of farmers’ dependence on land justifies allowing farmers the benefit of using collective land free of charge. Nevertheless, in some developed cities, with the soaring land prices generated by rapid expansion and government investment, urban land has become a more and more scarce resource. The increase of land value in chengzhongcun has provided farmers with dramatic incentives to develop their collective land for profitable use in order to maximize their wealth.

The emergence of chengzhongcun in China

Rapid urbanization and rural–urban disparity

In China, the urban population increased from 172 million in 1978 to 562 million in 2005 — as a proportion of the total population, it grew from 17.92% in 1978 to 42.99% in 2005 (China National Statistical Bureau, 2006), which represents a great leap forward in urbanization. According to the Chinese Census in 2000, the floating population2 reached 121 million, which was nearly 10% of the total population. The rapid growth in urban population has triggered huge demand for urban land. Official statistics demonstrate that while the urban population increased by 86% from 1990 to 2005, the built-up area increased by 112% within the same period (Chinese Statistical Yearbook, 2006).

The rural–urban income gap has been regarded as a main reason for Chinese income disparity, and it has been considerably enlarged since China's economic reform (Chang, 2002). According to the Chinese Statistical Yearbook (2006), the disposable income ratio of urban residents and rural residents was 2.21, 2.79 and 3.21 in 1990, 2000 and 2005 respectively. Owing to the huge urban–rural income disparity, tens of millions of migrants from the countryside swarm into the city to look for job opportunities, and their labour contributions to the urban economy have fuelled rapid growth. Their presence in the cities, however, places new stresses on existing systems. First and foremost among these is their pressing and great demand for inexpensive rental housing. But China's household registration system makes public and affordable housing inaccessible to these migrants. Wang (2000) notes that there are two groups of urban poor in Chinese cities — the poor among the official urban residents and the poor rural-to-urban migrants — and concludes that while the housing problems of the official urban poor have been recognized, there is no formal policy in relation to housing provision for the unofficial poor. Therefore, as local farmers have discovered that building rental housing can be more lucrative than growing cabbages, nominally agricultural parcels under the administrative control of village committees are now being utilized for the construction of high-density rental accommodation (Leaf, 1998), resulting in booming informal housing markets in chengzhongcun during the recent decade.

Farmland requisition approaches

In China, farmland requisition approaches vary from city to city (see Figure 1). In many cities, such as Beijing and Shanghai, local governments convert all village land, both land for farming and land for zhaijidi, into urban developable land after paying compensation to villagers. Correspondingly, the villagers who lose farmland are transformed into urban residents. There is limited room for negotiation on compensation terms, and the affected collectives and individuals have to comply with the standard codified in the 1988 Land Administration Law (updated in the 1998 Land Administration Law). Article 47 stipulates that the compensation consists of three parts: land compensation, relocation compensation and property compensation. Land compensation is calculated as six to ten times the average annual output of the farmland in the previous three years, and the relocation compensation is based on the size of the affected household. The property compensation standard is set down by local governments, and it covers a range of collective-owned and private-owned structures or other farming facilities, including fishponds, water irrigation projects and buildings. Compensation is paid to the collectives or individuals who own the property. If the total compensation is not enough for affected farmers to maintain their previous living standard, local governments can increase it, but the total compensation should not exceed 30 times the average annual output of the farmland in the previous three years.

Figure 1.

A schematic illustration of two different farmland requisition approaches (source: author's drawing)

Cities in the Pearl River Delta (PRD), however, adopt a different approach. For example, in order to reduce the time and compensation cost generated by large-scale and rapid city expansion, in 1995 the Guangzhou Municipal Government issued a ‘Regulation on Land Management in Guangzhou’. Article 14 states that farmland can be requisitioned for urban use after compensation is paid to farmers, but farmers’ can retain zhaijidi land so that local governments avoid paying compensation for their relocation. Likewise, farmers can maintain their identity status as farmers. As an incentive for farmers to give up their farmland to urban use, 8–12% of the acquired farmland area can be returned to village committees as so-called Economic Development Land (EDL). EDL can be used for profitable purposes operated by village collectives, or simply rented out to developers with some shares held by village committees, but it cannot be transferred or traded. In other cities, such as Shenzhen, Zhuhai and Shunde, similar policies have been adopted to facilitate land requisition (Guangzhou Urban Planning Bureau and Zhongshan University, 2001). As a result, chengzhongcun emerged extensively in the PRD.

Chengzhongcun in Guangzhou: rationale, socio-economic characteristics and problems

Guangzhou is the capital of Guangdong Province, located in the south of China. It is one of the fastest growing cities in China. Its built-up area expanded from 136 square kilometres in 1980 to 298 square kilometres in 2000 (see Figure 2), correspondingly, the urban population soared from 5 million in 1980 to 10.1 million in 2003.

Figure 2.

The rapid expansion of Guangzhou during the last century (source: Guangzhou Urban Construction Archives)

For historical and climatic reasons, agriculture has been well developed in the Guangzhou area. With the implementation of the EDL policy, Guangzhou became the city with the most chengzhongcun in China. According to its aerial map of 1998, the total land area of the 120 villages within Guangzhou was 30.1 square kilometres, accounting for 11.6% of the total built-up area. The population in these villages (including tenants and villagers) was 1.2 million, accounting for 30% of the total population of the built-up area. The number of villages increased to 139 by the end of 2001, and these villages are scattered throughout the city (see Figure 3).

