Understanding China’s Rural Collective Economic Organizations Law – Analysis
By Yang Xite
On June 28, Chinese President Xi Jinping signed the presidential orders to promulgate the new Rural Collective Economic Organizations Law, which will be implemented from May 1, 2025.
The law defines a "rural collective economic organization" as “a regional economic organization that is based on collective ownership of land, exercises ownership on behalf of its members in accordance with the law, and implements the two-level management system characterized by the combination of centralized operation with decentralized operation on the basis of household contracted management, including a group, village, township, or town rural collective economic organization”.
There are concerns within the country whether rural areas will move towards collective economic development in the future, and if the agricultural fields might adopt a unified and centralized management model. The new law reminds some of the People’s Communes that existed in China from 1958 to 1983, where living and working practices were collectivized and dictated by the state. On the other hand, proponents argue that the introduction and implementation of this law does not have that objective in mind, but rather to enhance rural economic development and improve farmers' livelihood.
On the other hand, researchers at ANBOUND believe that the Organizations Law is designed to strengthen the management of rural areas and redistribute powers, assets, and funds while preserving the basic forms of rural communities without significant changes at the grassroots level. Therefore, the collective economy in rural areas is not intended to revert to People's Communes but to reinforce the concept of collective economic organizations through top-level power adjustments, which in essence is to strengthen the Chinese Communist Party's management of rural areas.
The Organizations Law primarily regulates the operation and management of rural collective economic organizations, aiming to protect the rights of their members. The purpose of this is to enhance the development of new rural collective economies, allowing China to strengthen its agricultural sector. Such collectiveness in the organizations actually serves as a basic platform for organizing activities, which diminishes the emphasis on the concept of collective economic organizations.
When it comes to the implementation of such a law, researchers at ANBOUND believe that the relevant Chinese authorities will need to pay particular attention to four specific aspects.
Firstly, there is a need to prevent excessive reforms. The rural household contract responsibility system has been in place for many years. This system, introduced to replace collective farming, retained public ownership of land and some means of production while assigning production responsibilities to individual households, and farmers have adapted to individual economic models. Farmers generally operate independently of village collective entities in their production and business activities, earning their livelihood through farming and supplementing their income through commerce or off-farm work. Historically, rural collective economies have often been nominal with minimal practical impact. Currently, there is considerable debate over whether promoting the growth of rural collective economies entails changing farmers' traditional individual economic model to implement unified, large-scale production and operations. Although the specific provisions of the Organizations Law do not negate or abolish the contract responsibility system, the establishment of new rural collective economic organizations and their engagement in production and operations will inevitably involve issues such as member qualification verification, collective asset registration and rights confirmation, the election and composition of organizational leadership bodies, land leasing, and the transfer of operating rights and shares. As these actions could affect villagers' rights and normal agricultural production, the reforms must proceed cautiously to mitigate the concerns of the farmers.
Secondly, sufficient policy support is indispensable. While this legislation carries more authority compared to previous systems, historically, the development of rural collective economies in China has been less than ideal. Especially in certain impoverished and underdeveloped rural areas, unlike their counterparts along the eastern coast with thriving industrial clusters and the economic benefits of strategic locations, there has been limited success beyond the traditional model of land transfer. The reasons behind this include geographical and locational factors, as well as the lack of supportive policies. For a typical village in the western region of the country to truly develop its collective economy, it not only requires capital injection and capable organizational leadership but also guidance and nurturing from higher-level government departments. However, currently, due to ongoing issues such as corruption within village collectives and various disputes, higher-level authorities may be reluctant to intervene extensively in village collective affairs. Therefore, to effectively develop rural collective economies, the key lies in complementary policies addressing these other aspects.
Thirdly, avoiding being in conflicts with farmers over profits is crucial. Despite low farming yields, land remains essential to farmers' livelihoods. According to the Organizations Law, the assets of rural collective economic organizations mainly consist of resources such as land and forests, and their operational activities primarily revolve around land, including various forms of land leasing, renting, and equity participation. In theory, there may be conflicts of interest between the operational activities of rural collective economic organizations and the interests of individual farmers. The law explicitly stipulates that land owned collectively or by the state but used by rural collectives, including farmland, woodland, and grassland, should be operated under contract according to the Rural Land Contracting Law. For other rural lands not falling under this category, rural collective economic organizations have the right to directly organize operations, implement contract operations according to law, or engage in operations through methods such as leasing land rights or equity participation.
The Organizations Law explicitly grants villagers the right to contract land for operation, ensuring village collective organizations cannot infringe upon this right. However, implementation may deviate in practice. One concern involves profit-seeking through land leasing. The law designates "leasing rural land" as a primary function of village collective economic organizations, alongside their right to "legally contract rural land leased by them". This dual arrangement raises concerns that village collectives might lease less land to farmers. Another issue pertains to profit-seeking through operational rights. Many farmers now lease their land to larger-scale operators rather than farming it themselves, benefiting from lease income. With the establishment of village collective organizations, there is uncertainty about whether they will transition to unified and large-scale operations.
Fourthly, it is essential to prevent farmers from shouldering increased debt burdens. If village collective economic organizations operate as legal entities similar to joint-stock enterprises focused on production and operations, they face potential profits and losses. Profitability ensures subsidies for village officials, funding for public affairs, and dividends for villagers, basically meeting the expectations of all sides. However, in case of losses, questions will arise regarding where the responsibility lies. In addition, these organizations can secure financing, encouraging financial institutions to offer diverse financial services and support. This raises a critical question: if mismanagement by village collective economic organizations results in losses and an inability to repay bank debts, will these debts be transferred to farmers, i.e., organization members? These are pressing issues that require careful consideration.
It is worth mentioning that the establishment of rural collective economic organizations is closely related to the concept of "central economy" proposed by ANBOUND’s founder Kung Chan. Therefore, the "collective economy" is actually a part of the central economy, and these organizations are required to align with central government directives. Furthermore, facing increasing international geopolitical risks, China has elevated food security to a strategic level. However, the declining trend in the autonomy of farmers contracting land and in self-sufficiency in food contrasts sharply. Therefore, the country is mobilizing rural collective economic organizations to prepare for potential future changes. We believe that the "central economy" may become a significant feature of China's economy in the future.
Final analysis conclusion:
The Rural Collective Economic Organizations Law signals a significant shift in China's agricultural policy, i.e., a return to collective economy and strengthened management under the "central economy". This move aims not only to rejuvenate rural economies but also serve as a measure of rural governance amidst the current economic and geopolitical conditions. The challenge faced by the country in this regard lies in refining and establishing rural collective economic organizations, as well as the implementation. If these issues are not properly addressed, it could compromise the practical effectiveness of the new laws.