Forecasting Reforms: What to Expect from the 3rd Plenary Session?
Forecasting Reforms: What to Expect from the 3rd Plenary Session?
Former Vice Minister of Commerce Advocates for further Rural Land Reforms
Today, we are heading to the upcoming 3rd Plenary Session. To get a glimpse of what reforms will be implemented, we need to pay attention to the recent 7th meeting of the National Committee of the Chinese People's Political Consultative Conference (CPPCC), which closed on Jun.6th. CPPCC is the political advisory body in China and is in charge of advising critical policy changes for top decision-makers.
Today, I’ve picked two reform suggestions about rural areas. One is about land reform and breaking the urban-rural dual system, and the other is about agricultural finance. Agriculture and rural development play a vital role in China's economy. Land reform and agricultural finance directly impact the livelihoods of 490 million people living in rural areas, as well as the country's food security.
China has a political heritage that emphasizes the rural and agricultural sectors. Since 2004, the Chinese government has consistently focused on issues related to agriculture, rural areas, and farmers through its annual "No. 1 Central Document," highlighting the priority placed on these matters.
It is important to note that China's rural population is decreasing in both absolute numbers and as a percentage of the total population. Although China still formally maintains the Hukou system, the division between rural and urban areas has been largely torn apart by the real estate industry and birth rates brought about by urbanization. For 2023, there are more college graduates than babies born that year. According to Caixin, Under the multiple pressures of population and consumption, megalopolises and supercities with urban permanent populations of 5 million or even over 10 million people are also accelerating the removal of household registration (hukou) restrictions. Take Zhengzhou as an example. As the capital city of Henan, the most populous province in China, Zhengzhou has implemented policies that allow individuals to obtain a local Hukou by simply renting a house in the city.
When more and more people come to urban areas, what to do with their land becomes a significant problem under the collective land ownership system. As farmers migrate to cities, they often leave their collectively owned land behind, leading to issues such as land abandonment, fragmentation, and underutilization. The current regulation prohibits the sale of rural land and can hinder the efficient allocation and consolidation of land resources. This situation has prompted calls for further land tenure reforms to allow farmers more flexibility in managing and transferring their land rights, as well as to facilitate the development of modern agriculture and rural areas.
During the just-closed CPPCC meeting, former Vice Minister of Commerce Qian Keming made a remark titled “Facilitate the flow of factors between urban and rural areas, and promote the integrated development of urban and rural areas.” In his speech, Qian called for the establishment of a mechanism that links the interests of relevant stakeholders in sharing the benefits derived from land factors. Qian is a member of the China Democratic League and served in the Ministry of Agriculture for a long time; he was appointed Vice Minister of Commerce in 2015.
Here, I’ve attached his points and reform suggestions:
Currently, there are still some blockages and difficulties in the flow of factors between urban and rural areas in China, mainly manifested in:
Land: The unified urban-rural land factor market is not sound, and the mechanism for realizing rural land value and distributing value-added benefits has problems.
Labor: There are gaps in urban-rural labor remuneration and social security, and rural labor forces entering cities do not equally enjoy basic urban public services.
Capital: The gap in expected investment returns between urban and rural areas is prominent, and the regulatory mechanism for capital going to the countryside is not yet sound.
The next ten years is a crucial window period for breaking the urban-rural dual system and improving the system and mechanism for the integrated development of urban and rural areas. Accelerating the smooth flow of factors between urban and rural areas is essential and urgent.
Suggestions:
Explore effective ways to activate rural land resources and promote the integrated development of urban and rural areas. Establish a mechanism for linking the interests of relevant entities in sharing land factor benefits, safeguard farmers' land rights and interests, and fairly share value-added benefits. Gradually establish an institutional environment conducive to the urbanization of the agricultural transfer population.
Face the labor issues in the process of urbanization and coordinate the urban-rural relationship. Based on the downward trend of rural population size and proportion, reform efforts should be increased from both urban and rural ends.
At the urban end, the reform of the household registration system should be deepened, the "people, land, and money" linkage mechanism improved, and a mechanism linking central transfer payments with the size of the local permanent population should be established.
At the rural end, based on the rights of collective members and taking member families as the unit of empowerment and exercise of rights, improve the market-based exit mechanism and supporting policies for land contracting rights, homestead use rights, and collective income distribution rights, and explore the establishment of a mechanism for high-quality talents to participate in rural revitalization.
Provide support for the two-way flow of capital between urban and rural areas and comprehensively promote rural revitalization. Coordinate the layout of rural infrastructure and public services and accelerate the establishment of a mechanism for industrial and commercial capital to connect with and lead agriculture.
Improve the fiscal transfer payment system and establish a long-term mechanism for fiscal and financial coordination to support agriculture.
Establish and improve an effective mechanism to promote the transformation of more rural savings into rural investment.
Reasonably guide social capital to invest in agriculture and rural areas and establish a whole-process supervision mechanism.
Support and guide rural collective economic organizations to operate steadily.
Cheng Yongbo, president of Nanjing University of Finance & Economics, also joined the meeting and talked about food security and agricultural finance in his remarks.
Ensuring food security is an important foundation for achieving national security. Comprehensively consolidating the foundation of food security, especially stabilizing the confidence of grain-growing farmers and breaking through key core technologies in the seed industry, urgently requires financial support. In recent years, China has made remarkable achievements in financial support for agriculture, but with the rapid advancement of grain industry modernization, the demand for financial services has also undergone profound changes. In this process, three issues are particularly noteworthy, including the difficulty in meeting the financing needs of new agricultural business entities, the urgent need to solve the financing problem of technological innovation in the grain sector, and the urgent need to strengthen and improve the risk guarantee system for food security. Therefore, it is suggested:
Accelerate the development of financial services for new agricultural business entities. It is recommended to vigorously develop agricultural supply chain finance, develop supply chain financial products such as "bank + leading enterprise + upstream and downstream business entities," and provide credit enhancement support for new agricultural business entities; strengthen the institutional building of new agricultural business entities, improve directory management, and promote the digital transformation of management services; fully utilize the advantages of policy-based agricultural financing guarantee institutions, create exclusive financial products according to the characteristics of new agricultural business entities, and further improve the availability, coverage, and convenience of financial services.
Continuously increase financial support for technological innovation in the grain sector. It is recommended to use policy-based seed industry funds, leverage the role of fiscal funds, guide financial and social capital, and provide long-term and stable support for seed companies in key technology research and development and promotion; encourage banking institutions to actively explore seed variety rights pledge financing business and provide more flexible light-asset financing channels for small and medium-sized seed companies.
Further strengthen the role of agricultural insurance in ensuring food security. It is recommended to fully implement the complete cost insurance and planting income insurance policies for the three major grains, optimize the "insurance + futures" model, and improve the insurance system for catastrophic risks; establish a government-led insurance big data platform, promote the scientific formulation of risk area division and rates, and build a precise pricing, underwriting, claims settlement, and anti-fraud mechanism; promote the development of functional grain crop insurance and provide risk protection for high-quality rice, high-protein corn, and other crops to promote the development of ecological, high-value, and efficient grain industries.
