Why does the short-term contract dominate in China s rural land transfer market?

There is a paradox in rural land transfer in China: it is taken for granted that the preference is for long-term tenancy, which may result in long-term investment and more thorough conservation practices; but in reality, short-term tenancy that is, usually one year or less dominates. By building a theory model and undertaking binary logistic analysis of survey data, we discover two fundamental reasons for the dominance of short-term tenancies that help explain this paradox: (1) owing to unstable land ownership, the high relative income per capita between non-agricultural and agricultural sectors and the close relationship between lessors and lessees, the transaction costs of leasing land are rather high, meaning that long-term leases are a better choice for lessors while short-term leases favor lessees; (2) these same three factors mean that the Chinese land lease market is a buyer's market that is, one in which the lessee has the upper hand so it is the preference of the lessee that determines the nature of the market as a whole. Acknowledgement : This research is supported by Institue of Agricultural Economy and Development, Chiese Academy of Agricultural Sciences through Innovation project. We also thank Professor Zhong Tang for his valueble comments for this paper.