Revisiting China’s Rural Residential Land Consolidation: A Perspective of Functional Reconfiguration

Abstract

There are considerable debates about the impact of rural residential land consolidation (RRLC) on villagers. Rather than engaging in the ongoing debates of either/or choices again, this article intends to analyze the mechanisms by which RRLC benefits villagers in a specific time and location. Using L town as an example, this article demonstrates that the mechanisms by which RRLC works are dependent on the adaptive property rights functions of rural residential land (RRL), which emerged from the spontaneous and endogenous interactions among actors. Functional adjustment and substitution reconfigure the property rights functions to balance the interests of various actors. The supportive partnerships between actors make the reconfiguration process implementable, as well as ensuring that the pre-existing property rights functions and the desired functions of the various actors can be considered. The findings may provide a new perspective on evaluating RRLC and the reform of property rights, as well as valuable insights on improving the performance of government interventions.

1. Introduction

Rural outmigration and the subsequent rural decline are inevitable consequences of urbanization and globalization [1,2], and many countries have used land consolidation as a policy tool to combat rural decline and promote rural transformation [3]. Since the 1960s, rural land consolidation initiatives and village transformation programs in Germany have helped preserve villages and provide rural areas with equal opportunities for education, employment and social services compared to urban residents [4,5]. Land consolidation was conducted throughout Central and Eastern Europe in the 1990s to address issues caused by privatization and market-based land reforms, as well as to support sustainable rural development [6,7]. Some Asian countries have used land consolidation to improve agricultural productivity and promote rural development [8,9,10,11]. In Africa, land consolidation is also an effective tool to achieve the Sustainable Development Goals [12,13,14]. In these countries, the purpose of land consolidation has evolved from mitigating land fragmentation, increasing farmland productivity and ensuring food security to reconfiguring rural ecological, productive and living spaces [8,15].

In China, land consolidation is also important for rural transformation [16]. Initially, its main target was farmland, and the “Requisition-Compensation Balance of Farmland” policy made farmland consolidation important for accessing urban land. However, the decreasing availability of farmland reserves challenged the dynamic balance of total farmland. To balance farmland protection and urban construction land demands, the central government implemented the “Increasing versus Decreasing Balance” policy in 2005. This policy made rural residential land (RRL) another important target of land consolidation and rural residential land consolidation (RRLC) an important type of land consolidation. RRLC involves the demolition of farmhouses, the reclamation of RRL into farmland and the resettlement of affected villagers. In 2017, the Rural Revitalization Strategy identified RRLC as an important tool for rural transformation [17,18].

For scholars who prioritize efficiency, RRLC can improve the use efficiency of RRL by optimizing the property rights structure and land use structure [19,20], as well as by activating the economic value of RRL and broadening villagers’ income sources [21]. However, RRLC is more contentious than farmland consolidation because it involves villager resettlement. Some studies point out that RRL is essential for villagers to engage in agricultural activities; resettling them to apartments would impair agricultural production conditions and deprive them of their livelihood resources [22]. In some cases, RRLC is driven by local governments, enterprises or rural elites who capture land incremental value at the expense of unorganized villagers [23,24,25].

Similar criticism surrounds development-oriented resettlement programs in many developing countries. Since the 1970s, several East African countries have attempted to use villagization, a development strategy to resettle dispersed peasants into government-planned communalized villages [26,27] to enhance the livelihood resilience of rural communities, diversify income sources, offer improved social services for peasants and develop a modern agricultural system [26,27,28]. Yet, a study on World Bank programs reveals that nearly all development programs have resulted in a decline in the condition of the resettled individuals [29]. Villagization not only undermines the long-established lifestyles, cultural preferences and indigenous knowledge of local communities, but it is also viewed as a mechanism used by the government and private sector to seize land resources from pastoralists [28].

A major issue in the above discussions is that they are more concerned with the form that institutions should take (e.g., consolidation of scattered land, formalization of property rights of RRL or modernization of traditional villages). Rather than following scholars’ own priors of what institutions should do, it is more important to understand what institutions actually do [30]. The institutional form may be non-rational accidents [31], while the institutional function, defined as roles or purposes that actors accord to an institution [32], can only emerge endogenously and spontaneously from actors’ interaction. From this perspective, what matters in RRLC is not changes in the form of property rights of RRL but changes in the property rights functions of RRL. Thus, the purpose of this article is not to rejoin the support–opposition debate over RRLC because its performance is context-dependent. It is more important to understand why it works, or does not, at a given time and place. The analysis is guided by two aims: first, to analyze the interactions among multiple actors during RRLC; and second, to elucidate how the interaction reconfigures the property rights functions of RRL, which underpin the credibility of the property rights of RRL. The findings of this article may provide a new perspective on evaluating RRLC or institutional reforms, as well as on how governments intervene in institutional reforms.

