Farmland in China is legally owned by the village collective. Under the HRS, land use rights have been equally assigned by the village collective to individual farm households for a period of 15 years based on family size, labour force, or a combination of both. Land transfers were initially not allowed, because policy makers believed that land transfers will lead to a concentration of land within a few households, leaving most households landless. Instead, frequent administrative reallocations of land by village collective have been used to correct for demographic changes. All of these have resulted in the insecure land use rights, which are often considered to reduce farm households' incentive to carry out long-term land investment. To solve these problems, the Chinese government have subsequently permitted land rentals since the mid-1980s and allowed land use rights to be extended for another 30 years in 1993. The rural land rental market has emerged since then.
Theoretically, a land rental market can enhance allocative efficiency and agricultural productivity by equalising the marginal product of land across households with different land-labour endowments and by facilitating transfers of land from less productive households to more productive ones . However, in present-day China land rental arrangements are generally informal, short term, and between households living in the same village. Plots rented from other households are therefore subject to tenure insecurity, which may discourage long-term land investment and reduce agricultural productivity.
The effect of off-farm employment on agricultural production is ambiguous. Off-farm employment reduces the labour available for agricultural production, especially if hiring agricultural labour incurs transaction costs and if hired labour is not as efficient as family labour. Off-farm employment also enables households to increase their incomes, to overcome credit and insurance constraints and to increase their use of industrial inputs . In addition, the reduction in food consumption by household members working off-farm (e.g. those who migrate) may have an impact on agricultural production decisions if household production and consumption decisions are non-separable .

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