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Chinese Property Law Notes

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This is an extract of our Chinese Property Law document, which we sell as part of our Chinese Law Notes collection written by the top tier of LSE students.

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1. PRC Property Law a. Lei Chang, Legal and Institutional Analysis of Land Appropriation i.

1. China has bifurcated land system, with clear distinctions between urban and rural land-use rights

2. While state-owned land is urban areas has become commercially transferrable, rural land cannot be

3. This discrepancy has been exploited by property developers,
investors, village heads, and local governments, which has cause widespread, large-scale malpractice in relation to the expropriation of land

4. Thus, conflict over expropriation of land has been, and continues to be, a simmering hotpot of social unrest in China a. It has been claimed that land disputes over expropriation is one of the most common ways of provoking grass-roots resistance and undermining public confidence in the government

5. The last two decades have witnessed exponential growth in China's property and construction sectors, which has also brought about social tensions and innumerable complaints of inequitable treatment a. Peasants are perceived to be weak and vulnerable to infringement of their property rights by the local government and property developers.
b. Land expropriation (and the subsequent sale of land to property developers) has become a major source of lucrative revenues and financing for local governments, as peasants are drastically undercompensated for their expropriated land c. More disturbingly, there is increasing media coverage of forced evictions and demolition cases involving violence,
sometimes even resulting in death, which have highlighted underlying social tensions and raised public awareness and concern

6. All in all, most of these problems can be attributed to the dysfunctional bifurcated land tenure system

7. Lei Chen, therefore, argues for the introduction of clearly defined PRs by way of legislation, in view of the mounting number of infringements of Prs via expropriations

8. The harms of the current system a. The separate regimes for rural and urban land allow local governments in China to monopolize land supply and thus benefit from converting rural land to urban use at little expense b. Many local governments in China have relied on land conversion and allocation charges as an important source of revenue c. Ho, on the other hand, argued that China's land tenure system is a 'deliberate institutional ambiguity', which allows local governments to adapt and respond quickly to variety of pressures and rapidly changing conditions i.
This is particularly the case in relation to the collective ownership of land in rural areas d. Hence, there has never been a land policy that has been uniform and consistent throughout China e. Interestingly, Merrill and Smith, in their property law textbook,
stated that "notwithstanding ... government interference with property rights, China has had little difficulty in recent years attracting large amounts of capital from foreign investors.

i. For them, the investment influx would appear to be due to the fact that"Chinese administrators in the Post-Mao era have developed a strong norm against interfering with the expectations of foreign investors."

ii. As a result, economic growth can still take place notwithstanding lower protection for court-enforced property rights, as various social arrangements may provide alternative forms of protection for property rights underpinning economic activities f. However, appealing the above argument may appear,
however, Lei Chen believes that secure property rights formalised by the use/revision of legislation is still the most reliable solution to achieve socially permissible control i.
Economic growth driven by foreign investment is only one aspect of the myriad issues related to land-use rights ii.
Emphasising economic development may well further encourage land expropriation, and the increase in the number of cases of land seizures across the country may have fuelled in part by high housing prices and the government's urbanisation policy iii.
Without a properly functioning, comprehensive property law, China cannot accomplish economic development in a sustainable manner iv.
In the past, local governments were able to provide cheap land for foreign investors, but this cannot continue indefinitely

1. The social norm model worked in the past, but is not feasible nowadays

2. Today, individual farmers who are subject to unfair expropriation need more than ii.

governmental policies and a mish-mash of social norms

3. They need legal certainty, provided by legislation and enforced by the courts g. While valuing Ho's insightful and context-sensitive theory of deliberate ambiguity, some normative questions should be asked: is allowing local governments to manipulate the land market, albeit subject to local conditions, legitimate and fair?

i. how should the grievances suffered by the rural farmers be redressed?

ii. and how should the Chinese government draw the fine line between economic development and individual property rights?
Historical background and current issues of Chinese expropriation law

1. Rural Land a. Shortly after the founding of the People's Republic of China in 1949, China instituted a land collectivization program that replaced private farming under the "tiller owns land" policy of 1947 b. However, under the collective system, and later, the People's
Commune system, there was a lack of economic incentives to encourage farming productivity c. This unfortunate situation was worsened by the Great Leap
Forward (1958-1961).

i. Taking into consideration the outright failure of the
People's Commune system, the decentralization of collective ownership to the production team was carried out in the early 1960s.

ii. As a result, the sheng chan dui 生产队
(production team) became the de facto production team) became the de facto ) becam) became the de facto e the de facto m) became the de facto anager of the land in m) became the de facto ost villages, and this system) became the de facto was retained up to the m) became the de facto id-1980 d. When the Cultural Revolution ended, China steered a new course with dramatic economic and social changes.

i. As an integral part of Deng's reforms, the Household
Responsibility System (HRS) was introduced to replace the People's Commune system with a family-oriented farming system in villages ii.
Under the HRS, land is contracted to individual households for fifteen to thirty years iii.
The decentralization of land use from the collective level to the household level improved the peasants'
incentives to enhance farming productivity. iv.

