Earlier this year, Premier Li Keqiang spoke of the need to modernise Chinese agriculture, to help counter slower economic growth by driving investment in rural infrastructure and boosting consumption.
Investing in infrastructure in rural areas would help mop up some of the excess capacity in China’s steel and cement industries, for instance, as well as create new jobs, while overhauling farming models and improving efficiency in distribution systems should also boost rural incomes.
Farmers constitute the country’s largest consumer group, with some 630m people still making a living from agriculture, but productivity lags far behind that of developed countries as its share of GDP has declined over the years — and by increasing farmers’ incomes through accelerated agricultural modernisation, “we can activate farmers’ huge potential consumption demand,” he wrote in the Party journal Qiushi.
Although the country is self-sufficient in its most important food crops, its intensive farming practices which employ the excessive use of fertilisers, pesticides and plastic sheeting have caused serious environmental damage and threaten food safety. Farmers needed to focus on consumer demand rather than production volumes, and Li urged them to produce safe food and specialty products including organic ones.
“Currently, the quality and safety of agricultural products is generally stable, but hidden risks linger and people still frequently break the law,” Li said. “There are many steps in the distribution of farm products so costs are high. There is much wastage and efficiency is low, leading to farmers having trouble selling their products while consumers pay too much. This has long been a chronic problem.”
Li iterated the need to promote new types of farming models such as larger family farms, and to encourage the transfer of land rights to allow people who remain in the countryside to expand their farms — but farmers struggle to get loans to expand, as they have no assets to use as collateral. All Chinese farmland is owned by the State and the right to farm the land is leased to rural residents, and while Beijing has recently allowed them to transfer farming rights to others, larger farms struggle to obtain financing to increase their output.
It’s late into the night now here, but six months on, Li’s word is his deed — the State Council announced earlier today that China will launch a pilot programme allowing farmers to use their land and property as collateral for loans. In an effort to bolster financial support for the cash-starved farm sector, the move is aimed at deepening monetary reform.
As it is, Heilongjiang province, China’s breadbasket in the northeast, and eastern Shandong province have already begun experimenting with the use of land rights as collateral. Under the new project, both land use rights and property could be pledged to secure bank loans, and farmers’ interests would be strictly enforced.
“We will steadily and appropriately conduct the pilot programme on the use of the two rights as collateral, on condition that risks will be controlled and on the basis of relevant laws and policies on rural and reforms,” the Council stated.
The PBoC will encourage financial institutions to participate in the pilot and increase support for qualified institutions through re-lending, while the banking regulator would study ‘differentiated’ policies in setting capital adequacy ratios.
The Council will maintain the ‘red line’ in arable land – a minimum area mandated by the government to be reserved for growing crops to protect food security.
There is still an argument, however, that farmers should be allowed to use their contracted land rights rather than their operating rights as collateral. Contracted rights are derived from the collective land owner or local government to households for 30 or 40 years, who in turn can lease the right to use the land to others, while operating rights are only awarded for a few years — thus longer-term contracted rights generate an income stream which would be of more value to banks as security.
This all adds up to a timely moment to reduce lending rates.
But banks may yet be reluctant to take land and property rights as collateral, and the most important step the State could take would be to allow them to be traded freely.
Not unlike the yuan then.
In your own time, China.