The 9th International Conference on Energy, Resources, Environment and Sustainable Development (ERESD 2022)

The development of land rental markets is vital in optimizing the allocation of rural land resources and improving agricultural production and farmers’ income. China has an imperfect land rental market with high transaction costs. This study focuses on the impact of invisible and tangible markets such as price, supply, and demand, and intermediary organizations on rural households’ decisions to rent in or rent out land and compares which market mechanisms are more important in the current development of the land rental market. Adopting nationally representative farm and village survey datasets and the Box-Cox double-hurdle model, we find that tangible markets represented by intermediary organizations established at the grassroots level play a greater role than invisible markets in improving the probability that farm households will rent in or rent out land and in increasing the amount of land rented. The intermediary organizations have increased the ratio of land area transferred to total area at the village level. The supply side of the land rental market represented by the village-level land transfer rate has affected significantly the probability of a decision to rent in land and the amount of land rented out. However, the price mechanism represented by a village’s average land rent failed to guide the flow of land resources. We put forward policy implications for how government and market intermediaries can promote China’s land rental markets and for how to better perform price mechanisms.