The subsequent sections are organized as follows: The second section proposes the theoretical framework. The third section outlines the practical and institutional environment of RRLC. Then, the fourth section introduces the research methodology. The fifth section examines how RRLC influences the credibility of the property rights of RRL. The last section concludes the article.

2. Theoretical Framework

From the perspective of the property rights theory, many problems, such as the disorderly expansion and underutilization of RRL, the deterioration of the village living environment and the widening urban–rural gap, can be attributed to incomplete property rights of RRL [33]. Thus, clear, divisible and transferable property rights of RRL are important to improve land use efficiency by facilitating land transactions and optimizing land use structure [20,34], which, in turn, affects the social, cultural and industrial transformation of rural areas [35]. However, some scholars think that the collective ownership of RRL plays an important role in securing villagers and stabilizing rural areas [36], even if it does not adhere to the ‘correct’ form emphasized by property rights theory. If its security role is not taken into account, blind property rights reform of RRL will have a negative impact on villagers and rural development [37]. These debates over the property rights of RRL are more focused on the template of institutional form, i.e., whether to reform or maintain collective ownership of RRL. However, the Credibility Thesis reminds us to distinguish between the form and function of property rights. The former are property rights defined by policies and regulations, while the latter, which ultimately determines institutional performance, is derived from endogenous and spontaneous interactions [38].

Institutional function is defined as the role of a set of rules that evolve from continuous adaptation to the environment [39]. The concept of institutional function highlights two crucial elements. One aspect is the endogeneity of institutional functions, meaning they arise unintentionally from interactions, whereas institutional form can be designed exogenously by an actor [40]. Secondly, endogeneity implies that institutional functions arise from continuous adaptation to actors’ needs in a particular socio-economic environment. The significance of property rights, therefore, resides in their capacity to fulfill the purposes or needs of rights holders [31,41]. This capacity depends on interaction among rights holders or in a wider range of social relationships [42,43].

Although the Credibility Thesis emphasizes the significance of interaction for institutional functions, it fails to elaborate on the characteristics of actors’ behavior and their interactions. Furthermore, it ignores the impact of institutional form on interaction. Institutional form is not necessary for the ability to enjoy a good, but it does serve as a way of realizing, strengthening or weakening such an ability [42,44]. This paper, therefore, employs the IAD framework to deepen the understanding of interaction, emphasizing the influence of rules on individual and collective behavior. By defining the boundaries of permissible, prohibited and required behaviors, rules directly influence the types of actors and the action situation, which, in turn, shapes the interactions between actors. The action situation contains variables such as resource allocation rules, actors’ control rights, information structure, and cost–benefit situations [45], all of which influence the incentive structure and behavioral choices of actors. Consequently, the interaction characteristics, including the benefits of action, degree of information sharing, negotiation processes, conflict types, investment activities, self-organization activities and monitoring and evaluation activities, would lead to different interaction outcomes, which subsequently influence the dynamics of the rule and the action situation.

Employing concepts of interaction and institutional function, this article proposes a theoretical framework of “institutional form–interaction–institutional function–institutional credibility” (Figure 1) to examine the internal mechanisms by which RRLC affects the credibility of the property rights of RRL. The framework begins with the challenged credibility of the property rights of RRL, because the property rights of RRL, characterized by “use control and limited transfer”, have increasingly failed to adapt to the changing socio-economic structure of rural areas. The residential and security functions that the property rights of RRL provide are less aligned with the purposes that villagers and local governments desire.

As a result, the government relaxes the restrictions on the right to use RRL, allowing market entities to obtain this right by investing in RRLC, as well as allowing them to share the value-added gains from the development and utilization of underused residential land. Thus, the RRLC is essentially a government-initiated measure to redefine and redistribute the property rights of RRL, aiming to address its challenged credibility. The implementation of RRLC expands the use of RRL beyond residential purposes to the generation of construction land quotas, thereby indirectly circumventing the limitation that RRL usage rights can only be transferred among collective members. Market entities investing in RRLC can now obtain these construction land quotas.

Changes in the property rights of RRL determine the types of participants in RRLC and their interaction by specifying who can own what, what they can do, and what they cannot do. The interaction mechanisms, including an incentive structure and decision-making mechanism, emphasize relations between governmental and non-governmental actors. The incentive structure illustrates the motivations of various participants in the RRLC, while the decision-making mechanism indicates the way and extent of their participation. Usually, centralized decision-making has a ‘top-down’ power structure, wherein decision-making authority is concentrated among a few key individuals. Decisions are made based on their judgment, experience, expertise and understanding of the issue, thereafter relayed to subordinates for execution, with information flowing unidirectionally from top to bottom. This approach facilitates the prompt completion of tasks, yet it may compromise the representativeness and implementability of decisions due to asymmetric and inadequate information. In consultative decision-making, information is communicated bidirectionally between different parties, with decisions derived from consensus between the parties. This process enhances the adaptability of decisions to local contexts and stakeholder interests while also reinforcing stakeholder agreement with the results and diminishing the likelihood of subsequent conflicts.

