On June 28, 1950, the Agrarian Reform Law (Tudi gaige fa 土地改革法) was promulgated. It was the result of careful preparation and served as the basis and source of reference for all later transformations of the rural economy, but consisted of four parts, three of which were appendixes defining class status among peasants, the organization of peasant associations, and the organization of tribunals.
The law gave essentially each individual a certain amount of land, with the right to use it as he wished. The distributed land was basically taken from corporately owned institutions like temples, shrines or monasteries, but also from private landowners, who were not compensated (but of course given the amount of land due to them according to law) of their loss of land, grain stores, tools or draught animals. Non-agricultural possessions were left untouched. Land of rich or middle peasants was likewise left untouched.
The 1950 law thus ensured that each peasant family had at its disposal the essential minimum of land, but it did by no means create an egalitarian outcome. The reason was not only that rich landowners were harder to come by, but also to ensure the productivity of the land in order to restore the economy as a whole. Indeed, the rural economy recovered until 1952 and even surpassed the highest pre-war figures (at least according to official statistics). The new law freed many small peasants from the burden of land rent to payable to landowners, and allowed them to invest into their new plots of their own.
In total, 700 million mu (c. 46.7 million ha, see weights and measures) of land changed hands, and 300 poor peasants received their own land (Guillermaz 1976: 26). They had to deliver taxes of 17-19 per cent of the value of their harvest. This first step prepared the peasantry ideologically for further changes, yet already during this period, the problem of social classification became apparent, for instance, in the question whether one was a poor peasant or a middle-class one, and thus paved the way for the violent class struggles of the coming years and decades.
The initial land reforms instituted a legal reign of terror against landowners. Peasant associations only included small and middle peasants, and were directed against the rich ones. The latter were tried in public. Several million landowners accused of exploitation or collaboration and were executed or driven into suicide, or were virtually made outcasts of the local society. In this way the CPC smashed the traditional family lineages with members of different levels of wealth, and set up new lines between the "proletariat" and their "exploiters".
Traditional self-government in the villages (see lijia system and baojia system) was replaced by control by party cadres and mutual mistrust within the local society. Concurrently, individuals were isolated from their clan environment and put under the direct supervision of the Party. The land reform of 1950 was just the beginning a total transformation, while in the eyes of the peasants, it appeared as a final point of rendering justice and livelihood.
Exceptions from the general mode of land reform were necessary in the regions inhabited by so-called "national minorities" (see treatment of national minorities), where landownership followed traditions different from the Chinese model.