Land Reallocations, Passive Land Rental, and the Development of Rental Markets in Rural China

Based on a unique farm survey, this article intends to shed new light on the intriguing relationship between administrative land reallocations and the development of land rental markets in China. We find that the two alternative mechanisms of allocating arable land tend to be substitutes where land is reallocated “partially” only among households affected by demographic change (PLR). Where village-wide or “full-scale” reallocations (FSLR) are conducted among all households, however, land rental market transactions have increased in response to the enlarging mismatch in labor-land ratios across households; transactions that would not have occurred otherwise. While inefficient in the short-run, FSLR potentially facilitates the development of land rental markets as it unwittingly brings together parties with a mere arms-length relationship (e.g., non-relatives) to contract with each other, in light of the finding that households affected by PLR tend to lease land primarily to/from their own relatives or through the village authorities.