Then, interactions between actors can reconfigure the property rights functions of RRL by strengthening or weakening property rights functions (functional adjustment) and by transforming or compensating between different functions (functional substitution). These functions, emerging from interaction, can balance the purposes, even conflicting purposes, of various actors. This alignment of interests prompts us to view the collective ownership of RRL as a mutually agreed arrangement, hence improving the credibility of the collective ownership of RRL. Institutional credibility reflects actors’ common acceptance and support of institutions, typically measured by the level of conflict [38,46].

3. Rural Residential Land Consolidation (RRLC): An Attempt to Adjust Collective Ownership of RRL

3.1. Credibility of Collective Ownership of RRL Before RRLC

After a brief period of private ownership of RRL from 1949 to 1962, rural China transitioned to collective ownership of RRL. Villagers were allowed to use RRL without payment for an extended duration. Only collective members can use RRL, and they are not allowed to use RRL or farmhouses for commercial activities. The collective ownership of RRL, together with the collective ownership of farmland, ensures basic production and livelihood security for villagers, ultimately increasing their reliance on the villager collective. At this stage, the collective ownership of RRL has significantly contributed to safeguarding villagers’ housing rights and maintaining rural stability. Following the reform of the household contract responsibility system in 1978, villagers’ preference for RRL began to change, while the collective ownership of RRL failed to respond to these changes, challenging the credibility of the collective ownership of RRL.

First, rural outmigration diminished dependence on agricultural income, and the diversification of income sources reduced villagers’ demand for the residential function of RRL, while the penetration of the market economy into rural areas increased their recognition of the asset attributes of RRL. However, RRL was only allowed for residential uses and small-scale intra-village transfers, limiting villagers’ capacity to benefit from the property rights of RRL. Furthermore, land expropriation is the only legal way to transfer RRL in the land market. The government’s administrative authority puts villagers in a passive and obedient relationship and excludes them from land expropriation decision-making processes. Due to a lack of participation, villagers are unable to share equally in the land increment value generated by converting RRL to urban construction land. Second, the institutional characteristic of “free and long-term possession and use of RRL” incentivizes eligible villagers to apply for RRL, resulting in an increase in the size of RRL when the rural population decreases. Third, collective ownership makes the villager collectives owners of RRL in an ambiguous or absent state, which makes them lack the economic incentive to effectively govern the RRL. The decentralized distribution of RRL places additional challenges on the villager collectives to effectively use and govern RRL. Moreover, villagers’ reducing dependence on RRL undermines traditional village norms based on geography and blood ties, weakening the ability of village cadres to govern RRL.

These reasons result in the idle and illegal use of RRL, reflecting the villagers’ dissatisfaction with the collective ownership of RRL, as well as the ineffectiveness of the government’s controls on the property rights of RRL, making collective ownership of RRL less credible to both the government and villagers. According to the Ministry of Agriculture and Rural Affairs of the People’s Republic of China, the idle rate of rural residential land nationwide is 18.1% [47]. The idle residential land hinders the optimization of village spatial layouts and the improvement of the rural living environment, resulting in a residential function that falls short of villagers’ growing expectations for a comfortable living environment. Simultaneously, various illegal behaviors, such as encroachment on farmland to build houses, illegal farmhouse construction and building new houses without demolishing the old ones, occur from time to time. In urban villages and peri-urban villages, villagers ignore legal restrictions and use RRL for commercial purposes to maximize their de facto interests [48]. In response to challenged credibility, the government has begun to relax restrictions on the property rights of RRL, encouraging non-state actors to invest in and implement RRLC.

3.2. The Institutional Background of RRLC

To ensure 1.8 billion mu (one hectare equals 15 mu) of farmland, Chinese governments use farmland conversion quotas, which restrict the maximum amount of farmland that can be converted to construction land for the year, to regulate the expansion of construction land¹. However, farmland conversion quotas are allocated top-down based on factors like the level of economic development, development trends, national development strategies and political equity. Thus, cities with faster economic growth and higher demand for urban construction land may not necessarily receive more quotas.

