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 segmentedrural China 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 JiangxiGansu Actual tenure (in)security Experienced a land reallocation since 1998 (%)696 Average no. of land reallocations since Possesses a land certificate (%)3095 Perceived tenure (in)security Expects that land will be reallocated ≤ 5 years (%)4315 Agrees that land certificates protect land rights (%)5880 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. IntroductionIntroduction

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 Probit Tobit Ⅰ Ⅱ Ⅲ

Basic model M i = a 0 + a 1 AS i + a 2 PS i + a 3 AS i ×PS i + a 4 T i +∑a 5j X ji + u i M i : participation decision / contract choice / rented land area AS i : actual tenure security PS i : perceived tenure security T i : trust (kinship trust, trust towards known people) X ji : village, household, land and regional characteristics M i 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

JiangxiGansu Rural China (2010) Household net income per capita (RMB)5,3264,5005,919 Share of agricultural income (%) Share of migrants to all workers (%) Household land area per capita (mu) 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 City Source 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

JiangxiGansu Renting in land (dummy) Use of informal contracts (dummy) Rented in land area (mu) Dependent variables & their mean values 4. Variables Definitions Tenure security variables: See IntroductionIntroduction 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

Explanatory variableRenting in Informal contract Rented area No land reallocation since **0.00 Possession of land certificate 0.12*** -0.19***0.12*** No land reallocations expected (village level means) Experienced no land reallocation since ***-0.27**0.31*** Experienced land reallocation since Land certificates considered as important (village level means) Possesses a land certificate0.15**-0.17*0.16*** Possesses no land certificate Trust towards kinship (village level means) ***0.21 Trust towards known people (village level means) ***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. IntroductionIntroduction JiangxiGansu Households renting in land (%)3716 Rented in / contracted land (%)669 Transactions with kinship (%)9585 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