Figure 3.

The distribution of chengzhongcun in the built-up area of Guangzhou (source: Guangzhou Urban Planning Bureau, 2000)

Demographic and economic characteristics

In chengzhongcun, the villagers' residency status has been converted to a non-agricultural one. However, old inherited methods in the administrative systems and operating mechanisms within the chengzhongcun still remain, leading to the coexistence of the urban and rural administration in built-up areas of the city. In comparison to urban residents, villagers in chengzhongcun are allowed certain privileges such as zhaijidi land and two children.3 Therefore, they are reluctant to be converted into urban residents.

Investigation has shown that there are usually more migrants than indigenous residents in chengzhongcun. Table 1 illustrates the demographic information from several. Unlike Zhejiang village and Wenzhou village in Beijing, where kinship and being born in the same township form the mainstay of social relations (Ma and Xiang, 1998), chengzhongcun in Guangzhou are heterogeneous migrant settlements characterized by diversity of occupation and birthplace. Table 2 reflects the prosperous collective economy in several chengzhongcun. It can be seen that the agricultural economy has almost disappeared in these villages, and services such as a wholesale market, hostels and other commercial undertakings dominate the village economy.

Table 1.  Demographic information in selected chengzhongcuns in 2000
 No. of migrantsNo. of indigenous residentsRatio of migrants to indigenous residents
  1. Source: Guangzhou Urban Planning and Survey Institute, 2003

Shipai village30,00011,5002.61 : 1
Sanyuanli village20,0009,7192.06 : 1
Yaotai village16,00012,2601.30 : 1
Xiaogang village15,8737,2202.20 : 1
Yuanjing village21,6464,9154.40 : 1
Table 2.  Collective economy in selected chengzhongcun in 2000 (in millions of yuan)
 Total GDPGDP in agricultureGDP in industryGDP in services
  1. Source: Guangzhou Urban Planning and Survey Institute, 2003

Sanyuanli village194.011.0183.0
Shipai village260.0260.0
Xiancun village400.0400.0
Yuanjing village71.81.770.1
Tangxi village228.71.133.3194.3

Table 3 is from a survey conducted in 2001 in Liede village, a chengzhongcun in the planned central business district of Pearl River New Town (Guangzhou Urban Planning Bureau and Zhongshan University, 2001).4 It reveals that the majority of tenants were young and that their education level was slightly higher than that of indigenous residents. Earnings from renting and the bonus from the collective economy were the indigenous villagers’ main source of income, and their average income was higher than that of urban residents in the late 1980s and early 1990s.5 Around 80% of indigenous residents did not have jobs, and the other 20% worked in factories or ran their own businesses. More than 90% of the tenants were from other places in the country, and they mainly worked in construction, services and industries (61%).

Table 3.  Characteristics of residents in Liede village
 % Indigenous residents% Tenants
Gender
 Male55.045.0
 Female62.038.0
Age
 Below 208.0
 20-4038.676.0
 40-5031.218.0
 Above 5023.26.0
Education
 Elementary school and below20.014.0
 Junior high school30.036.0
 Senior high school38.038.0
 Higher education12.012.0
Occupation
 Industry3.015.0
 Construction & services6.046.0
 Self-employed11.014.0
 Other80.025.0

Chengzhongcun as migrant settlements

Generally, the housing conditions of official urban residents have improved substantially in Guangzhou within the past two decades, and living space per capita has increased from 6.9 square metres in 1986 to 18.7 square metres in 2005 (Guangzhou Statistics Bureau, 2006). These figures, however, do not show the housing conditions of the unofficial urban poor. Rural-to-urban migrants are often excluded from the urban housing market on grounds of affordability and eligibility, and the long-standing neglect by local governments of their housing demand makes affordable housing more difficult for them to access. Lack of access to subsidized housing has made migrants’ housing conditions the poorest in the city.

Table 4 highlights the housing affordability situation in Liede village. The income of 76% per cent of tenants was less than RMB 1,000 per month, much lower than the average income of an urban resident (RMB 1,590 per month per capita) in Guangzhou in 2001. A small proportion of tenants (about 6%) with the median income or more lived in homes in a small new residential area of Liede, where the physical environment was much better. More than 85% of tenants chose to rent in Liede because the cost was low and the location was convenient. Table 4 also shows that Liede provided rented housing at various levels, even for below RMB 200 per month. The rent was much lower than that of authorized units in similar locations, where the rent was around RMB 1,000 per month for a one-bedroom apartment.

Table 4.  Income and rent of tenants in Liede village
Income per month% of intervieweesRent per month% of interviewees
<¥50024<¥20022
¥500–1,00052¥200–30038
¥1,000–2,00018¥300–50028
>¥2,0006¥500–80012

With their low rents, chengzhongcun have become the most popular places for low-income migrants. In 2001, around 80% of Guangzhou's 1.2 million migrant workers lived in the 85,000 rental units or temporary dwellings on the vacant land of chengzhongcun, and the average rent of houses in chengzhongcun ranged from only one-fifth to one-half of that of authorized urban units within similar locations, though the latter were of much better quality (Guangzhou Urban Planning and Survey Institute, 2003).