To meet the increasing demand for urban construction land while also ensuring the amount of farmland, the central government implemented the “Increasing versus Decreasing Balance” policy. An “Increasing versus Decreasing Balance” program (Abbreviated as “an Increasing-Decreasing program”) involves two phases (quota generation and quota utilization) and three zones. By demolishing farmhouses and reclaiming RRL into farmland within the reclamation zone, more farmland is generated, exceeding the land use plan requirements. Consequently, the county can add as much urban construction land as newly added farmland. As the affected villagers in the reclamation zone are resettled to a high-density centralized residence zone, the quotas used for the centralized residence zone are less than the quotas generated, resulting in some quotas being saved (“surplus quota”²). The surplus quotas can be used to convert farmland in the industrial development zone into urban construction land, implying that the amount of newly added urban construction land can exceed the amount restricted by farmland conversion quotas. Meanwhile, the total amount of farmland and construction land does not change; only the land spatial layout changes: more construction land in the urban areas, but more farmland in the rural areas.

During this process, the right to use residential land is converted into tradable construction land quotas. In contrast to the right to use residential land, the exchange of construction land quotas is less constrained by the reliance on certain spatial and resource attributes, and the trading objects and scope are no longer confined to the village. This indicates that there are additional methods to use and derive benefits from residential land beyond conventional transfer methods like leasing and selling. Moreover, villager collectives, as the quota owners, can collaborate with a market entity for the generation of quotas. Revenue from quota utilization or transactions is distributed according to the proportions stipulated in the contract.

The tradable quotas create social and economic environments that enable local actors to adjust their behaviors and relationship dynamics, affecting the allocation and utilization of land resources and ultimately leading to the reconfiguration of the property rights functions of RRL.

4. Methodology

4.1. Case Selection

L Town is located in north-eastern Chengdu, around 70 km from Chengdu (Figure 2). It has nine administrative villages and engages mainly in agriculture. L Town was chosen to examine how RRLC affects the credibility of the collective ownership of RRL. Although a single case cannot fully capture the picture of RRLC in China’s rural areas, it offers insight into general issues.

Firstly, compared with peri-urban villages and urban villages, villages in L Town are located in peripheral rural areas that are less (positively) affected by metropolitan regions, making them more typical of the majority of China’s ordinary rural areas. Villages in L Town were subject to similar issues faced by most villages in central and western China and other developing nations, including massive rural out-migration, derelict and idle rural houses, decreasing employment, a depression of rural industries, deteriorating quantity and quality of services available to rural citizens, community marginalization, the fragmentation of land ownership and management, ambiguous collective ownership of rural land and urban-biased policies [49,50,51,52]. However, the village has effectively improved its living environment through RRLC without imposing significant financial strain on the governments or village collectives. This experience is more relevant for rural areas less affected by urbanization.

Secondly, L town is an appropriate example for investigating the relationship between institutional form, actors’ interaction and institutional function. On the one side, RRLC in L town involved different actors, including local governments (county and township government) and non-governmental actors (market entities, villagers and village cadres), making it an ideal case to analyze the micro process and interaction mechanisms during RRLC and the impact of their interactions on the institutional functions of property rights. On the other side, Chengdu’s reforms of rural land have gained significant attention since it was named the National Reform Pilot for Integrated Urban-Rural Development in 2007. Chengdu has been implementing RRLC for several years and has established a systematic framework characterized by being “guided by the government, dominated by village collectives, and oriented by market mechanisms”. This framework provides a supportive institutional environment for partnerships during RRLC. Thus, the practice in L town not only shows the impact of government-led property rights reform, but it also allows us to observe how actors’ interactions affect property rights.

4.2. Data Collection

In April 2021, in-depth interviews and field investigations were conducted to examine the procedures and effects of RRLC. Data was mostly collected through semi-structured interviews and questionnaires, with supplementary information obtained from secondary sources.

First, due to their decisive roles in land resource management and policy formulation, we interviewed officials from the land-related departments of the county government and the township government to get a general picture of the situation in L Town. Second, we interviewed the village party branch secretary and village group leaders. They were asked to discuss in detail the village’s basic socio-economic characteristics, such as total population, per capita residential land area and dominant industries, as well as the initiation, process and effects of RRLC. Interviews with them lasted approximately 2 to 3 h and were recorded on tape. Third, a questionnaire survey was conducted with affected villagers to ascertain their demographic and socio-economic characteristics, housing conditions and attitudes in response to RRLC. Each questionnaire took approximately 40–60 min. To ensure the authenticity of the villager information, one-on-one questionnaire surveys were conducted with villagers, excluding government officials and village cadres. Convenience and snowball sampling methods were used to identify interviewees, ultimately collecting 81 valid questionnaires. Appendix A provides the respondents’ profiles.

