A highlight of the communiqué released after the Third Plenary Session of the 18th Central Committee of the Communist Party of China was confirmation of the establishment of a unified urban and rural construction land market.

Under the new policy, rural land will be put into the same pool as urban land, which will allow farmers more gains from increases in land and housing prices. Despite high hopes for a unified land market, four challenges loom on the horizon.

First, farmers' gains from land sales are uncertain. Media reports often focus on farmers' exorbitant gains from demolition and land acquisition, but we should understand that most of these cases happened in more economically developed areas, where land prices have already surged and local governments and real estate developers are able to pay farmers for the land acquisition. On top of this, in these areas, the bargaining power of farmers is respected enough that they can benefit from land price increases.

The less developed central and western regions, however, are lagging far behind coastal cities in many areas, including economic strength, media supervision and government administration. Burdened by debt, some governments can't afford to pay reasonable compensation to farmers for their land. Therefore, it's impractical to count on the proposed unified land market to give farmers their windfall.

Second, farmers don't have enough bargaining power during land acquisition. The three bargaining parties during the process include the local government, real estate developers and farmers. Farmers are the weakest among the three, and are at a disadvantage if they are not given support in defending their rights. Only through professional and organized bargaining can farmers have more say. However, farmers don't have any organizations that they can rely on. The village committees, which should shoulder this responsibility, often fail to do so. Some village committee members may even cut deals with developers, which violates farmers' rights.

The third challenge is confusing tax policies. The biggest obstacle during the transfer of rural land ownership is taxation. The laws haven't specified details when it comes to the transfer of the rent on rural collectively owned land. Once a unified land market is established, one of the most pressing issues will be what kind of tax to levy on the transfer or rental of rural construction land.

Finally, the new policy may threaten the lower limit set by the government for arable land. The Central Government mandates that at least 1.8 billion mu (120 million hectares) of arable land must be reserved to ensure grain production. Some local governments have, at the same time, pledged to increase land available for residential housing. Where is the land coming from? Some local governments may use this new policy as an excuse for rampant land acquisition in rural areas, posing a threat to grain production.

The proposal for a unified land market for urban and rural construction land has vital significance in protecting farmers' rights over rural land and in expediting integration between urban and rural areas. Policymakers ought to factor in the above-mentioned challenges and make scientific deployments based on them.

[Note: China's rural land, collectively owned by farmers, is divided into arable land, which is used to grow crops, and construction land, which is used for rural housing, infrastructure and companies or factories. Arable land is leased to rural residents as farmland, while construction land is managed by the village.

According to current laws and regulations, rural construction land can only become urban construction land—which allows it to be used for residential, commercial or industrial purposes—after the local government acquires the land from farmers, whom it must compensate.

This is an edited excerpt of an article by Bi Ge, a financial commentator, published in Securities Times