A dilapidated environment and a high crime rate

Given the limited land resource and high population density, land use regulations are usually stringent in urban areas, and violations can incur a heavy financial punishment. Compared with urban land, farmers' self-help houses are much less regulated. The construction of houses is only subject to the approval of a village committee, rather than that of the city planning department. The lack of regulations and management has led to chaotic land use and slum-like settlement in chengzhongcun. Overlapping residential, industrial and commercial uses of land, mixed new and old apartments, crowded buildings — all of these have created an anomaly in the whole fabric of the city (see Figure 4). The weakness of control has also led to environment and security problems in these chengzhongcun. Residential buildings with five or six floors are no longer uncommon; some have eight or nine floors and no lifts. There is hardly any space between the houses, only narrow dark alleyways. They are described as ‘houses extending their hands to each other’ or ‘houses in the act of kissing’ (see Figure 5). Fire engines cannot enter these chengzhongcun because the roads do not meet the basic requirements of transportation and fire control standards. The infrastructure facilities are accessible to residents, but their quality is very low. Electricity and telecommunication wires, as well as water and gas pipelines, are in disarray; sewers frequently become blocked. Garbage is everywhere, creating dirty corners; open space and public services are extremely scarce; hairdressing salons and hostels are code words for ‘pornographic places’ in these villages. Drug abuse and crime are not unusual (Gransow, 2001). Around 75% of criminal cases and 80% of unauthorized buildings were reported from chengzhongcun in Guangzhou in 2003 (interview with officers of the Guangzhou Public Security Bureau on 20 May 2005). In the adjacent city of Shenzhen, the situation was no better. Around 70% of crimes and 90% of unauthorized building were from chengzhongcun in 2003 (People's Daily, 26 October 2004).

Figure 4.

Chengzhongcun landscape, Guangzhou (source: Li, 2004)

Figure 5.

Physical environments in chengzhongcun, Guangzhou (source: author's photographs)

Rent-seeking behaviour of villagers in chengzhongcun

In chengzhongcun, ‘farmers’ are no longer farmers; they are more like landlords who earn their living through collecting money from their freely allocated land. Due to the unwillingness of villagers to release their income information, the data are not available. Some fragmented data, however, can illustrate the wealth of these villagers. For instance, the average household income of Sanyuanli village from bonuses from the collective economy reached ¥35,000 in 1999, and this figure did not include the household's income from renting out their houses. The average disposable household income of urban residents, however, was only ¥27,109 in the same year.

A large difference between chengzhongcun in China and self-help housing in many other countries is that elsewhere self-help houses are built by the migrants themselves to make a living, but houses in chengzhongcun are built by indigenous residents to make profit through rent-seeking behaviors. Encircled by the rapidly growing cities, chengzhongcun have benefited from good locations and the government's investment in the public facilities in the surrounding areas, and their land value has greatly increased. The incremental land value, however, has not fallen into the coffers of the municipal government, but been captured by village committees and indigenous residents.

In the 1990s, the village committees of many chengzhongcun collected money from indigenous residents and built apartments (jizi houses) for sale with the profits shared among the villagers. Because the sale of ‘jizi houses’ conflicts with national legislation under which collective land can only be transferred among farmers and village committees, buyers of jizi houses cannot be granted legal title. In order to reduce construction costs, the quality of jizi houses is very low. Most of them do not meet the basic requirements of the building codes such as fire and quake control standards, leading to potential security risks. The price of these jizi houses, however, only ranges from one-half to one-fifth of the price of houses with legal title in similar locations (Li, 2004). From 1990 to 1998 the total floor space of jizi houses amounted to 12 million square metres in Guangzhou, whereas the total authorized completed floor space of commodity houses was 39 million square metres, indicating that the informal housing in chengzhongcun had a considerable impact on the urban housing market. Likewise, the use of EDL is often outside urban land use regulations or management. Usually the EDL is rented out as commercial space for such things as shops, hotels, wholesale markets and even factories. Table 5 reveals that EDL accounts for a large proportion (more than 50%) of the total land area of chengzhongcun. Owing to the fact that land use is free of charge, EDL is more competitive in the rental market than urban land. The large scale of EDL has somewhat distorted the price mechanism of the urban land market, although so far a quantitative analysis has not been conducted.

Table 5.  Land use categories in Guangzhou chengzhongcun in 2000
 % EDL% Zhaijidi land% Other
  1. Source: Guangzhou Urban Planning and Survey Institute, 2003

Sanyuanli village76.9921.791.22
Tanxi village54.5334.8210.65
Xiaogang village56.7431.3911.87
Yaotai village70.8418.2210.94
Yuanjing village64.5135.080.41

A case of chengzhongcunchengzhongcun in the Pearl River New Town

In 1992, the Pearl River New Town (PRNT) was designated as the new CBD of Guangzhou city. According to its plan, the PRNT covers a land area of 6.68 square kilometres and its overall floor space reaches 13 million square metres (see Figure 6). From 1992 to 2000, the Guangzhou Municipal Government invested ¥4.5 billion in its infrastructure facilities and land servicing, which led to soaring land prices in this area.