This paper examines a successful case to analyze the influence of RRLC on the credibility of the property rights of RRL. Focusing on the RRLC project in L Town, these insights, rooted in a context-specific case, enhance the comprehension of how RRLC influences the credibility of the property rights of RRL. However, due to the diversity of practices, comparisons between different villages are still necessary. Two other village types necessitate further attention. The first type is a village that uses surplus quotas on its own to develop rural industries. Rural industrial development would put additional strain on the capacity of RRLC implementers while also complicating interactions and benefit-sharing relationships. Therefore, more cases are required to investigate and compare the interaction and functional structure when surplus quotas are used in different ways. The second type is those where RRLC was not successfully implemented. The mechanism by which RRLC influences the credibility of property rights of RRL, as discussed in this paper, can be applied to analyze why those cases failed. These cases can, in turn, improve the theoretical framework of this paper.

5. Case Study: The Approach to Improving the Credibility of Property Rights of RRL

5.1. Interaction Model During RRLC

The implementation of RRLC requires proficiency in finance, management and engineering, as well as a deep understanding of local knowledge. No individual entity can acquire the necessary competencies to accomplish RRLC [17]; in particular, many local governments and village collectives in central and western China struggle to build the capacities, including financial and human resources, required to implement RRLC. Therefore, the implementation will require supportive partnerships. The actors directly involved are villagers, the county government, the township government, village cadres and the market entity. They interact on the generation of construction land quotas and the distribution of income from quota trading (Figure 3).

5.1.1. Incentive Structure for Actors

Villagers’ motivation depends on their perceived benefits of RRLC. The direct benefits are safer houses, a better living environment and monetary compensation. The indirect benefits are non-farm employment opportunities⁴. However, villagers are required to purchase the resettlement housing at RMB 900/m². There are still one-off expenditures for renovations, furniture and utility setup, as well as increases in daily living costs. The survey revealed that 83.95% of interviewees experienced increased consumer expenditures (including expenditures on food, water, electricity, gas, telecommunications, etc.) after RRLC. Notably, villagers’ willingness to participate was influenced not only by economic incentives but also by trust in rural elites. During an interview with Secretary Liu of the village branch in L village, he mentioned that “Before implementing (RRLC), several other village secretaries and I discussed this thing (RRLC). I knew that this policy was better, but some villagers were afraid, I told them, ‘if you trust me, you can participate, I will be responsible if things goes wrong’. Then, one influences the other, and more people participated.”

The county government and township government share common interests in improving the rural living environment, safeguarding villagers’ rights and interests and promoting rural stability and development. Given that these objectives are an important part of China’s Rural Revitalization Strategy, using the fruits of rural development to gain political capital and enhance the reputation of the government are also important reasons for local governments to participate. However, their economic motives vary. The county government, which possesses the authority to transfer urban construction land, could benefit from the gap between land transfer fees and quota purchasing costs, as well as from tax revenue and increased employment opportunities due to industrial development. In contrast, the township government, which does not have such authority, benefits from working funds. These funds are charged at a rate of 5000 yuan per mu based on the number of surplus quotas. A higher number of participating villagers results in a greater number of quotas, incentivizing the township government to encourage villager participation.

The market entity’s primary goal is to profit from quota trading. According to the contract, the county government agrees to repurchase surplus quotas at RMB 290,000 per mu⁵. If the government does not buy back these quotas within three months, the market entity can sell them on the Chengdu Agriculture Equity Exchange at RMB 300,000 per mu. There is considerable potential to generate surplus quotas because the average per capita homestead area in the reclamation zone was 230 m², considerably above the 35 m² threshold set by the provincial government. To generate more quotas, the implementation plan stipulated that only villagers with a per capita homestead area of 110 m² could participate, though participation remained voluntary. At the same time, the market entity needs to bear the costs of villager compensation, construction of centralized resettlement areas, reclamation of residential land, etc.

Village cadres play a key role in policy advocacy, information collection and communication, extending beyond their daily work. Despite these added responsibilities, they do not receive extra payment; instead, they are still influenced by the existing governmental evaluation system. In a conversation with a village branch secretary, he mentioned that “except for the village committee, the relationship between the remaining three parties (county, township government, and the company) is mutually beneficial, and each receives additional economic benefits; however, the village committee receives very little direct economic benefit from the process, and is more of a service provider.” It can be seen that economic incentives play a limited role in mobilizing village cadres to participate, and performance appraisal from the local government remains the main driver for their participation. In addition, as village cadres are elected by the villagers, their authority is rooted in the villagers’ support. Therefore, active participation in RRLC and defending villagers’ interests serve as critical criteria for villagers to assess village cadres’ duties and service roles. This, in turn, influences the villagers’ subsequent support and recognition of the village cadres, directly impacting the sustainability and consolidation of the legitimacy of their authority.

5.1.2. Decision-Making Mechanism

Combining the ladder of participation [53] with insights from other literature [54,55], this article describes the decision-making by examining who is involved, when they are included and the substance of the decisions being made.

