elevating data and R&D to the status of ‘factors of production’ alongside land, labour and capital has a deep subtext, reordering some economic—and political—priorities

As the economy slows, a major reallocation of land, labour and capital aims to inject new growth momentum. Xi’s new plan, a historic first, sets a clear roadmap, but entrenched hierarchies that stifled progress in the past will remain.

Marxist digital economy 2.0

The PRC underwent far-reaching ‘reform and opening’ decades ago—yet prime factors of production remain state-allocated.

Beijing is now keen to take another swing at reconfiguring who ‘owns’ what critical components of the production cycle. Plans for new pilots emerged 6 Jan 2022; they present a bookend for ‘Opinions’ first aired back in April 2020, when State Council pledged to marketise five factors of production. Beyond land, labour and capital, data and R&D are now singled out as needing formal allocation rules. The quasi-Marxist hierarchy of property forms—state, collective and private—is to be maintained; state will preempt collective forms, and collective will preempt private, as is the case with land, labour and capital.

The pilot plan adds more rollout details, plus a tight timeline implying that the race is on.

2021: launch the pilot
2022: finalise the plan
2023: marketise land, labour, capital and R&D; make progress on data
2025: take nationwide

This new urgency hints that pessimism in the PRC, above all in the managerial class, is greater in 2022 than at the height of the pandemic: previous pilots failed to achieve critical momentum. Beijing now pins its hopes on driving the economy via nationwide factor markets, urbanisation and city clusters.

With official inaction and predatory security forces cramping the machinery of government, clearer messaging ahead of the 20th Party Congress, scheduled for late 2022, is needed to underwrite Xi Jinping’s authority.

data: a new public resource

Data was elevated in status to a factor of production in 2019, as it is deemed a resource shared by the state, enterprises and social organisations. It now cries out to be traded, in line with a newly issued 5-year plan for the digital economy.

Public data platforms built to collect, transform and share data are an emerging soft infrastructure priority. Data exchange and its regulation are a novelty, with few guiding precedents. The framework foreshadowed in the plan remains provisional. Pilot cities are to explore

  • trade in anonymised data
  • controlling and quantifying the trade
  • pathways to monetise data

International firms can breathe sighs of relief, despite tougher data and privacy protection regulations. A more lenient approach to cross-border data flows has recently been hinted at. Beijing will ​​improve its regime of ‘grading classification + negative list’ for supervising cross-border data flows, now okay as long as not on the negative list.

R&D: more bang for Beijing’s buck

New pilot measures promise to make the state research sector rival the vibrant digital economy: dramatic injection of state funding over the last two decades has yielded meagre commercial results. Proposed pilots, which have shown promise, will allow state agencies greater discretion in licensing (or even giving away) results of state-funded research, technically state-owned assets. Tendering of state projects has been made more competitive. The financial system is, as usual, urged to test innovative financing tools from IP pledge financing to stock market listing.

land: re-balancing via urbanisation

Traditional factors of production get their own makeover in the new plan.

A fundamental pillar, land was key to older paradigms and remains critical to local government incomes—in 2018 it provided some 90 percent. Early in the reform era, localities could readily convert rural land to commercial use, yielding seemingly endless ‘land income’. Yet it is Beijing that sets quotas for conversion, province by province.

In an ever more sophisticated economy, land finance hijacked by sectional rather than national interest goes hand in hand with skewed development.

Imbalances are now to be solved by allowing cross-regional land quota swaps, piloted in 2021, and a unified rural/urban land market to ease urban expansion and housing supply. The quota swaps expand land available for rural construction in eastern provinces. A unified market legalises rural collectives’ use of such land for income.

Such ever more elaborate ‘innovations’ and legal fictions are hallmarks of the current Xi era. But they come with risk. Local governments’ dependence on—not to say addiction to—land finance is a prime case: a sudden policy shift may trigger conflicts and indeed fiscal crises.

Cross-regional imbalance is another risk of land quota swaps. The hinterland would essentially be limited to an agrarian economy, unable to convert land as needed to build rural industry.

