Hong Yun

Sichuan Academy of Social Sciences

Abstract: In China, the trading of construction land quotas has undergone an institutional evolution process characterized by gradual deregulation. In 2021, the Central Committee of the Communist Party of China (CPC)resolved to develop a national cross-regional trading mechanism for construction land quotas. Construction land quotas, which have attributes of both public power and private rights, share certain common grounds with the rights of land development, dumping and carbon emission. To build a national trading market for construction land quotas, it is necessary to make clarifications and innovations in macro-level ideas, meso-level mechanisms, and micro-level designs.

Keywords: construction land quotas, overall planning of public power, expression of private rights

In China, remote rural areas shoulder the great mission of farmland protection, but cannot directly obtain benefits from urbanization,particularly the regional and resource opportunities in the great development of the market economy arising from metropolitanization. To fundamentally revitalize remote rural areas, institutional innovations and additional policy support are urgently needed. To provide further policy support for poverty alleviation, the General Office of the State Council releasedManagement Measures for Inter-provincial Transfer of Surplus Quotas Linked with the Increase or Decrease in Urban and Rural Construction Landin March 2018. For the first time, China allowed the surplus quotas linked with the increase or decrease in urban and rural construction land(hereinafter referred to as “construction land quotas”) to be traded across different provincial regions and be transferred from the well-known “Three Regions and Three Prefectures” (Three Regions refers to the Tibet Autonomous Region, the Tibetan areas of Qinghai, Sichuan, Gansu, and Yunnan provinces, as well as Hetian, Aksu, Kashi, Kizilsu Kyrgyz in the south of Xinjiang Autonomous Region. Three Prefectures refers to Liangshan prefecture in Sichuan, Nujiang prefecture in Yunnan and Linxia prefecture in Gansu.) (i.e., China"s national-level severely impoverished areas) to eastern and coastal cities. The implementation of these policies provides a huge institutional impetus for severely impoverished areas. Hence, this not only provides a source of funding for the development of impoverished areas, but also overcomes the bottleneck of construction land in developed areas.At present, China has won an all-round victory in poverty alleviation. To effectively link poverty alleviation with rural revitalization, it is necessary to further tap the great potential in the interprovincial trading mechanism for construction land quotas. In January 2021, the General Office of the CPC Central Committee and General Office of the State Council jointly promulgatedAction Plan for Building a High-standard Market System, expressly resolving to develop a national crossregional trading mechanism for construction land quotas and experimentally promoting institutional legalization.

Existing Problems

Across the whole of China, the level of urbanization varies significantly from region to region and there is a great gap in the demand for construction land quotas between eastern China and western China. Since Zhejiang province carried out the policy of “land consolidation to provide construction land” in 1998, the trading scope of construction land quotas has tended to widen, undergoing an institutional evolution from county to city, city to province, and from province to nation. The dividends from each institutional evolution have been recognized and sought-after in practice.Owing to positive expectations of institutional potential, a national cross-regional trading market for construction land quotas is highly anticipated. To facilitate its implementation in different regions, theOutline of the Plan for the Development of the Chengdu-Chongqing Economic Circle, which has been reviewed and approved by the CPC Central Committee, expressly resolves to develop a cross-regional trading mechanism of surplus quotas with the Yangtze River Delta.

The advantages of trading construction land quotas have received wide recognition in China.Nevertheless, it is controversial whether construction land quotas are categorized as public power or private rights. In addition, the institutional foundation and mechanism design for such trading are yet to be perfected, and a national trading market is yet to be completely developed. To seek a long-term and even historic solution to the institutional poverty arising from the divorce between urbanization and food security mechanisms, it is necessary to make clarifications and institutional innovations on the nature of power and rights in construction land quotas.

Public Power or Private Rights in Construction Land Quotas

Land Development Rights as Civil Rights and Construction Land Quotas as Administrative Power

The system of land development rights originated in the UK. In the UK, this system is based on the nationalization of development rights which required that all development rights be purchased from the state. In the US, this system is inclined to protect market-oriented private property rights and paves the way for the trading of rights through transferable development rights (TDR). In France,governments exercise the right of pre-emption to intervene in highly vulnerable areas, thus protecting the public interests in food security. Yet, there have been no legal or institutional arrangements for TDR in China. In practice, it is recognized that the cross-regional trading of construction land quotas represents a transfer of land development rights.