Figure 6.

Chengzhongcun in the PRNT (source: Guangzhou Urban Planning Bureau, 2003)

In the PRNT three villages, Liede, Xiancun and Tancun, were retained, and their zhaijidi land area was 52.2 ha. Moreover, 97.8 ha of EDL for several other villages whose land was acquired for urban construction was allocated in the PRNT. Therefore, a total of 150 ha of land, covering 20.46% of the PRNT's total land area, was designated as EDL in the PRNT. Among the 402 plots of the PRNT, there are 123 plots for EDL, 99 plots for public facilities and open space, and the remaining 180 plots for profitable uses. Their respective proportions in total land area are shown in Table 6.

Table 6.  Land use categories in the Pearl River New Town chengzhongcun in 2000
Land use categoriesLand area (ha)% of total land area
  1. Source: Guangzhou Urban Planning Bureau and Urban Planning and Survey Institute, 2003

EDL and zhaijidi15022.46
Public facilities, open space and road26038.92
Land for profitable use25838.62
Total land area668100.00

Recognizing the large potential value of chengzhongcun land, village committees have long endeavoured to canvass the Guangzhou Municipal Government for the transfer of EDL. Under the huge pressure from chengzhongcun, on 4 February 1999 the Municipal Government issued a permission which allowed the EDL to be developed in partnership with developers in the PRNT (Guangzhou Urban Planning and Survey Institute, 2003). Moreover, the LURs fee for the villagers' share was exempted, and their partners only paid the LURs fee at ¥700 per square metre of floor space, irrespective of use category. Meanwhile, in 1999, the average price per square metre of floor space was ¥2,400 for residential use and ¥2,800 for commercial use and offices in the PRNT (Guangzhou Urban Planning and Survey Institute, 2003). A rough estimate shows that the government has given up ¥1.8 billion of revenue because of the EDL policy in Pearl River New Town, which covers around 40% of government investment (Guangzhou Urban Planning and Survey Institute, 2003). This figure does not include the potential revenue loss from zhaijidi land.

It has been 14 years since the plan of the PRNT was formulated. Only 30% of the planned new construction, however, has so far been finished (Guangzhou Urban Planning Bureau, 2006). The reasons why the plan could not be implemented are multiple, for example, the influence of the 1997 Asian Financial Crisis. Nevertheless, Guangzhou planners argue that the chaotic collective land market has distorted the price mechanism of the land market in the PRNT, and is, therefore, one of main reasons for the failure of planning implementation.6

An institutional analysis of chengzhongcun collective land

The evolution of the collective land rights system in China

Since the founding of the People's Republic in 1949, China has experienced three major agrarian reforms. In the early 1950s, by expropriating land from landlords and distributing it to landless peasants, China created a stratum of private smallholders. The second land reform came with a campaign of collectivization in the mid-1950s. During the process individual farmers were compelled to join collectives. The collectivization finally developed an institution called the People's Commune (Chen et al., 1999). In the early 1980s, with the launch of the economic reform, a Household Responsibility System (HRS) was established, which returned farming decisions and residual claimancy of the agricultural surplus to rural households. While the HRS uniformly individualized residual income rights throughout China, localities had considerable leeway in the exact package of property rights extended to households (Brandt, 1997). Rural collectives have contracted agricultural land to rural households for land production, and have retained their authority to assign existing rural construction land for use as housing sites for its members, enterprise sites, and sites for public works and public welfare undertakings (Ho and Lin, 2003). Collective land, however, is strictly prohibited from entering urban land markets. Therefore, although chengzhongcun are within the boundary of a city, a rural collective land market and an urban land market coexist.

Administrative structure of collective land use

In the early 1980s, the commune system under the planned economy was dismantled in rural China, and it was replaced by a new administrative hierarchy, namely, (in descending order) the township/town (xiang/zhen) → the administrative village (xingzhengcun) → the natural village (zirancun). In accordance with the revised Land Administration Law (Articles 8 and 10), the land owned by the farmers' collective is by law owned by the farmers' collective of a village, and managed by the village collective economic organization or the villagers' committee.

Since the beginning of the reforms, many Hong Kong enterprises have moved to the PRD to look for cheap land and labour owing to its adjacent geographical location and the historical kinship between Hong Kong businessmen and local residents in the PRD. Driven by the incentive of attracting investment in the factories, many towns have designated a great deal of land for industrial use. The town government not only makes decisions for the village (including the administrative village and natural village) but also retains a certain amount of money from the lease to invest in factories or other uses. Therefore, the non-agricultural use of collective land has involved not only the village committee but also the higher-level town government.

Meanwhile, with the large scale and rapid speed of urbanization, much farmland on the periphery of the city has been, or will be, converted to non-agricultural purposes. Municipal governments have strong incentives to acquire land to open up local revenue from land leasing. In the PRD, due to a vibrant economy, town governments and village committees are expecting much higher standard of compensation than that stated in the 1998 Land Administration Law.