As a consequence, agricultural production boomed and rural incomes increased rapidly v.
The HRS was initially conducted as an experiment in several designated areas and, due to its success, was soon introduced nationwide vi.
Under, the HRS, households are allocated land-use rights, but not the right to dispose of the land, that is,
the right to transfer land or to use it as collateral to obtain a loan vii.
These limited property rights dampened the farmers'
investment because there was no guarantee that 'those who invested to improve the land would be the longterm beneficiaries of such investments'

viii. Moreover, under the HRS, land parcels are subject to periodic reallocation at the discretion of the village leaders in view of changes in population and the formation of new households e. From the mid-80's to the end of the 90's the Chinese Central
Government encouraged village collectives to utilise their agricultural land for building up township and village enterprises i.
Farmers were encouraged to "leave the land but not the countryside" in order to work in the newly initiated
TVEs ii.
This essentially allowed agricultural land to be used for non-agricultural (mainly manufacturing) purposes iii.
Interestingly, TVE land was later used to circumvent the overarching policy of the nontransferability of rural land by way of involuntary transfer: bankruptcy,
mergers and acquisitions, and expropriations iv.
There are two reasons for this policy:

1. One reason is that the stimulating productivity effect of the HRS had deteriorated during that period, and the other reason is that there was a huge proportion of the labor force that did not need to personally engage in farming v.
While the TVE policy shifted resources and discretion to local governments to encourage localized strategies of development, and TVEs have more resources and clout than a single farmer, thus alleviating the fear of land-taking, the law never defined TVEs as a unique secure property-holder 1. Therefore, the pressing issue of nontransferability of rural land (including TVE land)
still persists and calls for further reform f. The Rural Land Contracting Law (RLCL), implemented in 2002, aimed to secure households' rights of use and possession by allowing the enforcement of thirty-year land-use contracts in order to prevent large-scale arbitrary reallocations of land and to allow transfers of land between households.

i. Generally, under the current land system, farmers have two use rights over rural land.

1. The first right is the right to contract out the land for agricultural production, and the second right is the right to use the land to construct a residential homestead.

ii. Rural land is also periodically redistributed among community members as a result of village demographic changes iii.
Because the right to contract out the management of land is only a limited right, a holder of such right does not have the power to assign this contracted land

1. However, the contractor may assign its interests in relation to the contracted management land right, albeit subject to certain limitations, as explicitly allowed by Article 32 of the RLCL

2. It is clearly stated that such right can be assigned by "subcontract, lease, exchange, or transfer or by other means.

3. This right is, of course, limited to the term of the rightholder's contract, which was specified in the land management contract.

4. The method of transferring the rights is up to the individual rights-holder, not the collective on behalf of the local government g. Another distinguishing feature of the Chinese rural land tenure system is that in order for rural land to enter the open market,
it has to be first converted into urban land by state monopolistic appropriation under the Land Administration Law

i. Primarily, both the Urban Real Estate Management
Law (UREML) and the LAL require that various structures must be completed on state-owned land ii.
Since the local government is the only authority that may assign a piece of stateowned land to developers, or take collectively owned land and convert it into stateowned land, the government effectively monopolized the supply of land for construction

2. Urban land a. Initially, there was no provision for private property rights in the 1982 PRC Constitution b. With subsequent dramatic changes in economic and social conditions, the PRC Constitution has been amended several times to constitutionally entrenched private property rights c. The burden faced by the Chinese government to provide enough housing for its citizens was seriously challenged by urbanization and an exploding population d. In order to ease the housing burden, China embarked on a new economic policy based on creating wealth by selling land and housing.
e. In accordance with this policy, China amended its Constitution in 1988 to recognize privately owned, transferable land-use rights.

i. This constitutional amendment has far-reaching consequences because it allows the creation of a revolutionarily new form of land-use right f. More significantly, the subsequent 2004 amendment of the
Constitution places private property on an equal legal footing with state-owned property, such that "citizens' legally obtained private property rights" should not be violated i.
Furthermore, the amendment requires compensation whenever private property is expropriated ii.

1. a limitation of a private property right is permissible, but subject to explicit safeguards or conditions iii.
This means that under the Chinese constitutional property clauses, the private property of citizens may be encroached upon only for reasons of public interest and with compensation g. Despite these amendments, however, China still lacked a comprehensive and consistently regulated expropriation law i.
Thus, the Chinese expropriation law was fragmented and susceptible to structural weakness, inconsistent treatment, corruption, and an environment generally inconsistent with sustainable development ii.
Before 1994, when housing privatization occurred, the expropriation of urban housing land was aimed mainly at serving the needs of urban regeneration iii.

Expropriations were largely government-oriented and benefited the public by improving living conditions.
h. However, the UREML changed the nature of expropriations of urban housing land i.
The law creates a number of de facto monopolies that render the implementation of just compensation almost impossible ii.
The distinct feature of the Chinese land tenure system is the twofold role played by the local governments,
that is, the public function of government and as general landlord of all land iii.
Understandably, the entrepreneurial interests of local governments are easily intermingled, but not necessarily aligned, with the public interest iv.
The UREML allows only licensed developers with the necessary qualifications to construct infrastructure facilities and housing in urban areas, while individuals,
organizations, and enterprises are unable to build their own housing v.
In order to maximize profits from land redevelopment, a private developer buys out the existing residents of a piece of land at a low price, redevelops the area, and thereafter sells the real estate at a much higher price i. In response, the PL of the PRC came into effect in 2007 i.
This legislation is intended to secure property rights by clearly defining different types of property rights and safeguarding title security, thus providing greater economic stability in the (real property) marketplace ii.
The effectiveness of this legislation is still an open question as it was introduced too recently for us to assess its impact adequately iii.
Nonetheless, Article 42 of the Law is commendable as it fleshes out some safeguards for property owners who have had their land expropriated

1. Land and housing owned by a collective, juristic persons and individuals can only be expropriated for public purposes or in the public interest; the expropriated land owned by collectives should be compensated to the full extent of the loss suffered subject to law. The compensation includes, among others,
compensation for taking the land, a resettlement subsidy and compensation for the fixtures, crops and plants on the expropriated

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