In fact, construction land quotas and land development rights can be regarded as “two sides of the same coin.” Governments are more inclined to regard construction land quotas as an administrative“accessory” arising from their power over programming, planning and land use control. Collective landowners prefer to regard construction land quotas as development rights or as future construction rights derived from collective land ownership. The current rights system contains no land development rights in a legal sense, and the public power of governments enjoys a preeminent status.Therefore, the public power attributes in construction land quotas are more dominant in practice.The consequent negative impact is manifested in an inadequate expression of landowner claims and for the trading process of construction land quotas as well as difficulties in assuring sufficient protection of landowner rights and interests. In the capacity of a collective landowner, Tanba village,Luxian county, Sichuan province signed an agreement with Renhe community, Qionglai city, Sichuan province in 2018 concerning the withdrawal of rural homesteads and the trading of reclamation surplus quotas. In accordance with the trading agreement, Renhe community purchased a surplus quota of 300mu(about 20 hectares) from Tanba village at the price of RMB285 thousand permu(about 0.07 hectares). However, this “Inter-village Land Circulation” pattern was ultimately annulled by the authorities involved on the grounds of non-regulation, which highlights the public power attributes in construction land quotas.

Comparisons Between Construction Land Quotas on Dumping Rights and Carbon Emission Rights

Dumping rights and carbon emission rights share similar attributes of rights with construction land quotas. The three types of rights are not explicitly defined in China"s civil rights system butshare the following common grounds. First of all, they are planned and managed by governments.Secondly, they are tradable. Thirdly, trading rules are formulated by governments. Fourthly, trading must be conducted in the unified markets created by governments. For example, theManagement Regulations of Chengdu on Emissions Trading(repealed in December 2019) expressly stipulates: Thetransfererrefers to a pollutant discharging entity that transfers its pollutant discharging quota through an environmental trading institution with the approval of the municipal environmental protection authorities; thetransfereerefers to a pollutant discharging entity that receives the transferred pollutant discharging quota through an environmental trading institution with the approval of the municipal environmental protection authorities. In accordance with theInterim Measures for the Administration ofVoluntary Greenhouse Gas Emission Reduction Transactionsreleased by the National Development and

Reform Commission, domestic and foreign institutions, enterprises, organizations and individuals are entitled to participate in voluntary greenhouse gas emission reduction transactions, provided that the projects involved, emission reductions and trading institutions are archived and registered with the competent authorities. By contrast, dumping rights or carbon emission rights have a significant impact on public interests, so it is necessary that governments regulate and control them. Although the entities of market trading are the subject of civil rights, the traded products are intended to satisfy the needs of public interests. In contrast, the trading of construction land quotas is mainly intended to satisfy the needs of economic development in developed areas, and collective economic organizations in the source regions of construction land quotas undertake the responsibility of farmland protection.Hence, construction land quotas have the more obvious attributes of private rights.

Rethinking of Construction Land Quotas: A Combination of Public Power and Private Rights

China"s current urban-rural dualistic land system was formed in the era of a planned economy to satisfy the strategic needs of prioritized industrial development. A concept of “construction land quotas” derived from the planned land management system, that is, the conversion of agricultural land into construction land must be governed by public power such as national land planning and planned management. Undeniably, construction land quotas are acquired at the expense of the construction land potential (i.e., development options and rights) in the source regions, attached to collective-owned land, and rooted in the natural real rights over land enjoyed by collective landowners and their rights to use the land. Hence, private rights attributes in construction land quotas are obvious. Therefore, it is a matter of urgency to properly embody these hybrid attributes (i.e., both public power and private rights) in the institutional design, and define their legal orientations and rights boundaries accurately,thus laying a solid institutional foundation for building a national trading market.

