Since 1984, the core of reforms has shifted from the rural areas to the cities. From 1985 to now, state-owned enterprises (SOE) have been under constant reorganization and yielded great improvements. Yet, more remains to be done, such as reforming monopolized sectors and accelerating the creation of a budgetary mechanism for managing state assets.

While the first pillar of the planned economy has been dealt with over the years, the second pillar – the dualism mechanism, has remained untouched. Thus, to truly end the planned economy era and realize a genuine market economy, China must reform the dualism mechanism.

The distinct household-registry for urbanites and rural residents is its main feature. However, the unification of an urban and rural household registry alone will not remove all the barriers that restricted farmers’ mobility into the cities, nor will it accelerate the urbanization process of rural areas. The key issue here is the land that is tied to the rural household-registry. In other words, the contract land and rural housing system must undergo reform promptly.

Allow Land Use Rights Transfer
The Household Contract Responsibility System was the most important reform in the early days of China’s economic transition. It deserves much credit for raising the living standards of Chinese farmers over the past 20 over years. However, the system also has many limitations, which are becoming more glaring as years pass. 

At present, it is virtually impossible to abolish the system without triggering upheavals in the countryside. In the absence of a replacement mechanism, removing the system hastily will only lead to social instability.

An alternative solution is to allow farmers to transfer the rights of using their land under the system. In other words, the system stays but farmers – on a voluntary basis – have the option to transfer, sub-contract, lease out, and share the land use rights with others. This will pave the way for scaled management and the development of professional farmers’ organization to commercialize the agricultural sector.

Another proposal is to set up a “Land Bank”, in which the farmers can leave their contract land in the care of a rural trust committee if they leave for cities in search of jobs. They can then earn annual interest rates from their land deposits.

If the land use rights could be transferred, many limitations under the current system would be overcome and accelerate the urbanization process. The unification of urban-rural household registry will eventually come around when the urban areas’ capacity – namely the supporting hardware and infrastructure – to absorb rural population is enlarged.