The Economic Observer: What factors distorted the property market?

Cai Jiming: The fact that the government can acquire land at a very cheap price has many consequences. First, property prices don’t reflect their real value. If one property is valued at 100,000 yuan according the local property market, it shouldn’t be valued by the local government according to its grain output, which would make it worth only 10,000 yuan. A low price doesn’t reflect the property’s scarcity, and only begets more land expropriation and waste. Second, the income isn’t fairly distributed. With the above example, the farmers should make 90,000 out of the 100,000 yuan, but they actually only take home 10,000 yuan, while 90 percent of the income goes to the government and developer’s pockets.

The Economic Observer: only 10 percent for farmers?

Cai Jiming: More or less! Which is to say, though property prices are increasing, farmers are only able to get 10 percent. These kinds of transactions give rise to corruption. Fourth, with this in mind, the government will act on short-term interest. With land prices so cheap, the government would be stupid to not expropriate the land. This results in the excessive expansion of local governments and leaves no available land for the next administrations.

The Economic Observer: So basically, the property market was fair, but now the government is intervening and disrupting it?

Cai Jiming: I didn’t jump to conclusion of land privatization in the beginning. I’m just saying that  the present system creates a dualistic, urban and rural land ownership structure. But what is the fundamental reason for all of the problems? It’s land ownership. Take the countryside for example, the land is owned by the collective, but in practice is mostly contracted out to and operated by the farmers. But who works on behalf of the collectivity? The cadres of the village committee? If they represent the collective and exercise power on its behalf, they won’t always reflect the farmers’ rights and interests. Those farmers are always at a disadvantage and have no right to speech in the expropriation process. These deals always benefits village and town cadres.

The Economic Observer: For example, I am a village head, and I sell land for 100 million yuan. I think the money is much safer in the collective than with private farmers, and in accordance with the law, keep the money for the collective.

Cai Jiming: It works in theory. But practices vary from place to place. We need to consider why the collective wants to manage the funds in the first place. If the collective is afraid that the farmers will use up their dividends, it has reason to keep provisions for social security. We always doubt individual’s ability to consider what is in its best interest, always say that only the collective, our leaders and the state are rational. But the reverse may be true.

The Economic Observer: When you put forward land privatization in 2003, some scholars disagreed and called for continuation of the “permanent tenancy” system. While the state-owned enterprises can undergo drastic privatization reforms, why has reform of rural land ownership become such a complicated issue?