Thoughts on how to Build a National Construction Land Quota Market

As the extended application of a major institutional innovation in poverty alleviation, a national trading mechanism for construction land quotas will substantially promote exchanges between resources in China"s western inland regions and funds in eastern coastal regions which will continuously provide development funds for the revitalization of rural areas and the growth of the collective economies. However, after the implementation ofManagement Measures for Inter-provincial Transfer of Surplus Quotas Linked with the Increase or Decrease in Urban and Rural Construction Land,some source regions of construction land quotas are more inclined to trade their construction land quotas in their provincial central cities for various reasons, including the extremely complex interprovincial trading procedure (e.g., planned and allocated by the Ministry of Natural Resources),and price limits (e.g., RMB300 thousand permu). To some extent, this goes against the original intent of the institutional design. Besides, inter-provincial trading will undoubtedly maximize the income generated by differential land rent. This implies a huge premium space. For some local governments that lack a source of “land-based finance,” “quota-based finance” may become an endogenous impetus to land consolidation. This may lead to an infringement on farmers" interests(e.g., withdrawal of large-scale homesteads, withdrawing villages, and combining residences). To build an open, fair, and transparent trading market that will allow market entities at all levels to share institutional dividends, it is necessary to make theoretical explorations and practical preparations at the macro, meso and micro levels.

Macro-level Ideas

Market pricing instead of government pricing.

According to the general theory of land rent, land prices (i.e., capitalized land rent) are affected by bank deposit interest rates and the amount of land rent. Because of a long-term scarcity of land, the prices of construction land quotas will maintain a rising trend, and their market prices are constantly changing. In many regions, government-specified minimum land compensation standards are executed to compensate for the withdrawal of homesteads, which serve as the source of construction land quotas. In Chengdu, the prices of certificated construction land quotas have kept a stable protective level of RMB300 thousand permu(about 0.067 hectares) for more than a decade. Hence,it is necessary to carry out a market-oriented pricing mechanism for construction land quotas instead of the previous government pricing model. On the premise that farming households can maintain their original standards of living, it is necessary to exert the role of markets in resource allocations(i.e., construction land quotas are priced through an autonomous negotiation between collective landowners and market entities) and embody the principle of equal-value exchanges through the operation of a market economy.

Collective dominance instead of government dominance.

Historical experience shows that the government-dominated circulation of rural collective land played an irreplaceable role in stimulating farmers" consciousness of land rights at the initial stage of China"s reform and opening-up. As the market economy system is increasingly perfected,governments should gradually adopt a guiding role, allowing land owners to dominate the marketoriented circulation of their land. Hence, the market trading system for construction land quotas should be institutionally designed to expressly stipulate that the subjects with ownership rights have the discretion of whether and how to trade. The exercise of rights is in accordance with the provisions of “three-level ownership and based on production team” on collective economic organizations in theLand Administration Law of the People"s Republic of China, and the specific form of exercising these rights may be decided by the general assembly of all villagers or a villager representative assembly.Except for the purpose of public interests, governments may exert indirect influence through planned controls and land-use regulations but shall not intervene in the exercise of rights in any name or form.

Private investment instead of governmental investment.

In China, construction land quotas are mainly available by implementing projects that link with an increase or decrease in urban and rural construction land, and the comprehensive consolidation of rural land. Survey data indicates that in many regions, funds for land consolidation are mainly provided by local governments or self-raised by collective economic organizations, and in a few regions, incentive policies are implemented to encourage and induce private investors to participate in land consolidation. Among the diverse sources of funds, money provided by local governments account for a high proportion, mainly because local governments want to acquire construction land to ensure a land supply for urban industrial projects. In recent years, economic development of China"s developed regions needs to be underpinned by a sufficient supply of space and construction land quotas, which are creating an increasing demand for the scale of land consolidation. Given the limited financial resources of governments, a market-oriented approach is undoubtedly an important solution to this problem. To ensure the sustainability of land consolidation and maximize the market value of construction land quotas, it is of great importance to actively encourage private capital to participate in land consolidation.

Meso-level mechanism

Supply-demand mechanisms.

In China, the supply of and demand for construction land quotas vary from region to region because of the significant regional gaps in economic development. Notwithstanding the severe need for farmland protection, it is an indisputable fact that there is an increasing demand for construction land in many regions. Hence, construction land quotas may be faced with both short supply and excessive demand. Therefore, it is necessary to develop a reasonable supply-demand mechanism for construction land quotas, thus guiding their supply and demand effectively and achieving a relative balance in economic development across different regions.

