Property Rights Reform to Support China's Rural–Urban Integration: Village‐Level Evidence from the Chengdu Experiment
| Author | Klaus Deininger,Ting Shao,Songqing Jin,Fang Xia,Shouying Liu |
| DOI | http://doi.org/10.1111/obes.12306 |
| Published date | 01 December 2019 |
| Date | 01 December 2019 |
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©2019 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd.
OXFORD BULLETIN OF ECONOMICSAND STATISTICS, 81, 6 (2019) 0305–9049
doi: 10.1111/obes.12306
Property Rights Reform to Support China’s
Rural–Urban Integration: Village-Level Evidence
from the Chengdu Experiment*
Klaus Deininger,†Songqing Jin,‡,§ Shouying Liu,¶Ting Shao††
and Fang Xia‡‡
†Development Research Group, World Bank, 1818 H Street, NW Washington, DC 20433,
USA
‡China Academy for Rural Development, Zhejiang University, No. 866 Yuhangtang Road,
Hangzhou, 310058, China
§Department of Agricultural, Food and Resource Economics, Michigan State University,
446 West Circle Dr., Rm 202, East Lansing, MI 48824, USA
¶School of Economics, Renmin University of China, No. 59 Zhongguancun Street, Haidian
District, Beijing, 100872, China
††Development Research Center of the State Council, No. 225 Chaoyangmennei Avenue,
Dongcheng District, Beijing, 100010, China
‡‡Research Institute for Global Value Chains, University of International Business and
Economics, No. 10 Huixin Dongjie, Chaoyang District, Beijing, 100029, China (e-mail:
xia.fang.fx@gmail.com)
Abstract
As part of a national experiment, in 2008, Chengdu prefecture launched a series of prop-
erty rights reforms, among them complete registration of all land and measures to ease
transferability and eliminate labour market restrictions. A comparison of villages inside
and outside the prefecture’s border using a difference-in-difference approach suggests that
the reforms have reduced administrative reallocations; aligned land use closer to economic
incentives, mainly through market transfers; and stimulated enterprise startups. These re-
sults, most of which are more pronounced for villages closer to Chengdu city, illuminate
the potential gains from factor market reform.
*Wethank the Chengdu Statistical office, especially Taixiang Zhao, XiaoyingGu, YuanLin, Yufang Chen, Qiuyan
Chen, and Shiming Ren for access to data and support, Hui Wang for assistance with the questionnaire and sam-
pling development, andYihao Li for research assistance. Funding support from the Knowledge for Change Program
is gratefully acknowledged. Songqing Jin acknowledges the financial support from Michigan State UniversityAg-
BioResearch and the National Nature Sciences Foundation of China (grant numbers 71773110 and 71861147002).
Shouying Liu acknowledges the financial support from the Key Project of Philosophy and Social Science Research
of the Ministry of Education of China (grant number 16JZD024). Fang Xia acknowledges the financial support from
the National Nature Sciences Foundation of China (grant number 71733002) and the 111 Project (grant number
B18014). The views presented in this paper are those of the authors and do not necessarily represent those of the
WorldBank, its Executive Directors, or the countries they represent or any of the other institutions they are associated
with.
Chengdu property rights reform 1215
I. Introduction
The ability of cities to capitalize on positive externalities from skills agglomeration and
spatial proximity has historically made urbanization a driverof economic g rowth(Glaeser,
2011). Yet the global surge in urbanization has called attention to the need for policies to
ensure that urban growth is sustainable and keepscities economically competitive (Chauvin
et al., 2017). In China, policy-induced imperfections in land and labour markets have long
been recognized as affecting the amount and nature of land conversion and rural–urban
migration in ways that may be unsustainable, widen rural–urban inequality, and reduce
China’s competitiveness (Wen and Xiong, 2014).
When a land tenure system that separates rural from urban land and makes government
acquisition the only legal way to convert land from agricultural to non-agricultural uses,
it appears that urban expansion is driven less by market forces than by administrative
responses to short-term political imperatives (Hsu et al., 2017; Huang and Du, 2017).
Local governments can generate vast amounts of revenue by expropriating land cheaply
and selling it to developers at prices orders of magnitude higher than what is being paid
in compensation (Murray and Frijters, 2016). They may then use the proceeds to finance
recurrent expenditures, or use land they have banked to secure loans, with far-reaching
impacts on the financial system (Du and Peiser, 2014). Legal restrictions on farmland
conversion may have little impact on farmland loss (Feng, Lichtenberg and Ding, 2015)
but their effect on house prices and wages(Liang, Lu and Zhang, 2016) can create efficiency
losses (Au and Henderson, 2006b). The results may be to depress economic growth (Ding
and Lichtenberg, 2011); foment rural unrest (Whiting, 2011); and erode long-term food
security (Lichtenberg and Ding, 2009).
