China’s new rural “separating three property rights” land reform results in grassland degradation: Evidence from Inner Mongolia

China is currently implementing the “separating three property rights” (STPR) reform to consolidate rural land. This reform divides rural land property rights into three components: nontradable ownership, nontradable contractual rights and tradable land use rights. The STPR reform adopts the rental of grassland use rights, a market-oriented approach, as the main arrangement for grassland consolidation. However, this arrangement may undermine the cornerstones of grassland restoration, which are the security of grassland property and payments for ecosystem services (PES) policies. As an alternative to the market-oriented approach, cooperatives are also encouraged to consolidate grassland use rights. We used a natural experiment approach to systematically examine how two different land consolidation arrangements affected key grassland ecosystem services in Inner Mongolia. In rented grasslands, all ecosystem services except provisioning services degenerated severely. Traded grassland use rights were perceived as insecure, which led to predatory land use by tenants. In contrast, cooperative-managed grasslands showed no serious degradation in ecosystem services. However, these cooperatives limited their group size by chief kinship to avoid the free-rider problem; thus, they are unlikely to become a primary channel of grassland consolidation. Because PES policy subsidies are still allocated to grassland contractors rather than to tenants, these policies are irrelevant to the conservation of rented grasslands. Based on our analysis, we suggest several ways to improve this new rural land property reform to avoid a major wave of grassland degradation in China.