Throughout Chinese history, land, hunger and peasant grievances have swayed the fates of dynasties. The mood in China's downtrodden countryside has again turned ugly, with peasant farmers angrily demanding secure land rights - an issue that has pitted Chinese reformers against ideologues and corrupt local bosses. With the announcement yesterday of the Communist Party's decision to “transform the entire rural policy”, the reform camp won a victory of enormous significance.

Farmers will not own their land outright - in China, every inch of land belongs to “the people”. But they will have rights, similar to those granted last year to city dwellers, to rent out or sell the plots they lease from local “collectives” under “household responsibility contracts”.

That will free them to link up with other farmers in modern commercial agribusiness co-operatives or to invest the proceeds of land transfers in new businesses. The effect will be to revolutionise Chinese farming and non-farm rural employment, as a market in agricultural land opens up for the first time.

Economic necessity, made more compelling by growing anxiety about the scale of rural discontent, has trumped socialist ideology. It is a fitting tribute to Deng Xiaoping, whose break with Maoism 30 years ago, launching China on the road to modernisation, the party will celebrate this December. In a purple passage written just before this month's Central Committee conclave which agreed the decision made public yesterday, the party newspaper, Renmin Ribao, extolled “the great opera of reform, that has surged forward with great momentum, has been performed and one colourful picture after another of the beautiful prospects of development has been displayed on the vast land of China”. But in the countryside the opera of reform has been stuck in the first act.

It was in the countryside that Deng's market reforms began in 1978. The “household plots” that look absurdly restrictive today presaged the end of Mao's totalitarian communes; farmers could sell their own produce. But reform stopped there. The ban on trading land or using it as collateral to raise loans has exerted a huge drag on Chinese agriculture, depriving farmers of incentives and keeping land divided into uneconomic plots averaging a mere 1.5 acres.

The communist leadership has been tiptoeing towards more enlightened policies for some time. After decades of neglect, Beijing has quintupled spending in the “New Socialist Countryside”, abolished rural income tax and cut school fees, subsidised grain production and attempted rudimentary health insurance. But the root of rural poverty was the purblind refusal to let farmers own the tiny plots they till. Last year, when the party granted city dwellers firm property rights on long leases, the rural masses were explicitly excluded.

The big difference now is the urgency of increasing domestic consumption to counter the loss of foreign customers, as recession deepens. How hard China is being hit by global economic turbulence is hard to assess, because owners are more likely simply to padlock factory gates than to go through bureaucratic bankruptcy proceedings; but evidence points to 67,000 companies closed, some 20 million manufacturing jobs lost, a simultaneous sag in real estate prices and the construction industry - and worse certain to come.

Urban woes have concentrated minds on the need to release pent-up demand in the countryside, where 740 million Chinese subsist on around £1 a day. With larger farms, access to credit and mechanisation, China could rapidly increase farm output and rural incomes, boosting rural demand for urban manufactures. That has become China's No1 economic and political challenge.

Mao's revolution was made in the Chinese countryside, which he cynically betrayed. Land ownership was his cardinal pledge to hundreds of millions of peasant labourers. At first it was kept. After the communist victory in 1949, more than 100 million acres were redistributed, often forcibly, in a hounding of landlords that trapped not only the rich but modest smallholders and saw millions killed or ruined in a mass score-settling that, as Mao intended, destroyed the old rural order. He then destroyed the new order. To prevent peasants becoming “little capitalists”, he “invited” farmers to form co-operatives and, when that proved unpopular, in 1958 forcibly herded them into huge communes where not even clothes or cooking pots could be individually owned and where 30 million died in the famine provoked by the Great Leap Forward.

Deng based his limited land reforms on Xiaogang, a village in Anhui province where desperate peasants illegally started individual plots in 1978. So when President Hu Jintao went to Xiaogang last month and talked of allowing land transfers in order “to develop appropriate-scale farming”, it was a public signal that reform was imminent. Last week's Central Committee communiqué agonised over “the conspicuous, deeply-rooted contradictions created by the dualistic urban-rural structure” - party-speak for rural grievances over land and grasping cadres, and the yawning rural-urban income gap.

With nearly 1,700 violent protests a week, the scale of unrest alarms the stability-obsessed leadership. But the battle for land rights has been hard fought - held back not only by ideology, but by the greed of profiteering cadres in cahoots with developers. Since 1992 unscrupulous local officials have forced 20 million farmers off their land with little or no compensation. Disputes over abusive land seizures - of which there were 170,000 officially registered cases last year - spark most of the riots euphemistically known as “mass incidents”.

The scale of opposition to change can be gauged from the fidelity to socialist principles emphasised in yesterday's announcement. But the awkward truth is that a “new” countryside will not be “socialist”; if it remains socialist, it will stay resentfully poor. Land is the last Maoist taboo. In theory, that taboo stands. In reality, it has fallen.

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