The process of achieving a supply-demand balance of construction land quotas is just a process during which the market mechanism plays a role. However, the functioning of the market mechanism must meet a certain condition, that is, there is a sound market. Only in a sound land market can the pricing mechanisms bring about a supply-demand balance in construction land quotas. In China,the supply-side adjustments and the upgrading of economic structures need to be underpinned by a sufficient supply of construction land, so there will be a great demand for construction land quotas for a long time. Because of the constraints of capital input and funding channels, and the imperfections in trading rules and supporting policies, the supply of construction land quotas will hardly satisfy actual demand for the long term. The functioning of the price mechanism is mainly manifested as follows: the price of construction land quotas gradually rises by market means, and finally remains at a relatively reasonable level, thus achieving their supply-demand balance.

Impetus mechanisms.

The practices in recent years have proved that the trading of construction land quotas plays an important role in promoting the coordinated development of the regional economies and the intensive and efficient utilization of land, and for building a unified market for urban and rural construction land. However, the institutional design of this trading primarily concentrates on land resources management and farmland protection but does not give due consideration to the interests of rural collective organizations and farmers, thus failing to achieve the sharing of the fruits of economic development between the diverse market entities. To improve the impetus mechanisms, it is first recommended to give special favor to rural collective economic organizations and farmers in the value-added revenue from such trading and develop compensation standards for the withdrawal of homesteads. Moreover, it is necessary to further exert the role of such trading in promoting the centralized transfer of rural labor forces. Through the outward transfer of development rights, the sporadically distributed farmland in the source regions of construction land quotas can be developed in a centralized and contiguous way. The objective is to further expand the scale of farming operations, concentrate farmland into farming specialties, emancipate eligible farmers from the land,and promote the transfer of rural labor forces to the industries in the destinations of construction land quotas.

Pricing mechanisms.

Construction land quotas are regarded as the right to change agricultural land into construction land, but their price connotations cannot be simply construed as the value difference between construction land and agricultural land. A strong argument can be made for the principle that after agricultural land is changed into construction land, the prices of construction land quotas are equal to the prices of construction land minus the prices of the original agricultural land, expenses of agricultural land development, management expenses of the construction land, and profits from the construction land. Besides, the prices of construction land quotas are merely a branch of the land price system, so the influencing factors of land prices share common grounds with those of prices of construction land quotas. In addition to natural factors (e.g., land area, land shape, topography, and environment), the prices of construction land quotas are also influenced by factors such as land use,location, supply-demand status of urban land, and functional orientation. To build a national trading market for construction land quotas, it is recommended to develop provincial or regional benchmark price systems by referencing the methods for developing an urban benchmark land price system.

Revenue feedback mechanisms.

The inter-provincial trading of construction land quotas is essentially an exchange of resources and funds between eastern China and western China. In the top-level design, it is necessary to reasonably distribute the value-added revenue from the non-agriculturalization and urbanization of land. With the great improvements in China"s economic development levels, it is not advisable to reduce the costs of industrialization and urbanization by continuously acquiring farmers" land and property rights at low prices. Instead, it is necessary and possible to substantially increase the proportion of land value-added revenue distributed to farmers. For the trading of construction land quotas, a clear definition of the subject of revenue distribution provides a prerequisite and basis for determining a reasonable proportion of revenue distribution. In accordance with theLand Administration Law of the People"s Republic of China, governments have the power of planned control and use regulations over the trading and premium of construction land quotas. Rural collective economic organizations have land ownership, and farmers have the rights to land use. All involved are entitled to enjoy the revenue from the trading of construction land quotas. In many regions, private capital is encouraged by market means to participate in land consolidation. In these situations, how to define the revenue feedback mode of private capital has a bearing on the sustainability and future trends of land consolidation.To coordinate the interests of diverse parties concerned, private capital should be allowed to gain reasonable profits from land consolidation without participating in the distribution of value-added revenue from the trading of construction land quotas. This is the optimal solution to the revenue feedback of private capital.

Micro-level Design

Overall planning of public power.

In rural land markets, local governments as a market entity are present at land acquisition activities. In fact, the influence of governments is common almost everywhere. Local governments are by no means just an ordinary “land purchaser,” but a special “land purchaser” who has administrative power and can issue administrative orders. Local governments as an agent of the state,exercise the actual right of earnings and management. How to define the overall planner"s role of local governments in building a trading market for construction land quotas is the key to regulating the trading system and protecting the interests of rural collective organizations and farmers.

