Down On the Farm; A rural crisis is forcing Beijing to reconsider the idea of private property.

Byline: Melinda Liu and Jonathan Ansfield

The minutes of the March 4 meeting--ostensibly convened by Communist Party policy advisers to discuss economic reforms and rural poverty--were supposed to be secret. But last month they leaked out on the Web, and ideological sparks have been flying ever since. What started out as a discussion by officials, economists and legal experts about deadlocked legislation on property rights has morphed into a fierce debate about the future of reform in China. Its outcome could determine how--and whether--Beijing will manage to bridge the widening gulf between the country's haves and have-nots. And its intensity is a gauge of how alarming that income gap--in large part an urban versus rural divide--has become.

When Deng Xiaoping began introducing market reforms nearly three decades ago, his aides quickly broke up rural "people's communes" into family farms, triggering a dramatic rise in peasant incomes. Today, however, the small farmers who make up the majority of China's population (849 million out of 1.3 billion people) are suffering. Last year rural per capita income was about $400 while the average city dweller's income reached $1,300. "This 3.22 to 1 ratio represents the worst urban-rural income gap in the modern history of China," states the advance draft of a study into rural land issues conducted by Chinese and U.S. researchers under the aegis of Beijing's Rural Development Institute (RDI). (The study, made with the help of Renmin University and Michigan State University, is slated for publication this fall in an American academic journal.) That problem has Chinese policymakers facing the sorts of divisive social and economic issues that fueled China's civil war and propelled Mao Zedong's peasant armies to power in 1949. Only this time the Chinese Communist Party (CCP) finds itself the status quo power, scrambling to rein in corrupt cadres.

China's rural residents are hurt by a simple fact: The country still lacks private-property rights. Chinese cannot legally own land. They can only obtain land-use rights--for 70 years in cities and 30 years in the countryside. On top of that, urban residents are allowed to sell those rights, while rural residents in practice have a much harder time doing so. The Rural Land Contracting Law, passed in 2002, was designed to end the tradition of reallocating rural land among households to reflect population changes--a practice that left farmers uncertain how long they would retain their plots and reluctant to invest in greenhouses, fisheries or other improvements. The law also gave leaseholders the right to initiate legal action to protect their leases. But the villages, and the CCP officials who run them, still retain ultimate authority over rural leaseholds, and land grabs by unscrupulous developers are a menace. "What happens when local officials want to sell off your farmland?" asks lawyer Wu Ge, a prominent Beijing-based rights attorney. "How do peasants fight the government?"

The answer is, with fists and fury. More and more Chinese are reacting violently to practices such as illegal eviction, inadequate compensation and rural land confiscation at the hands of powerful vested interests. Social unrest has escalated so dramatically in recent years that Beijing leaders acknowledge the stability of the regime itself is at risk.

Chinese authorities are scrambling to alleviate rural poverty--and have made it Beijing's top priority. The government has said it will eliminate agricultural taxes, improve rural health care, and provide free primary-school education. Yet these are clearly stop-gap measures. The most dependable way to boost rural incomes, say experts, is to grant farmers the rights to buy, sell and mortgage their land. Without such long-term property-rights guarantees, Chinese farmers will continue to lag far behind economically.

But genuine land reform would not erase a basic economic truth: Too ...