China Will Allow Farmers to Lease, Swap Land to Spur Economy

By Dune Lawrence

Oct. 19 (Bloomberg) -- China's Communist Party will allow farmers to lease and exchange their land, as well as set up markets for such transactions, helping rural residents to raise money and moving the country closer to private land ownership.

The party will also encourage lenders to steer more credit to rural areas, according to a statement distributed by the official Xinhua News Agency.

The government is seeking to boost the efficiency of its agricultural sector and double the earnings of its 737.4 million rural residents by 2020. The average income of a rural resident was 4,140 yuan ($605) in 2007, less than a third of an urban counterpart, according to government statistics.

The move ``will unleash a lot of farmers' wealth hidden in the land,'' said Frank Gong, JPMorgan Chase & Co.'s Hong Kong- based chief China economist, in a telephone interview.

While farmers had limited rights to rent out or transfer land, today's statement lays a strong policy foundation and political endorsement of what was previously a gray area, Gong said. The move will encourage consumption by allowing farmers who move to urban areas to monetize their land and spend the funds in the cities where they live, according to Gong.

China's party leaders, who met Oct. 9-12 in Beijing, have made ``harmonious development'' a cornerstone of their policy, shorthand for addressing income disparity and uneven expansion in the world's fastest growing major economy. Unleashing the economic power of the rural population has taken on added importance as China faces a global slowdown.

``The unstable factors in the international economic environment are clearly increasing, and the impact on China is gradually appearing,'' China's cabinet said in a statement today. ``Our economic development possesses the capacity to resist risk and has strong vitality.''

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, has slumped 66 percent this year. Gross domestic product in the third quarter grew 9.7 percent from a year earlier, according to the median estimate of 12 economists surveyed by Bloomberg News, down from 10.1 percent in the previous three months. The data is due to be released tomorrow. The economy grew 11.9 percent in 2007.

The rural reforms announced today aren't enough to fend off the impact of the global financial crisis in the short term, according to Gong.

``For China to cushion the downside risk from the global financial crisis, I think they need to do more,'' said Gong. ``This is not going to be enough for the next six to 12 months.''

To contact the reporter on this story: Dune Lawrence in Beijing at dlawrence6@bloomberg.netXiao Yu in Beijing on yxiao@bloomberg.net