Urbanisation, Beijing calculates, will allow remaining rural residents to farm larger expanses and earn more. Per capita income will be levelled across the nation, claims Lan Xiaohuan 兰小欢 Fudan University, without widening cross-regional GDP gaps.

labour: disarming hierarchy

The new initiatives envisage allocating hukou (the status system that reduces citizen rights for rural residents) by residence rather than by birthplace, income or employer status. This will make migration from rural to urban areas more straightforward. Untying access to welfare and other social services from hukou, and replacing it with residency criteria, frees up factor mobility and dampens potentially explosive rural discontents.

Reconfigured as a factor of production, labour and payment for it indicate individual merit and skills more reliably than hukou. Hence measures to modernise professional skill, rank and title certification.

capital: moving household wealth out of property

Long the preferred store of household wealth, housing—and with it land—holds a sacred place in the fiscal system. Securities and other generators of capital are poor cousins: markets swing wildly thanks to the paucity of domestic institutional investors, making them still less attractive to retail investors.

The bond market is split into ‘exchange’ and ‘interbank’ markets, each with its own regulators and rules adding to transaction costs. The new measures fall back on familiar favourites, improving stock markets and investor protection, unifying the bond market, better servicing SMEs (small and medium-sized enterprises) and promoting financial opening. While less than groundbreaking, enlivening capital markets is deemed to direct funds in ‘innovative’ directions, avoiding middle-income traps.

who benefits?

The measures convey a sense of urgency, hinting at Beijing’s impatience with earlier one-off pilots, driving recourse to ‘cluster’ effects and hopes pinned on building an ultra-large market.

At the same time, they reflect a contrary impulse to avoid worst-case scenarios. Rather than resolutely plunging into free markets, a gradual release of built-up pressures is now on the cards.

At the core of this flurry of activity is the 20th Party Congress, scheduled for late 2022, and with it Xi’s desire to offer a real quid pro quo to his constituents, Party officials and urban ‘haves’. Reconfiguring factors of production gives them stakes in new economic models that would otherwise disappear over the innovation horizon.

what are the experts saying?

Wen Tiejun 温铁军 | Renmin University professor

Rural development guru Wen coined the celebrated sannong (three rurals) rubric in 1996, smoothing over the Stalin/Mao heritage of forced collectivisation with humanistic language that salutes agriculture’s geographic and social elements. Gaining leadership approval, sannong became a mantra in the Hu–Wen era (2003–12). Wen Tiejun was averse to traditional Marxist–Leninist contempt for smallholders. Turning them into urban workers and grabbing their land at low cost would lead only to slums, crime and public disorder, dumping the cost of urban development on the smallholders. A macro downturn can, argues Wen Tiejun, be brought to a soft landing by passing the crisis on to rural counties.

After graduating from Renmin University in 1983, Wen joined the Central Rural Policy Research Office and State Council Rural Development Research Centre where he conducted rural investigations. In 1987 he moved to the National Rural Reform Pilot Zone Office. During his 11 years there, Wen attended the University of Michigan and the World Bank. He was then responsible for evaluating the World Bank’s loan policies to China. Since 2004, he has worked in universities and continues to conduct research for the state.

Zhou Feizhou 周飞舟 | Peking University professor

Over two decades Zhou has pioneered analysis of hallmark centre-local interactions in the reform era. Dismissing power devolution as the key factor in rapid growth, he finds clues in local state corporatisation, framed as a (fiscal and organisational) tournament system. Contextualising the economic theory so much in the limelight, Zhou went on to build up work on the project system done by sociologists at Peking University. Examining the land and fiscal system at the grassroots, the result is a sociology of the governing stratum.

Holding a doctorate in sociology from Hong Kong University of Science and Technology, Zhou has worked on social surveys with the National Commission for Economic Reform, the University of Toronto and HKUST, usually focusing on rural cultivators.

He Xuefeng 贺雪峰 | Huazhong University of Science and Technology School of Sociology chair

A renowned sannong scholar, He Xuefeng founded a ‘central China’ school of rural studies. Land income, his extensive fieldwork shows, fuels vicious conflict. Both land and the income it generates must be owned jointly by cultivators and the state. Like Wen Tiejun, He deprecates neo-Stalinist forced urbanisation; as an ultimate life support, land represents an irreplaceable social contract, justifying limiting the entitlements of the migrant workforce.

Active in rural research since 1996, He Xuefeng has directed major research for the National Social Science Foundation, Ministry of Education, and Ford Foundation. He directs an important ‘sannong China’ discussion platform.