In the process of urbanization, China needs to expropriate more and more collective-owned lands in order to satisfy the need of city construction and development. However, when the collective-owned lands are expropriated currently, peasants get very low compensation for their loss in improvements, green crops, and land use rights.

Why Chinese peasants get such a low compensation? From legal aspect, it is illegal for the Collective to sell its land directly in the market. China does not allow a market for the transfer of collective-owned land, the compensation lacks of a comparable market standard. In addition, the Land Administration Law requires the compensation to be based on the original purpose of land expropriated and administrative pricing. That leads the compensation standard to be far away from fair market value. From incentive aspect, the local government needs extra-budgetary revenue to fill the huge gap between its tax revenue and fiscal expenditure. The price spread between land-transferring fees and compensation turn into local government’s extra-budgetary revenue. Thus, the local government has great incentive to lower the compensation. With the discretion on deciding what qualifies public use, local government can expropriate as many collective-owned lands as possible, in order to generate more extra-budgetary revenue.

If the unjust compensation continues, the peasants’ situation would be worse. Therefore, I make three proposals to reshape the compensation system for expropriating collective-owned land. First, abandon the original purpose and administrative pricing in article 47 of Land Administration Law. The compensation should be based on fair market value. The land-transferring fees could represent the fair market value of ownership of collective-owned land. And the value of individual peasant’s improvements, green crops, and land use right could be assessed by independent appraisers. Second, I design a new distribution mechanism according to the proposed amendment of the Land Administration Law and new compensation standad. Third, there is a need to define public use specially for expropriating collective-owned land. The definition should be narrower than the one in the Regulation on the Expropriation of Buildings on State-owned Land and Compensation. And certain amendment to the definition is needed.