China's Changing Property Law Landscape

China's Changing Property Law Landscape

Description

The last four decades have seen fundamental changes in Chinese property law. The decrease in centralized control, the individualization of agricultural land use, and the rise of urban real estate markets have re-made the legal landscape to the point that the casual observer might assume that the past is not only gone but irrelevant. That would be a fundamental mistake. To understand the current situation, to predict the future, or to appreciate the comparative implications of Chinese land law one must recognize not only what has changed but also understand the historical features that underlie contemporary law and policy. The first and most striking feature from a comparative perspective has been that law serves as the final confirmation of policy reforms, rather than the precondition of the reform. Law’s role has stayed marginal and nominal to a great extent. Whether a policy initiative will be fully implemented depends not on law, but on the social and political contexts. The Household Responsibility System (HRS), for example, which liberated Chinese farmers to produce for themselves on individually allocated plots of land, was initiated by the practices of villagers, in particular those in Xiaogang Village of An’Hui province, in the early 1980s, and this system was not written into law until a 1993 constitutional amendment, by which time the system had been fully operational across the country for several years. The transfer of rural contract land, on the other hand, shows the converse: that law alone is insufficient to change social behavior. The 2002 Rural Land Contract Law allowed the transfer of rural contract land, but more than a decade later only about a quarter of rural contract land had been transferred, and small family farms are still the mainstay of China’s agricultural sector. In fact it was not until 2004 that China constitutionally recognized private property and 2007, almost three decades after a thoroughgoing market reform premised on the free exchange of private economic assets, that the National People’s Congress enacted the Property Law and fully legitimated the private property rights that were the foundation of the reform. The second fundamental point about Chinese land law is that there is no individual ownership of land. Land either belongs to the state, i.e., literally ‘all the people’, or to the collective in which it is situated. In general, this division corresponds to urban versus rural land, meaning that land within city boundaries is state owned and land outside is owned by the farming village as a collective entity. While the granting of long-term land use rights has led to vibrant urban real estate markets and fantastically rich real estate developers who make million-dollar donations to the American universities that enroll their children, the underlying ownership structure matters, and it matters even more in the countryside, where village collectives play a role beyond nominal owners, in particular in the situations of rural land expropriation. The third historical feature, the radically different treatment of urban and rural land, grows out of the second and is the source of one of the most pressing social issues facing Chinese leaders. While the underlying distinction between allodial ownership and long-term usufruct rights lurks in the background, urban land use is regulated in a manner and substance fundamentally similar to cities in Western Europe, North America, or the rest of Northeast Asia. Height, density, and use restrictions abound; governments expropriate2 urban land use rights and buildings for projects in the ‘public interest’ with consultation and compensation for displaced residents; and private real estate developers with close ties to public officials often succeed in getting the government to stretch the definitions of public interest, consultation, and compensation beyond recognition. The difference between, e.g., New York and Shanghai is the speed of urbanization and the strength of civil society and legal institutions, not the fundamental nature of legal norms. Chinese cities are growing at rates unseen in the developed world, and the relative weakness of both civil society and judicial institutions has meant that residents’ property rights in action often are a pale shadow of their legal entitlements. The relative weakness of formal property rights does not mean that they are powerless, however. Litigation against real estate developers can on occasion delay dispossession or increase compensation and the rhetoric of property rights can put political pressure on local governments to respond (Qiao, forthcoming). In other words, the treatment of urban land law is recognizable; rural land law is a different animal altogether. In an attempt both to ensure food self-sufficiency and provide a social safety net for rural-to-urban migrants, rural land can only be used legally for agricultural purposes and alienability is limited. To convert to other uses, a local municipality must formally expropriate the land, thereby transforming it from rural collective ownership to urban state ownership. It is illegal for either a farm household or a village collective to use the land for urban purposes or to transfer use rights or ownership to others for such use. In the depths of the countryside, this policy may be neither necessary nor problematic, but rapid urbanization has created extreme economic and social pressure to expand municipal boundaries. For policy and budgetary reasons discussed below, however, local governments have used their eminent domain power sparingly, and many times without seeking the required approval from the provincial or central government, resulting in massive illegal land use. As a result of these three characteristics, Chinese land law poses two related challenges to conventional property theory. First is one of the rarely questioned verities of economic theory: that clear, secure, and judicially enforceable property rights are an essential – perhaps the most essential—prerequisite to economic growth. The second question grows directly out of the first. China’s growth has not been the result of a gentler version of Stalin’s forced savings of the first half of the last century. It has come through voluntary market exchange on a massive scale, and in this sense fully vindicates economic theory. The challenge is to understand how these markets—in our case, the real estate market—operate without a well-functioning legal framework considered necessary for Coasian bargaining. While a fully satisfactory explanation of these two questions is well beyond the scope of this chapter, we will return to them in the Conclusion to begin, if not complete, the inquiry. This chapter proceeds as follows. Section 1 recounts the history of Chinese land law from the founding of the People’s Republic up to the present, including the constitutional and statutory emergence of private property and the framework of contemporary land law with a focus on the separation of land into urban and rural regimes. Section 2 explains the doctrinal framework for the annexation of farmland into growing cities and explores the financial, political, and social roles of the expropriation process within local governments and how disputes over land have become the greatest source of social conflict in China today. Section 3 presents and explains possible government responses to the development of an illegal market known as ‘small-property rights’ in which rural individuals and collectives ignore legal prohibitions and transfer or directly develop agricultural land for urban uses. Section 4 reviews the prospects for rural land reform in China, addressing the three most pressing issues: the transfer of agricultural land, the expropriation of rural land, and the possibility of granting individual farm households and/or village collectives the legal right to develop and sell their real property for non-agricultural use. Section 5 concludes by revisiting the theoretical and comparative issues raised by the changing landscape of Chinese property law.

Source Publication

Comparative Property Law: Global Perspectives

Source Editors/Authors

Michele Graziadei, Lionel Smith

Publication Date

2017

China's Changing Property Law Landscape

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