One method frequently used by town governments and village committees to prevent local governments from acquiring their land at a low compensation standard is by adopting the land share-holding system. Under this system, collective land is designated for various uses: industrial, commercial, farming and residential use, with all land shared among village residents and village enterprises. Through the land use designation, local government cannot acquire the designated industrial land at the compensation standard applicable to farmland. Cai (2003) argues that the share-holding system has been a significant institutional change in rural China. The land share-holding system was first adopted in the city of Nanhai, which is located to the west of Guangzhou, in 1993 and gradually introduced by many other PRD cities, including Guangzhou and Shenzhen. Village committees and peasants have benefited substantially from the land share-holding system. According to the Guangzhou Urban Planning and Survey Institute (2003), in the eastern part of the city, the average compensation for farmland requisition was ¥21,000 per Mu in 1994, but it jumped to ¥180,000 per Mu in the late 1990s. The compensation standard has been subject to negotiation between local government, town government and village committees rather than remaining at the level stipulated in the 1998 Land Administration Law.

Property rights over chengzhongcun collective land

Incomplete and non-marketized property rights over collective land

With the land reform of 1988, the marketization of LURs has spurred much more efficient land use within the last nearly two decades than in the period under the planned economy. The use of collective land, however, has not been officially marketized. In theory, the ownership of land in rural China is clear, but the property rights of farmers are very incomplete. According to the 1998 Land Administration Law, collective land cannot be converted to urban use, unless this conversion is approved and compensation is paid by the state. The incompleteness of property rights in collective land is apparent in the following four aspects: (1) the transfer of collective land can only occur among farmers, or village committees and enterprises, and the transfer between collective use and urban use is strictly prohibited without approval by the state or without going through the requisition procedure; (2) the income rights of farmers from land are limited to rural use or use for collective enterprises; (3) collective land cannot be mortgaged; (4) compared with the long leases of urban land,7 the individual lease of collective land is much shorter (30 years) and subject to expropriation by the state. With many restrictions on income, transfer and sale, property rights over collective land can only be regarded as non-marketized. Although the collective land in chengzhongcun enjoys good locations in the city, its market value has not been officially acknowledged by the legislation.

Legal rights and economic rights to chengzhongcun collective land

According to Barzel (1997; 2002), legal rights can enhance economic rights, but the former are neither necessary nor sufficient for the existence of the latter. A major function of legal rights is to accommodate third-party adjudication and enforcement, and the precise definition of the legal rights that the state will enforce depends critically on the transaction costs involved in delineating rights and adjudicating disputes. Cheung (1982) classifies transaction costs into two categories: (1) those incurred in the operation of an institutional arrangement; (2) those incurred in adopting or changing an institution. Transaction costs in delineating the property rights over chengzhongcun collective land include the costs associated with the fear of political unrest, the negotiation cost between the collective and the state, the difficulty in enforcing the contract between farmers and the state owing to the historical lax management of rural land, etc. These costs are so high that property rights over collective land remain poorly delineated, and the potential for wealth capture is prevalent in the informal land markets of chengzhongcun. Therefore, some wealth spills over into the public domain, and villagers spend resources to capture it. This is characterized as ‘capture’ because, in contrast to a market exchange, the original owner, the state, does not receive what the recipient, the villager, expends (Barzel, 1997).

Owing to the incompleteness of property rights, the villagers in chengzhongcun enjoy fewer legal rights than legal city dwellers even though the locations and nominal economic value of their land are almost identical. When rights cannot be fully defined economically, the general principle is that the greater a party's inclination to affect the mean income an asset can generate, the greater is the share of the residual that party should assume (Barzel, 1997; 2002). Economically, the rights over chengzhongcun collective land remain poorly delineated, which has left valuable assets in the hands of collectives and villagers of chengzhongcun, which they can exploit for profit.

Externality and regulation of collective land use

Land value largely depends on the advantages of the location and decisions concerning the use of neighbouring sites — what economists refer to as externalities, those impacts (positive or negative) that are not reflected in the pricing system of land (Loughlin, 1988). Because of the lack of regulation and difficulty in enforcing regulation, negative externalities are widespread in chengzhongcun.

In Coase's view (1960), on efficiency grounds the solution to externality is not simply to restrain the damaging party, but to allow the involved parties to establish a mutually agreed scheme to share the responsibility of ‘internalizing’ the negative externality. Therefore, contracts play a key role in internalizing externalities. Cheung (1970) attributes the mushrooming of alleged ‘externalities’ to the following factors: (1) the absence of the right to contract; (2) the presence of a contract but with incomplete stipulations; and (3) the presence of stipulations that are inconsistent with some marginal equalities. The booming externality in chengzhongcun is generated precisely by the lack of a clearly formulated contract and regulations, and by weak management.

In China, there is stringent control over urban land use, relating to matters such as type of land use, floor area, building height and space between buildings, due to the high population density and possible significant externalities among different types of land use. To enforce land use controls, a land contract, which clearly states the rights of land users and the state, has to be signed before the land user can acquire LURs, and the violation of contract can incur litigation. Comparatively, land use control in rural areas is much weaker. In China, there are pathetically few national regulations to do with rural land use, and so far there is only the Regulation on the Construction, Planning and Management in Villages and Towns, promulgated in 1993 (the 1993 Regulation hereafter), to guide land use in rural areas. According to the 1993 Regulation, if a village is within the boundary of a county, its land use has to comply with the land use plan of the county. However, if it is within the boundary of a city, its land use is subject to the town's master plan, and beyond the scope of the city's master plan. Consequently, construction in chengzhongcun is subject only to the approval of town governments and village collectives. City planning and building controls can only be applied to urban land and do not cover collective land. Moreover, the violation of land use controls on collective land has long been overlooked by national inspectors,8 and any punishments handed down have also been very light.

