The Great Asian Asset Grab

Includes: AC, AYAAF, SMEBF
by: One Road Research Company

In the west, property rights are taken for granted. In Asia, land also means business opportunities. In the past, Asia conducted land reform, redistributing land to the poor, often violently.

Countries that implemented widespread land reform like Japan, South Korea and China all have much higher incomes than emerging Asian countries and frontier economies.

Nowadays, instead of redistributing privately owned land (as was the case in Northeast Asia), land reform in modern times is about clarifying land ownership and dispersing government-owned land.

When looking to invest in progressive countries, look to see where land reform has worked. There are several local and non-local companies benefiting from this trend.

These include Ayala Land, Inc. (PSE: ALI), Vingroup JSC (HOSE: VIC), Sime Darby Berhad (MYX: 4197), CapitaLand Limited (SGX: C31) and China Fortune Land Development Co., Ltd. (SSE: 660340).

Much of Asia’s recent history is characterized by heavy social reform. While all nations implemented agriculture and banking reforms (used to strengthen economic foundations), countries differed in how they enforced land reform. These alternations are responsible for defining both the region in general, and the nations with the highest growth.

This article will explain the land reform policies in Asia since WW2, their consequences and how you can take advantage of subsequent trends arising from land policy change.

Asian Homeowners Own More than Just Their House

Consider yourself lucky if owning property has always come guaranteed with your citizenship. For many people in Asia, private property is not taken for granted. In fact, property laws were only recently adopted and they are considered major driving forces for regional GDP increases.

In the West, many people don’t operate companies out of their homes. But in Asia, the practice is quite common. So, when people in Asia got the legal right to open small businesses, the doors opened (literally) for them to earn true wealth for the first time.

Who owns what in a country usually defines the amount of economic innovation produced in a society. Before land reform, all the land (and everything on it) was owned entirely by the government and/or the elite (often inter-changeable).

But with sweeping land redistribution in Asia, people started opening businesses and using their land as collateral to get bank loans. This pattern caused development to soar like never before.

The wonders of private property are especially apparent in Northeast Asian nations, who took land reform most seriously. These countries now enjoy dramatically higher, regional per-capita incomes.

Looking at the graph below this becomes obvious. Nations like Japan, China and South Korea (which implemented extensive land reforms) are now high earnings nations. While emerging Asian countries (pink) and frontier economies (purple) lag behind. Effective land reform policy is therefore positive to development.

The Road to Wealth Lies in Land Reform

During this last century in Northeast Asia, far-reaching land reform programs redistributed land to agricultural laborers and poor tenant farmers in immense volumes.

But how was this widespread land reform possible, and how did governments convince wealthy landowners to give up their prized property? The answer is quite dark actually: it was done by large-scale, state-sanctioned murder.

Altogether Asian governments' land reform programs resulted in the death of more than 100 million people. The former-upper class watched in horror as they were witch hunted and forced at gun point (literally) to give up their land. In these times, intellectuals, wealthy landlords, artists and more, became enemies of the state.

For instance, in China alone, an estimated 60-80 million citizens were killed directly or indirectly by government programs. For perspective purposes, that’s more than WWII (55 million). This type of land reform took place (to some extent) in Korea, Philippines, Japan, Vietnam, Cambodia, and Laos. The numbers don’t lie.

Soon after land reform in Asia was carried out, outputs increased dramatically.

Farmer surveys his field in Malaysia. (Shutterstock)

Happy to no longer be tilling someone else’s land, property reform generated additional opportunities for investment. Using their fresh titles to borrow money, new landowners could invest in products like fertilizer, finance building crop facilities, or launch a business. Indeed, these options were superior to being murdered by the government.

Northeast Asia’s Path to Prosperity

To illustrate the story of land reform, let’s use post World War II Japan. Not surprisingly, the newly instated US-backed government was not that popular. They knew they needed the working class’s approval. So, they took a little lesson from the Russian Revolution and made land reform their main goal.

At the core of this movement was a Japanese law which created a limit on landownership: a maximum of three hectares.

This made it mandatory for wealthy landlords to hand over their excess land, which was later redistributed amongst poor Japanese farmers. The result was rural crop yields and consumption that surpassed pre-war levels by the 1950s. Economic inequality was vastly lowered as well.

Land reform across much of Northeast Asia was done at gunpoint. The person pictured above, probably a landowner, was executed after a 'people's tribunal' in the land reform movement in Communist China. (Jan, 1953) (Shutterstock)

The ‘Secret Sauce’ Of Wealth

Land reform has been called a ‘secret sauce’ for wealth. It’s a powerful ingredient used to create broad-based (and well-sustained) economic growth. When a government restructures society by forcibly taking land from the elite and using the newly-acquired property as they see fit, the economy tends to expand quickly.

But while Robin Hood is a celebrated children’s hero, it’s important to remember that it’s also a gory affair. Imagine cartoon Robin Hood leaving a trail of blood when he delivers much needed money to poor fellows – that would be a more accurate portrayal of what happened in Asia. Not to mention governments filling their own pockets in the process.

People protest in Hong Kong for urban development, housing issue, and mainland china policy to the nation. (Shutterstock)

But don’t be mistaken, these land reform policies are not the only way to empower lower classes.

While land grabbing works, there are many less severe and more democratic ways to conduct land reform and increase economic equality, like through improved land rights, security and stability.

Land Reform Without Land Grabbing

In today’s world, Asian nations don’t face the issue of the haves (landlords) completely oppressing the have-nots (landless).

The current state of affairs faced by Asia is a mess of outdated colonial laws, coupled with long-standing (and often contradictory) customary traditions and laws. To further complicate matters, at different times various governments (and military juntas) in Asia have stolen and never redistributed the land.

In these cases, land rights were not made clear, nor were they administered properly.

So, the modern formula for land reform calls for clarifying land ownership terms and dispersing government-owned land (without taking anyone’s private property).

For instance, the new government of Myanmar has made delivering on progressive land reform policy a top priority. They decided the best solution is to design a land-tenure reform program.

So, their new leaders have journeyed throughout Asia to study land reform programs.

They examined Taiwan’s land redistribution policies, which brought historic economic growth and stability.

They also traveled to India’s West Bengal region, home to a progressive program where the government purchases land from voluntary sellers (at market rates) in order to give it to the state’s poorest citizens.

Due to new reform policies, Burmese now use their land collateral for loans, helping grow Myanmar’s small business sector.

So, if you’re geared towards investing in emerging economies, understanding where land reform has worked will lead you to growing sectors. For the first time, millions of small landholders throughout Asia are beginning to view (and use) their property as capital. Over time, land reform will create stability. Economic prosperity will quickly follow, making these ideal places for solid investing.

There are several local conglomerates that will gain from the trend of land reform in emerging economies. These include Ayala Land, Inc. (PSE: ALI) of the Philippines’s Ayala Corporation (PSE: AC), Vingroup Joint Stock Company (HOSE: VIC) from Vietnam and Sime Darby Property of Malaysia’s Sime Darby Berhad (OTC: SMEBF, MYX: 4197).

Furthermore, even companies from the more developed Asian countries such as Singapore’s CapitaLand Limited (SGX: C31) and China Fortune Land Development Co., Ltd. (SSE: 660340) are benefiting from this trend.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.