The emergence of new agricultural operators and land rental marketisation: evidence from rural China

Introduction Informal land transactions remain prevalent in transitioning economies and constrain efficient land allocation. While prior studies emphasise supply-side explanations, little is known about whether demand-side shocks can promote market formalisation. Focusing on rural China, this paper examines the effect of the emergence of New Agricultural Operators ( NAO s) on the formalisation of land rental markets. Methods Drawing on nationally representative panel data from 23,105 households, we estimate a Heckman selection model to address sample selection in land leasing decisions and identify the effect of NAO entry on rental pricing and contract formalisation. Results We find that NAO entry significantly increases the probability that lessors charge monetary rent and use written contracts. Mechanism analyses reveal two channels. The first is a “Lessee Substitution” effect: NAO s provide lessors with an outside option that reduces dependence on acquaintance-based leasing. The second is a “Spillover” effect: NAO s establish local price benchmarks and weaken monopsony power, inducing lessors to demand market-based terms even from relatives. We further document a “Hybrid Governance Structure,” under which clan norms do not obstruct price formation but partially substitute for formal contractual enforcement. Discussion The findings demonstrate that demand-side actors can play a pivotal role in land market development. Policy should therefore place greater emphasis on cultivating new agricultural business entities and improving local price discovery institutions to accelerate the modernisation of customary land markets.