Land Rental Market Development in Rural China - Impact of Tenure Security and Trust World Bank Land and Poverty Conference, 26 March 2015.

Land Rental Market Development in Rural China - Impact of Tenure Security and Trust

World Bank Land and Poverty Conference, 26 March 2015

1. Introduction

Land rental market: Can enhance productivity and equity More efficient farmers gain access to additional land Less efficient farmers join off-farm labour force

Land rental market in rural China: Underdeveloped in some regions and highly segmented

Potential explanation: High transaction costs due to lack of tenure security and low levels of trust

Trust: May differ w.r.t. kinship and others within the own village

Tenure security: Major improvements in legal tenure security since

1998:● Farmers’ land use rights guaranteed in the long run● Land reallocations (in response to demographic

changes) almost entirely banned● Land certificates issued to rural households● Rights to transfer (rent in / out) farmland

Did they improve tenure security on the ground?● Actual tenure security (land reallocations, issuance

of certificates, etc.) may be lower● Farmers perceptions of tenure security matter for

their renting (& investment, migration) decisions

1. Introduction

Survey answers Jiangxi Gansu

Actual tenure (in)security 

Experienced a land reallocation since 1998 (%) 69 6

Average no. of land reallocations since 1998 3.4 1.0

Possesses a land certificate (%) 30 95

Perceived tenure (in)security 

Expects that land will be reallocated ≤ 5 years (%) 43 15

Agrees that land certificates protect land rights (%) 58 80

Results of surveys in Jiangxi, 2011* and Gansu, 2010**

*: 526 households in 11 villages in Shangrao and Yingtan Prefectures; **: 315 households in 21 villages in Minle County, Zhangye City

1. Introduction

Objective:Examine the impact of (i) actual and perceived tenure security and (ii) trust towards kinship and others on farm household decisions to rent in land in China

Contribution to the literature: Testing the role of both actual and perceived tenure

security in land renting decisions Examining the effects of perceived tenure security

under different levels of actual security Differentiating between the role of trust towards

kinship and towards known people in land renting decisions

1. Introduction

2. Model Specification

Three-stage decision model

Participation in rental market

Potential tenant

Non-participation

Informal contract

Formal contract

Rented land area

Rented land area

Probit

Probit

Tobit

Ⅰ

Ⅱ

Ⅲ

Basic modelMi = a0 + a1ASi + a2PSi + a3ASi×PSi + a4Ti +∑a5jXji + ui

Mi: participation decision / contract choice / rented land area

ASi: actual tenure securityPSi : perceived tenure securityTi : trust (kinship trust, trust towards known people)Xji : village, household, land and regional characteristics

Mi refers to renting in: Supply side is under-enumerated, as migrated households could not be interviewed in the survey

2. Model Specification

Minle County

Yanshang, Yujiang, Guixi County

3. Research Areas

Jiangxi GansuRural China(2010)

Household net income per capita (RMB) 5,326 4,500 5,919

Share of agricultural income (%) 44 70 46

Share of migrants to all workers (%) 46 22 36

Household land area per capita (mu) 1.58 4.28 2.28

Socio-economic indicators in Jiangxi, 2010* and Gansu, 2009**

*: 526 households in 11 villages in Shangrao and Yingtan Prefectures; **: 315 households in 21 villages in Minle County, Zhangye CitySource for Rural China: Calculated from NBS (2011a,b, 2012)

3. Research Areas

Data collection

1. Jiangxi case Survey in August 2011 (for

2010) in 3 counties 11 villages, 526 households in

total Data for 475 households used

2. Gansu case Survey in May 2010 (for 2009)

in Minle County 21 villages, 15 households per

village Data for 312 households used

3. Research Areas

Jiangxi Gansu

Renting in land (dummy) 0.37 0.16Use of informal contracts (dummy) 0.94 0.58

Rented in land area (mu) 10.0 9.30

Dependent variables & their mean values

4. Variables Definitions

Tenure security variables: See Introduction

Village-level perceived tenure security is used as a proxy: Endogeneity problem: Participation in land rental market may

affect land tenure security perceptions Captures the effect of transaction costs reduction of potential

landlords on household decisions to rent in land Defined as: Mean value of variable for other respondents in

same village

4. Variables Definitions

Trust variables: Respondents were asked to estimate their trust level on a

scale from 0 (totally distrust) to 1 (fully trust) Kinship trust: Trust towards parents, siblings, children and

relatives (mean values: 0.93 in both regions) Trust towards known people: Trust towards neighbours and

familiar (known) people (mean values: 0.75 in Jiangxi region, 0.84 in Gansu region)

Village-level trust is used as a proxy: Endogeneity problem: Participation in land rental market

may affect trust Captures the effect of being trusted on household decisions

to rent in land Mean value for all other respondents in the village

Estimation strategy: Heckman selection model used for testing possible

selection bias No significant selection bias found; hence Tobit model

used for rented land area Village-level cluster-adjusted standard errors 15 township dummies included

5. Empirical Results

5. Empirical Results

Explanatory variable Renting in

Informal contract

Rented area

No land reallocation since 1998 -0.12 0.09** 0.00

Possession of land certificate 0.12*** -0.19*** 0.12***

No land reallocations expected (village level means)

Experienced no land reallocation since 1998 0.50*** -0.27** 0.31***

Experienced land reallocation since 1998 0.13 -0.01 0.01

Land certificates considered as important (village level means)

Possesses a land certificate 0.15** -0.17* 0.16***

Possesses no land certificate -0.02 -0.07 -0.01

Trust towards kinship (village level means) 0.65 3.30*** 0.21

Trust towards known people (village level means) -0.14 -2.30*** 0.06

Average marginal effects

Main findings: Land rental markets in China are highly segmented Large differences exist between regions in actual and

perceived tenure security Actual tenure security: Land certificates more

important for land renting in than bans on land reallocations

Tenure security perceptions: Affect land renting in decisions of households with high actual tenure security

Trust: Affects in particular (formal/informal) contract choice

6. Conclusions

Policy implications: Land rental market development may benefit from Improved implementation of existing land laws and

regulations (to improve actual tenure security) Improvement of the legal enforcement system and

conflict resolution mechanisms (to strengthen tenure security perceptions)

Village-level social activities & participatory or community-based development projects (to stimulate trust)

6. Conclusions

Thank you!

Xianlei Ma

Nico Heerink

Ekko van Ierland

Hairu Lang

Xiaoping Shi

1. Introduction

Jiangxi Gansu

Households renting in land (%) 37 16

Rented in / contracted land (%) 66 9

Transactions with kinship (%) 95 85

Results of surveys in Jiangxi, 2010* and Gansu, 2009**

*: 526 households in 11 villages in Shangrao and Yingtan Prefectures; **: 315 households in 21 villages in Minle County, Zhangye City