First, local governments define the village’s development orientation based on their own observations and evaluations, then they decide if, why and when to adopt RRLC, without villagers’ participation. Other actors are involved in the decision-making process regarding ‘how to implement’. In L town, RRLC can be traced back to the State Council’s post-disaster reconstruction policy in 2008, which allowed Sichuan Province to deploy Increasing-Decreasing programs to help rebuild disaster-stricken communities. L town, one of the affected areas, was authorized by the provincial government in 2010 to implement the program.

Secondly, the ‘government–company’ partnership influences ‘how to implement’. Local governments are not directly involved in the implementation of RRLC but rather guide and constrain the behavior of the market entity through policy creation, technical guidance, project auditing and dispute mediation. For example, the county government required the market entity to allocate at least RMB 240,000 per mu for investment in the reclamation zone. Half of this amount was designated for compensating villagers, while the remainder was used to develop the centralized residence zone.

Meanwhile, the county government allows the market entity to invest in RRLC and to share in the land value-added gains. The market entity possesses the necessary financial and human capital to implement RRLC, whereas the county government’s deficiency in financial resources and local expertise hinders its capacity to implement RRLC successfully. In 2012, the county government brought in YJ company, a local company experienced in land consolidation. The company assumed responsibilities such as fundraising, negotiating with villagers, designing implementation plans and overseeing engineering construction, thus relieving the local government’s workload and reducing its financial pressures. Furthermore, implementing RRLC by the market entity can build a firewall between the villagers and the local government, alleviating potential social pressures on the government. The township government, responsible for enforcing county policies, had the authority to monitor and regulate the market entity’s behavior. This involved the establishment of a co-management fund account with the market entity, where the market entity was required to keep a credit deposit equal to 20% of the anticipated total program cost. Funds from villagers intended for purchasing resettlement housing were also deposited into this account. Access to these funds required approval from both the village committee and the township government.

Thus, the ‘government–company’ partnership was built on their comparative strengths. The market entity’s power stemmed from its financial resources and expertise in communicating with villagers. The county government’s power was derived from its administrative authority and role as a quota purchaser, providing legitimacy and economic motivation for the market entity to invest in RRLC.

Thirdly, the ‘villager–company’ partnership also has an impact on ‘how to implement’. The villagers’ power stemmed from their roles as direct occupiers of RRL, alongside the upper-level government’s emphasis on “safeguarding villagers’ rights and maintaining rural stability’, which made the villagers’ willingness crucial for the successful implementation of RRLC and the market entity‘s return on investment. To gain villagers’ support, it was required to disseminate information about RRLC to them, solicit feedback and then negotiate the implementation plan with them. Omitting their opinions may result in mistrust or weak commitment, ultimately resulting in increased implementation and monitoring costs. The market entity’s power still stemmed from its capital, as villager collectives often lacked the capital, skills and expertise required to implement RRLC, necessitating collaboration with other actors. Furthermore, the partnership with the local government provided legitimacy for the market entity when communicating with villagers.

Compared with land expropriation, villagers participated more actively. They had the opportunity to refuse participation and negotiate the compensation standards. The compensation was negotiated and delivered between the villagers and the market entity; village cadres had minimal influence over its use and distribution, thereby reducing opportunities for rent-seeking. Furthermore, villagers’ decisions on participation are based on their comprehensive understanding of the RRLC (Figure 4), with the cost–benefit trade-off of participation being the primary determinant of their behavior, rather than governmental pressure.

However, villagers’ participation remained limited. After the government’s unilateral decision about “whether to implement” and the collaborative determination of the implementation framework by the government and market entity, villagers were included in the decision-making process to enrich and decorate the framework (Figure 5). Despite the measures taken to inform and negotiate, the government and market entity retained the power to decide how to deal with villagers’ opinions. Moreover, the local administration introduced the market entity, instead of villagers or village cadres. In this sense, the ‘villager–company’ partnership was a “quasi” partnership. Governments’ relaxed restrictions on the property rights of RRL created an opportunity for their collaboration, and the emphasis on “safeguarding villagers’ interests and respecting their wishes” somewhat mitigated the villagers’ disadvantaged bargaining position with the market entity, creating a relatively equal relationship between them. However, the government–villager relationship remained unequal since the villagers’ power was, to a certain extent, created by the government [56]. The villagers’ limited participation was also mirrored in their interactions with village cadres. In 2010, following the township government’s campaign for the RRLC project, the village secretaries from the five villages in the L town decided to collaborate on the program application because of their better potential to generate surplus quotas, without prior consultation with villagers⁶. Village cadres were the principal decision-makers inside the collective, making the initial participatory decisions on behalf of the villagers, and then the villagers decided whether to participate.