Overall planning of trading volumes.

Construction land quotas should not only be regulated by land planning, but also be fully combined with market regulations. An overemphasis of the balance between total farmland and total construction land and a disregard of their structure and distribution will lead to the decline in general farmland quality and disorder in the layout of construction land. If no upper limit is specified for the trading volume of construction land quotas, economically developed regions will rush to purchase construction land quotas from economically underdeveloped regions. This will boost the prices of construction land quotas to some extent but will also create price bubbles in the construction land quota markets in the long term. The burst of price bubbles (if at all) will eventually impair the interests of collective economic organizations and farmers as the owners of construction land quotas and may even overstep China"s warning line of farmland protection, thus directly resulting in a food crisis. Therefore, it is a matter of necessity and urgency to specify a national-level scale or annual plan of trading of construction land quotas.

Overall planning of trading scope.

As a special policy in times of poverty alleviation, construction land quotas are solely allowed to be transferred inter-provincially between developed regions and the “Three Regions and Three Prefectures” and other severely impoverished regions. In China, backup farmland resources are mainly distributed in economically underdeveloped regions in central and western China, which are eligible for land consolidation. However, the demand for surplus quotas is limited intra-provincially,and the trading prices are relatively low. In the economically developed provincial regions in eastern China, backup farmland resources are scarce and even exhausted; hence, it is increasingly difficult to achieve a requisition-compensation balance of farmland intra-provincially and the cost of land consolidation continues to rise. In this situation, it is recommended that the territorial scopes of trading should be classified into three types. The first type is inter-provincial trading. It is recommended that overall planning should be dominant, and market means should be supplementary.Because of the maximum differential land rent across the whole country, market disorder is highly likely to occur if no overall planning is conducted. If construction land quotas are transferred within an extremely large territorial scope, it is a thorny problem to supervise the quality of inter-provincial reclaimed farmland. In particular, the quality and grade of farmland in eastern China are higher than those in western China; hence, overall planning and coordination at the national level are essential to the supervision and control of farmland quality. To achieve the coordination and balance of resources and funds between different regions, it is recommended to implement “partner assistance” combined with related supporting policies (e.g., cooperation and assistance between western and eastern China,Large-scale Development of Western China, and Chengdu-Chongqing Economic Circle). The second type is inter-city trading within the same provincial region. It is recommended that market means should be dominant, and overall planning should be supplementary. The scale of intra-provincial land consolidation is larger. Compared with the countrywide trading of construction land quotas,intra-provincial trading of construction land quotas is more efficient in the matchmaking of trading,settlement of trading, and payments and receipts, thus highlighting the value of construction land quotas more quickly. The third type is intra-city free trading. Construction land quotas are mainly traded within prefecture-level cities, or to be more specific, within the same county or across different counties. Intra-city trading can fully manifest the private rights attributes of construction land quotas.It is recommended to use the “Inter-village Land Circulation” pattern of Luxian county for reference,that is, encourage and induce the two trading parties to freely trade through open markets, and reduce administrative interventions in the trading.

Overall planning of a trading platform.

The practice of Chengdu in recent years shows that owing to the wholly state-owned nature and market-oriented operation mechanisms, Chengdu Agricultural Equity Exchange has attained positive achievements in certificated use, inter-county and inter-city trading and option trading with respect to construction land quotas. In 2018, the Department of Natural Resources of Sichuan province launched the information platform for the circulation of construction land quotas. The information platform is used for the announcement of intra-provincial trading of construction land quotas, as well as inquiries for related information, and is intended to overall plan and regulate the trading behaviors. Considering the mode of building a trading platform and particularity of such trading, it is recommended to build a national trading platform for construction land quotas and use this platform to plan and regulate the inter-provincial trading behaviors. It is also recommended that provincial-level agricultural equity circulation and trading platforms funded by local governments or state capital should take charge of intra-provincial trading behaviors to ensure equal consideration for the private rights attributes of construction land quotas and the efficiency of their trading, and that the trading results should be timely reported to provincial-level natural resource authorities for archiving.

Expression of private rights.