Inability to sell or lease rural land together with urban residency permits (hukou) that
require migrants to give up rural land in order to qualify for urban social services both
discourage movementfrom far m to city (Bosker, Deichmann and Roberts, 2015). Reducing
migrants’ access to services unless they give up rights to rural land (Song, 2014) may also
promote over-employment in agriculture (Ngai, Pissarides and Wang, 2016) and reduce
migrant performance because of stereotyping (Afridi, Li and Ren, 2015). While eliminating
hukou restrictions could improve equity (Whalley and Zhang, 2007), it can only be fully
effective if land rights are fully transferable as well. Accordingly, China’s leaders have
often identified better management of rural–urban integration as a reform priority, as in
the Government’s No. 1 Document in 2013. Actual reform was, however, often limited
(Cai, 2011), and rarely were there impact assessments to allow successful examples to be
scaled up.
In 2007, the central government selected Chengdu prefecture, Sichuan Province, as a
rural–urban integration reform experiment zone. Toassess how reforms long recommended
might propel a more decentralized and inclusive pattern of urbanization, this paper eval-
uates the effects of a unique bundle of reforms introduced in Chengdu in 2008/09 the
implementation of which was made more urgent by the need to deal with the devastation
wrought by an earthquake that hit the provincein 2008, just when the first village had started
implementing the reforms. Toovercome rural–urban dichotomies, it was decided to (i) sys-
tematically register all rural land; (ii) establish a property exchange to reduce transaction
costs and streamline the land market; and (iii) allow rural residents to keep land even after
©2019 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd
1216 Bulletin
they acquired urban residence rights. Although no rigorous evaluation was undertaken,
after 2014, the reforms were expanded from Chengdu to neighbouring prefectures, which
suggests that the model was found promising.
Time series data from 2004 through 2013, obtained from village records or recall for
526 villages separated by the prefecture boundary, made it possible to use a difference-in-
difference (DID) approach for identifying reform results. While adoption of the reforms
together makes it impossible to separate out the impacts of individual interventions, it is
still possible to assess how the reform package affected the security of land tenure, changes
in land use, land market functioning and enterprise startups.
Three findings stand out. First, reforms reduced administrativereallocations even though
there is evidence of anticipation effects, with governments inside the prefecture expropri-
ating more land, and mediating more transfers of agricultural land just before the reforms.
Second, without changing how much land was not used, the reforms led to a smaller share
of ‘other agricultural’ land use, mostly for pasture, and larger shares of arable agricultural
land and of construction for economic activities rather than residences. Third, the reforms
promoted market-mediated agricultural land transfers and encouraged enterprise startup.
Some effects are heightened by proximity to Chengdu city, generating agglomeration ben-
efits.
As either anticipation or spillover effects could threaten our identification strategy, we
discuss these in more detail. For anticipation effects, governments inside Chengdu are
likely to have changed their behaviour in expectation of reforms once the prefecture had
been selected for comprehensive reform in 2007 (Li, 2012), and those outside may have
reacted to plans announced in 2012 for expansion of reforms beyond Chengdu. Regressions
suggest high land expropriations and local government-mediated transfers within Chengdu
in 2007 and outside Chengdu after 2008. While uncertainty would most likelylead to land-
related investment being postponed, thus imparting upward bias on our estimates, impacts
on transfers could go either way, depending on households’ subjective beliefs on whether
the reform will weaken or strengthen security of property rights. Although such beliefs
and the Government’s reform designs may have been completelychanged as a result of the
massive earthquake that hit Chengdu in May 2008, just two months after a pilot to provide
input into reform design had started (Lu and Yao, 2018), inclusion of prereform values of
observed Government behaviour (expropriationor government-mediated land transfers) as
additional controls is one way to assess the robustness of our results.The fact that estimates
are robust to adding these reduces concerns about our estimates suffering from systematic
bias.
On the other hand, spillover effectsmay trigger displacement of activities from villages
outside to those inside Chengdu. To explore if this may affect our estimates, we drop
almost two thirds of the control villages closest to the boundary.As neither of these affects
the significance of estimated coefficients, they reduce concern about estimates not being
robust. This suggests that reforms that jointly address imperfections in land and labour
markets can help address issues traditionally arising from urbanization in China. Recent
national policy changes thus deserve careful study and provide a fruitful opportunity for
further research.
In what follows, section II provides context by illuminating how imperfections in land
and labour markets have affected urbanization in China and discussing how the Chengdu
©2019 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd
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