Lastly, village cadres are responsible for coordinating the interaction between villagers and the market entity. The power of village cadres stems from their dual role as representatives of collective interests and agents of the grassroots government, which not only gives village cadres the legitimacy to negotiate with the market entity and supervise the implementation of RRLC but also enables them to influence villagers’ perceptions and their willingness to participate. The market entity relied on village cadres to organize meetings to consult villagers’ opinions, announce the implementation plan, and persuade locals to abandon their RRL. In addition to formal villager meetings, village cadres can communicate informally with villagers through daily conversations to obtain their true thoughts at a lower cost or to resolve conflicts in a more peaceful manner, thereby mitigating the market entity’s negotiation and conflict resolution costs. These characteristics make village cadres an ideal intermediary, undertaking responsibilities such as policy dissemination and interpretation to villagers, information collection from them, bargaining with the market entity, and ultimately, defending collective interests. Compared to dispersed villagers, village cadres are usually rural elites with richer social capital, negotiation skills, and closer ties to the township government, which allows them to negotiate with the market entity on behalf of the villagers, thereby effectively addressing individual villagers’ limited bargaining ability.

5.2. Reconfiguration of Property Rights Functions of RRL

5.2.1. Functional Adjustment

Functional adjustment refers to adjusting the area of RRL or changing its utilization when the provision of a function surpasses or fails to meet the demands of actors.

The first is an adjustment to the residential function. Before RRLC, the residential function was the primary function, providing villagers with dwelling space (the primary residential function) and space for storage and courtyard economy (the secondary residential function). The questionnaire survey revealed that the average per capita homestead area for interviewed villagers was 160.50 m², far exceeding the government-mandated 35 m², while the average per capita housing space was only 74.79 m². This indicated an oversupply of the primary residential function and the importance of the secondary residential function. Approximately 61.73% of interviewees were using their RRL for poultry breeding and storage. The survey also indicated that 16.05% of households had fewer permanent residents than registered, reflecting an oversupply of the primary residential function. Conversely, 83.95% of households had more permanent residents than registered, indicating an undersupply of the primary residential function. Moreover, 50.62% of the farmhouses were over 30 years old, and around 88.89% were of adobe or brick-timber and adobe structures with less resistance to earthquakes. Only 13.58% of these houses were unaffected by the 2008 earthquakes. The poor quality of farmhouses suggested that the primary residential function remained low-level.

After RRLC, the primary residential function was maintained and strengthened. All participating households received detached houses with 47 m² of floor space per person, all of which are brick structures designed to resist earthquakes of magnitude 7–8. The majority of villagers also felt that the infrastructure and public services had improved compared to the situation before (Figure 6). However, the RRLC weakened the secondary residential function, as the average per capita homestead area decreased to 24.77 m². To address this issue, the resettlement houses were designed as detached dwellings. Multi-functional rooms on the ground floor were incorporated to facilitate living, storage, garage or commercial activities. Additionally, all green spaces, except for activity squares and roads in the centralized residence zone, were designated as “pocket vegetable gardens,” allowing villagers to grow vegetables. Reclaimed farmland was also made available for cultivation by the original villagers, helping to reduce their household consumption costs. For villagers who continue to farm, the collective provides public transportation to facilitate travel between the centralized residence zone and their farmland.

Secondly, the economic function is increasingly apparent. The economic function refers to the villagers’ capacity to generate income through the utilization and disposal of the property rights of RRL. While villagers in areas with special locations or natural resources can privately transfer or use RRL for commercial purposes, the majority of villages do not possess such opportunities. Our survey found that although 41.68% of respondents believed they had the right to use RRL for commercial activities, only 1.23% of them actually engaged in such usage.

After RRLC, the economic function is manifested in two main ways. On the one hand, both the monetary compensation of villagers and the investment return derive from the land appreciation income generated in the process of transforming the utilization of homesteads. The one-time monetary income gained by the villagers’ collective is a strong incentive for some villages lacking the conditions for industrial development at present. On the other hand, villagers can directly obtain property income, such as rent or dividends, through mortgaging, leasing, and shareholding. Village cadres told us, “villagers can sell houses for around RMB 2000/m². Houses in more desirable locations can sell for up to RMB 300,000, while those in less favourable areas may sell for around RMB 200,000.” The questionnaire survey also showed that all types of non-farm income of villagers increased after RRLC compared to before (Figure 7).

5.2.2. Functional Substitution

Functional substitution involves the transformation or compensation between different functions.

The first is the transformation from residential to economic function. The market entity’s investment returns, the government’s land transfer fees, working funds, and villagers’ compensation were all achieved through newly generated tradable construction land quotas as a result of the process of reclaiming RRL into farmland. During this process, the use rights of RRL serving the residential function were transformed into land development rights serving the economic function.