In terms of the institutional design of inter-provincial trading of construction land quotas,an emphasis on the overall planning and coordination of trading behaviors by China"s central government is intended to regulate the trading markets and prevent risks. If construction land quotas are frequently transferred by administrative plans and no due attention is paid to the willingness expressed by landowners and users toward the trading behaviors, the entity equity of source regions of development rights will undoubtedly suffer some infringement, thus reducing the fairness and rationality of the whole institutional design.

Expression of trading willingness.

For the market-oriented trading of construction land quotas, it is advisable to not only uphold the dominant status of collective economic organizations, but also fully understand the current situation of such a dominant status. Therefore, it is necessary to take villagers" autonomous resolutions as a prerequisite for the trading of construction land quotas in the following aspects. First, villagers"willingness should be fully respected before the initiation of land consolidation projects. Villagers can decide at their discretion whether to participate in land consolidation and shall not be forced to participate in land consolidation; collective economic organizations are duty-bound to investigate whether their members are willing to participate in land consolidation. Second, if villagers are willing to participate in land consolidation, construction land consolidation will surely involve the adjustment of land ownership and its status quo; in this case, villagers" willingness should also be fully respected. If no consensus is reached concerning the adjustment of land ownership, construction land consolidation shall not be initiated. Collective economic organizations are duty-bound to coordinate the interests of different parties concerned in the adjustment of land ownership. Third, if construction land consolidation involves the participation of private capital, the scheme of belongingness of construction land quotas between collective economic organizations and private capital should be discussed in the general assembly of all villagers, and then be implemented if approved. Collective economic organizations are duty-bound to announce the scheme. Finally, the distribution scheme of revenue from the trading of construction land quotas shall not be decided by several village or town leaders but shall be announced to villagers by collective economic organizations. If no objection is received, the distribution scheme can be implemented.

Expression of trading prices.

As farmers" consciousness of land rights is awakening, land consolidation by disguised coercive means will gradually disappear. In addition, it will be less and less likely to earn excess premiums by capitalizing on trading information asymmetry. Trading prices will be manifested in a more open and transparent market and will eventually be determined by collective landowners. As the basis of trading prices, the actual costs of land consolidations can be used as the minimum protective prices of construction land quotas. Moreover, trading prices are affected by the supply-demand status of construction land quotas, for example, historical trading records announced by rural equity exchanges in real time. After the two price-deciding factors are determined, the trading price expression of rights holders will be close to real market prices.

Expression of revenue distributions.

There is a certain premium between the consolidation cost of construction land quotas and their market values, and the revenue to be distributed is mainly sourced from value-added revenue. In practice, most policy documents describe such value-added revenue as being used to invest in rural infrastructure or public service facilities but have no detailed rules on how to invest. As a result,farmers, and collective economic organizations, which serve as the contributor to construction land quotas, universally lack a sense of gain and happiness from the reform. It is recommended that the institutional design should protect the rights of collective economic organizations and farmers to know the output and trading process of construction land quotas, and particularly add the announcement of use of the value-added revenue. In accordance with the provisions on the marketization of profitoriented collective construction land, the institutional design should specify the adjusted amount,taxes, and dues of value-added revenue attributable to governments, value-added revenue attributable to collective economic organizations, and cash revenue available for distribution to farmers, to reduce the infringement on the rights holders of construction land quotas arising from the ambiguity of the revenue distribution system.

Conclusions

Since construction land quotas were exchanged on trial in Zhejiang province in 1998, the trading system for construction land quotas has been deregulated and implemented for 23 years, thus accumulating rich theoretical achievements and practical experience. It is of great importance to build a national trading market for construction land quotas; this not only represents an important tendency of reform in the land management patterns in China, but also marks a critical step to further extend the market-oriented allocation of resources to the countryside. Overall, current trading practices mainly focus on simple exchanges between funds and resources but are inadequate in the tracing of sources of rights and institutional innovations in construction land quotas. To effectively link rural revitalization with poverty alleviation and fully exert the role of a national trading mechanism, it is a matter of urgency to diversify and optimize the modes for exchanges of resources and funds between underdeveloped regions and developed regions. Moreover, it is also necessary to take the opportunity to maximize the effectiveness of exchanges between resources and funds in the trading of construction land quotas. Specifically, rational institutional designs should be conducted to exchange the industrial and human capital and technologies between the source regions and destinations of construction land quotas, thus achieving constructive interactions between the various resources of western China and eastern China.