Since the town government and village collectives can benefit from land leasing, they are motivated to utilize land as much as possible (Li, 2004); for example, the prevalent jizi housing problem emerged with the direct participation of village committees. The combination of rent-seeking opportunities in chengzhongcun and the lack of a regulatory framework to control collective land use have caused extensive illegal structures to blossom in these chengzhongcun. Therefore, from the point of view of a regulatory framework, property rights in rural land are completely segregated from the market created by the urban land reform in China (Li, 2006).

Undeniably, chengzhongcun have contributed to the provision of low-cost housing for the mass of rural-to-urban immigrants, thus somewhat alleviating the problems of housing affordability, which most governments in the developing world cannot tackle (Zhang et al., 2003). However, with city expansion, chengzhongcun have caused more social and economic problems, and local policy makers are eager to explore policy implications of regenerating them.

Responses from the government and indigenous residents of chengzhongcun

Village committee and residents' resistance to renovating chengzhongcun

Realizing that chengzhongcun have created problems for public security and the environment, municipal governments have been seeking a strategy to restructure this discordant element in the urban fabric. Nevertheless, given the complicated institutional contexts and resistance from the farmers, renovating these chengzhongcun seems a very difficult task, both politically and economically.

Table 7 reveals the results of a survey carried out in the Liede village. The indifference of tenants is understandable, and it is not surprising to learn that most indigenous residents are not interested in the renovation, and that only 9.2% of them regard the renovation as necessary. According to the survey, only 13.8% of the residents are willing to pay for the renovation. The uncertainty that comes with the redistribution of the collective assets also weakens residents' confidence in the renovation.

Table 7.  Attitudes towards renovation in Liede village
 % Indigenous Residents% Tenants
Necessary9.210.1
Unnecessary31.323.8
Indifferent59.566.1

The social survey further illustrates the difficulties of renovating this village: despite worsening environmental and social problems, native residents and tenants showed little interest in renovation. Thanks to their powerful economic position, native residents with vested interests have become politically stronger and stronger. They can envisage their land values increasing with city expansion, and therefore have high expectations of compensation and relocation. Tenants were indifferent to the future of chengzhongcun, and where to find affordable housing seems beyond their immediate consideration.

As Cheung (1982) states, any institutional change which entails a modification of the structure of property rights necessarily results in a redistribution of income, and those in a position to influence the rules will strive to retain or alter them, whichever will improve their own chances. It is understandable that indigenous residents are reluctant to change the status quo. Any renovation program will cause the redistribution of interests among the stakeholders, and it will not succeed unless a policy that is beneficial to both village committees and villagers is adopted. Local experiences in Guangzhou and Zhuhai serve as good examples.

Local governments' responses to regenerating chengzhongcun: two models

Pushed by the pressure from the urban public, some cities have adopted measures to renovate chengzhongcun. These measures can be divided into two categories: one a gradual approach to enhance the management in chengzhongcun, characterized by the Guangzhou model; the other an institutional reform approach represented by the Zhuhai model.

The Guangzhou model

The Guangzhou Municipal Government planned to adopt a two-phase scheme for the renewal of chengzhongcun in the inner city. The first phase was that policy-makers made efforts to break the old social network in chengzhongcun and replaced village committees with modern administrative bodies such as urban residents' communities, but these efforts did not contribute to the solution of the social and economic problems of chengzhongcun. A nominal transformation of identities has no influence on the social and economical identities of villagers, thus it is not essentially helpful to push for institutional change in chengzhongcun. The status of villagers has been maintained, and it enables villagers to be shareholders of the immense collective economy, which separates them in terms of economic power from ordinary city dwellers and immigrants (Li, 2002). The second phase can be called a radical ‘eliminating’ approach. Under this approach, chengzhongcun will be demolished and reconstructed in the form of urban real estate development. The municipal government tried to attract developers to participate in the renovation, but the vast demolition and negotiation costs made the developers flinch at uncertainties. At a rough estimate there were more than 30 million square metres of floor space in the 40 villages in the inner-city area in 2001, and the structural costs alone amounted to around ¥50–60 billion, which was almost the sum total of the local revenue of Guangzhou over the previous six to eight years (Li, 2004). Furthermore, the extensive new construction that would follow the demolition of the old village buildings would exacerbate the problems of surplus supply in the real estate market.9 So far the Guangzhou Municipal Government has not released any formal policy to address the chengzhongcun renovation.

The Zhuhai model

In a medium-sized city adjacent to Guangzhou, Zhuhai city, an approach characterized by institutional reform, namely, the conversion of collective land into state land and materialization of land value, has been adopted. Compared with the Guangzhou government, the Zhuhai government has been much more active in the renovation of chengzhongcun.