Second, the economic function strengthens the primary residential function and compensates the secondary residential function. It is undeniable that centralized resettlement has weakened the secondary residential function, creating uncertainty about villagers’ future livelihoods and thus increasing the potential for conflict. Therefore, the economic function is essential to mitigate the negative impacts of the weakened secondary residential function on rural households. In addition, the economic function provides the financial support necessary to improve the primary residential function while also laying the economic foundation for the partnership.

Finally, the primary residential function and economic function support the security function, which is defined as ensuring villagers’ survival and rural stability. The residential function is requisite for the security function desired by the government. The government considers free access to RRL to be a type of social welfare, partially substituting the social security system that the government should offer to villagers on an equal level with urban residents. After RRLC, the improved primary residential function allows for the maintenance of the security function, while the economic function strengthens the security function by providing villagers with an additional income source, as the diversification of income sources could offer opportunities for rural areas to cope with uncertainty in agricultural production [57].

Functional adjustment and substitution work together to mitigate possible negative impacts of RRLC on villagers and increase their satisfaction. The survey showed that 90.12% of respondents were satisfied, and 85.19% of the respondents participated voluntarily.

6. Conclusions

The disparity between outcomes and theoretical expectations in property rights reform indicates that changes in property rights are not the primary factor influencing the effectiveness of the reform, as demonstrated by the disputes surrounding land consolidation and village resettlement initiatives. In this context, the institutional function provides a perspective on re-examining property rights reforms. Taking L town as an example, this article analyzes the mechanism by which RRLC improves the credibility of the property rights of RRL.

First, from a functional perspective, the credibility of the property rights of RRL cannot result from government design but rather from the property rights functions that emerged from an endogenous interaction. The reconfiguration of property rights functions enhances the adaptability of the property rights of RRL to the actors’ interests within a certain socio-economic context, enabling participants to comprehend the issues and solutions and thereby fostering more support for the final outcome.

Second, the realization of functional reconfiguration depends on a supportive partnership between actors, characterized by interactive decision-making and public participation. Such partnerships facilitate the prioritization of the pre-existing property rights functions before RRLC while also creating new property rights functions to balance diverse interests. On the one hand, implementing RRLC through a market entity rather than the government reduces the power disparity between villagers and the market entity, allowing villagers to participate in the formulation of the implementation plan and to claim their desired property rights functions. Institutional functions dependent on ongoing negotiation are more likely to be regarded as shared norms, thus reducing the likelihood of conflict during institutional change. On the other hand, the government’s indirect involvement ensures that the maintenance of primary residential and security functions is not negotiable, while also preventing a power imbalance between the villagers and the market entity due to the latter’s informational and financial advantages. This supportive partnership is key to the effectiveness of property rights reform since it is through such interaction that the institutional functions can adapt to a certain socio-economic, political and cultural environment.

Thirdly, RRLC represents a governmental initiative to adjust formal property rights of RRL in response to changes in the socio-economic environment and its own financial situation, establishing an institutional framework for the formation of supportive partnerships. Changes in property rights allow villagers to control the newly created quotas, granting them the authority to determine the transferability of these quotas and the methods of transfer and thereby improving their bargaining power. If villagers are unwilling to engage in RRLC, no entity possesses the authority to compel their participation, in contrast to land expropriation. Moreover, changes in property rights enable market entities and villages to share land incremental value via RRLC, thereby promoting their collaboration.

The findings in this article shed light on the effectiveness of property rights reform and how to improve the performance of government interventions. To be effective, government interventions, such as property rights reforms, should consider the function of the institutional arrangement before changing it [58]. Moreover, the endogeneity of institutional functions implies that local government is only one of the actors capable of designing institutions but not determining their functions. Thus, the government should pay more attention to micro-processes and the specific power mechanisms that shape the institutional function, as well as create an equal and inclusive institutional environment that encourages the expression of opinions, the exchange of information and bargaining between different actors.

However, this article could go further in the following aspects.

The first is a comparison between different villagers. This article only interviewed participants and omitted non-participants. It is important to consider how to manage the latter, particularly how to guarantee that they have access to infrastructure and public services. Furthermore, understanding the reasons for their non-participation can provide a more comprehensive picture of the impact of RRLC on villagers, so future studies could compare their perceptions of RRLC, as well as the differences in how they are affected. Another notable group is the villagers who refused to be interviewed in the questionnaire, and in some cases, the ‘refusal to be interviewed’ itself may reflect attitudes toward RRLC.

The second is to gain a deeper understanding of how RRLC influences villagers and their decision-making processes. In this article, the residential and economic functions are the main factors influencing villagers’ participation willingness and evaluation, but the incomplete types of samples (villages and villagers) makes it necessary to deepen the understanding of property rights functions; in particular, the indicators for measuring social function are not comprehensive enough to reflect the emotional and cultural values that villagers place on their RRL, which deserves further research.