An analysis of China’s reforms on mortgaging and transacting rural land use rights and entrepreneurial activity

Abstract

Purpose The purpose of this paper is to investigate the economic relationship with recent changes in China’s land use policy and rural development through innovation and entrepreneurship. Design/methodology/approach The first issue of economic importance is in understanding the market value of land use rights (LUR) transactions. To examine this, the authors build an argument around the idea of economic and marginal rents from Ricardo. The second issue relates to the extent by which deepening the rural financial landscape by allowing the mortgaging of LUR will promote and advance much needed entrepreneurial activity. To explore this issue, the authors draw on Schumpeter. The empirical contribution is based on a survey of 1,465 farm households in Gansu, Henan, Shaanxi and Shandong provinces. Findings In an endogenous Two-Stage Least Squares model, the authors find a positive and significant relationship between a willingness to mortgage LUR and entrepreneurship, which suggest that the new policy may well meet that objective. However, the authors do not find that entrepreneurs alone will have a willingness to mortgage LUR; non-entrepreneurs – traditional farmer types – would also be willing to mortgage LUR, but with a caveat that either group already has a disposition or demand for credit. Originality/value The value of the analysis is to provide an evidence to understand the market value of LUR transactions and to study the relationship between mortgage of LUR and entrepreneurial activity.