In order to encourage stakeholders such as villagers and developers to participate in the redevelopment of chengzhongcun, in early 2001 the Zhuhai government introduced several policies, for example, villagers could get 1–1.2 times their original floor space with a legal title after they became urban residents and their zhaijidi was converted into urban land; EDL could be transformed into urban land without paying the LURs fee, and the incremental land value would be distributed among farmers and developers; the collectives would be transformed into stock companies to run former collective enterprises and properties according to the Corporation Law, with all shares distributed among the former villagers; developers could get the LURs fee exemption for two to three square metres of floor space on condition that one square metre of floor space in the old village was demolished and rebuilt, and the plot ratio could be doubled. To accelerate the renovation process, the Zhuhai government promised not to approve any new construction in other city areas during the following three years and prepared to forego the land leasing revenue of ¥4–5 billion. These policies have had considerable success in encouraging villagers and developers to participate in the renovation, and so far more than 100 development companies have been involved in the redevelopment process. In order to guarantee that former villagers could relocate in the same area, the Zhuhai government required developers to complete the buildings to which former villagers would relocate before they could begin the construction of commodity housing. So far almost all chengzhongcuns in the inner city of Zhuhai have disappeared, and new development areas have emerged instead.

The Zhuhai model has been regarded as quite successful in China on the grounds that it has led to a win-win situation: indigenous residents have a better living environment and their economic interests are protected; developers have made profits through the exemption from LURs fees; local government did not directly invest in the renovation of chengzhongcun, although at the cost of the loss of local revenue from land leasing. The city's image and physical environment have been improved, and the problems of public security have been alleviated. Nevertheless, little attention has been paid to the situation of migrants.

The success of the Zhuhai model is due to close cooperation between the government, the developer, and the villager. The Zhuhai government neither adopted a conservative approach — leaving the institution of chengzhengcun collective land unchanged, like Guangzhou — nor adopted a simplistic eliminating approach — converting the collective land into urban land after paying massive compensation and going through prolonged negotiations. By establishing a partnership arrangement, the Zhuhai government found a programme that was mutually beneficial to all stakeholders in chengzhongcun, which is fairly consistent with the research of Mukhija (2001) on slum development in Mumbai. It shows that a complex and more sophisticated role on the part of the state is necessary to provide the institutional support for well-functioning property markets, as well as to capture the opportunities that high-value property markets provide. The Zhuhai government has been working towards this position.

Reflections on the two models

Different consequences of the Guangzhou and Zhuhai models further illustrate the importance of institutional reform in addressing the problems of chengzhongcun. Given the institutional constraints, without the institutional reform of collective land, the market value of collective land in chengzhongcun cannot be realized, and the renovation of chengzhongcun cannot proceed. As Mukhija (2001) argues, there are limitations to the role of private actors, and they need to profit. Not only do they need institutional support; in the absence of institutionalized incentives, they are unlikely to play a major role in the redevelopment.

Although the essential measure required for regeneration is to launch a reform in property rights to collective land in the inner-city area (Tian, 1998; Li, 2004), this should not be regarded as a panacea and a separate process. Haila (2007) makes the criticism that the school of property rights (SPR) has been advocating only that clearly defined property rights are beneficial for economic growth; social and political consequences have been ignored. Defining clear property rights is indeed not a panacea, and many new-institutional economists such as Coase (1960), Cheung (1982), Barzel (1997), Eggertsson (1990) and North (1993) notice that high transaction costs in defining property rights can block mutually beneficial exchange and cooperation, while North (1993) develops the concepts of formal and informal institutions and argues that the reason why the introduction of particular formal rules is sometimes futile is that they do not match with informal rules, and therefore will not be enforced. We have to realize that there is a prevalence of informal de facto property rights in developing countries, where the formalization of these rights lags behind due to the limited capacity of state administrations, however much neoclassical economists following conventional economic theory claim that formal, full private rights have been advanced (Omura, 2004). Contrary to conventional theories, in China ambiguous property rights have been regarded as a second-best option inasmuch as they have facilitated economic growth during the transitional period, in the absence of clear-cut property rights (Li, 1996; Qian, 1999). Li (1996) argues that the arrangement of ambiguous property rights is a response to the market imperfection in China during the transitional economy. Ambiguous property rights, however, are deemed to be tentative during the transitional period (Zhu, 2005). The evolutionary trajectory of property rights in China has shown that their marketability and strength have been increasing and they are moving towards more formal titles. China's institutions have been changed to carry out the tasks of reform and modernization.

As mentioned above, the successful renovation of chengzhongcun involves not only property rights reform but also wider issues such as political, and social stability, and the improvement of former villagers’ working skills. The expectations of different stakeholders, including developers, indigenous residents and village committees, should be more deeply understood and these people should be encouraged to participate in the renovation. Sound policies and government commitment can increase their expectations, thus attracting their involvement so that the renovation can proceed smoothly. The education and training of villagers are as important and urgent as the renovation of the physical environment. Indigenous residents cannot live on compensation for life, and their descendants will live like ordinary urban residents without any privileges. Therefore, special organizations and schools need to be set up to teach farmers new knowledge and various skills to increase their employment opportunities.

More importantly, local governments should not ignore the long-standing housing demands from migrant workers; the construction of low-rent public housing should be on the government's immediate agenda. Without a supplementary approach, the chengzhongcun renovation is likely to arouse social unrest and create new ‘slum-like’ areas where the land use management is not stringent.

Conclusions

Over the past few years, the rapid expansion of urban areas into the countryside has given rise to a wide variety of land-related problems. With the incomplete and non-tradable status of use rights over collective land, the problem of land fragmentation remains highly intractable, and it is difficult for land markets to develop. (Chen et al., 1999). Meanwhile, it has to be acknowledged that the existence of dual land management systems is reasonable in the vast poor rural area where the externality is scarce and land value is very low. The chengzhongcun of the inner city, however, are the other side of the coin and should not be treated equally with other rural areas of China. In the inner city where land value and externality increase substantially, the institutional discrepancy in land ownership, land management and residential registration systems within the city boundary has led to a series of problems.

The informal land market booms in conditions where the legality of transactions is unclear either because the law is vague or because they are not covered by existing laws (Ho and Lin, 2003). The ambiguous delineation of legal rights and the lack of any systematic regulation of collective land have contributed to the booming informal land market in chengzhongcun. Although the informal housing market in chengzhongcun has provided low-cost accommodation for migrants who have difficulties in finding affordable housing under institutional discrimination, it is dangerous to conclude that chengzhongcun are an optimal way to house low-income migrants, for their contribution to making housing affordable has been achieved at a huge cost in a dilapidated environment, security risks, unfair income distribution, government revenue loss and other social problems. Furthermore, informality in the chengzhongcun collective land market has made the emerging urban land market unfair and uncertain. Insecure property rights in land markets tend to induce short-term rather than long-term investments (Zhu, 2004).

International experience has shown that enabling slum dwellers rather than simply eliminating slum settlements is a better policy option for developing economies (United Nations Center for Human Settlements, 1996). The enabling approach involves providing existing slum settlements with better administration and services (Pugh, 1995). Nonetheless, unlike slum settlements in other countries, chengzhongcun are controlled by the collective and indigenous residents, who have much more power than squatters and have taken the advantages of their land to seek rent. When legal rights remain poorly defined, the collective and villagers are motivated to maximize their economic rights in the informal markets, leading to the mushrooming negative externalities in chengzhongcun.

The property rights approach has been a controversial issue, and philosophers, political scientists and economists have not been able to agree whether collective property or private property is better or how to justify property rights (Halia, 2007). New institutionalists realize that property rights involve not only economic and social relations, but also political performance. Property rights are the relative power of individuals to control valuable resources. Unfortunately, the SPR has been unable to develop an analytical framework of political and social meaning of property rights due to the inherent complexity of politics, social situation and culture. As Cheung (1982) points out, economic theory is unable to specify the timing of change. The designing of an institution largely depends on an understanding of institutional change processes by decision-makers after considering their own specific political, economic, social and cultural contexts. Problems with chengzhongcun land seem very difficult to address without institutional changes, as the Guangzhou government found in the first phase of its plan. A simplistic property rights approach, however, cannot solve all problems. Chengzhongcun require a comprehensive analysis, combining their merits and problems from social, political and economic perspectives.

Overall, chengzhongcun are one of the outcomes of China's rapid urbanization and dual institutions of land tenure overlapping in the urban area. The profound social and economic influences of the upheaval of these villages are worthy of much attention, and further research about them could be highly beneficial to China's urbanization process.

Footnotes

  • 1

    Public use can be exempted from LURs fees.

  • 2

    The term ‘floating population’ mainly refers to those residing in places other than their place of registration under the hukou (household registration system in China).

  • 3

    In accordance with China's birth control policy, urban residents are only allowed to have one child per family, but rural residents can have two per family.

  • 4

    In 2001 in order to identify the main problems of chengzhongcun from the perspective of farmers and tenants and understand the attitudes of stakeholders towards renovation and resettlement, a social survey was conducted in Liede village by the Guangzhou Municipal Government and the Department of Regional and Urban Planning of Zhongshan University. A questionnaire was designed and distributed to local residents with the help of the Liede Village Committee. Around 130 native residents and 50 tenants were randomly selected to receive the survey, and 51 native residents and 22 tenants returned the questionnaire.

  • 5

    The average income of farmers in the chengzhongcun of Guangzhou was 2.5 times that of urban residents in 1986.

  • 6

    Interview with Guangzhou planners in October 2006.

  • 7

    The longest leasehold terms of urban land are 70 years for residential use, 50 years for industrial use, 50 years for educational/cultural use and 40 years for commercial/office use.

  • 8

    According to the Ministry of Land Resources (http://www.gov.cn/zfjg/content_830304.htm, accessed on 1 October 2007), in 2006 the land area involved in registered lawbreaking cases amounted to 700 km2, 380 km2 of which was arable land used as developable land without going through legal procedures. The remaining cases mainly concentrated on the use of collective land for development without approval or in violation of urban land use controls. There are very few cases associated with the violation of the 1993 Regulations.

  • 9

    The cumulative vacant floor space in Guangzhou was 5,510,000 m2 in 2003.

Ancillary