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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by Dr. ZHU Zhengfu, CAO Pei and Daniel Arthur LAPRES
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As China has one of the lowest ratios of arable land in the world,1 as well as one of the highest densities of urban populations2, land administration occupies an especially important place in Chinese government policies. In contemporary China, land management and development make important contributions to economic growth3 and general well-being.4 Still, the legal regime governing property rights remains underdeveloped in terms of precision, clarity and reliability.5 The Government is hard pressed to curb such excesses as speculative bubbles, and abnormally low prices for transfers of land-use rights to private investors.
Serious shortcomings of the real estate regime in China include the underutilization of mortgages in the primary acquisition market, as well as the underdeveloped secondary market for trading in real estate-based financial instruments.6
The endemic advantage of Chinese enterprises that have benefited from allocations or grants for free of rights to the land and buildings on which they have been carrying on business was apparently not treated by the negotiators of China’s accession to the World Trade Organization.
The drafting of a law on property was started in 1993. But the project was overtaken by a series of partial reforms necessary to create rights in objects and to allow services to circulate in the socialist market economy in development since 1978.
Finally, in July 2005, the Standing Committee of the NPC published a draft law and collected some 10,000 comments from the public. In all, the draft law was presented an unprecedented six times to the Standing Committee for deliberation. Property has received official consecration as a vector to reach equality before the law once the State, collectives and individuals benefit from uniform conditions for its acquisition and transfer. The Property Law has served to consolidate the existing texts and to advance in particular in: the disaggregation of property rights to optimize the conditions of their exploitation; the separation of ownership from management of State-owned assets; the guarantees of renewal of rights under rural land contract management and in its broadening of the scope for their transfer; clarification of the property rights in rural collectives and in urban buildings; and its guarantee of compensation in the event of expropriation in the public interest such as that of rural collectives.
Land administration has been a major concern of Chinese government since imperial times, on matters as elementary as whether to use the land for grazing (favoured under dynasties founded by the Mongols and the Manchus) or for cultivation (including what products, typically rice or wheat), and how to allocate rights to land among the population.
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Non-noble private ownership of land arose in the fourth century B.C. By the Han dynasty, large aristocratic domains had been constituted and “free” peasants represented only a small fraction of the total population. From the end of the fourth century to the latter part of the eighth century, the “equal field regime” system prevailed among many of the splintered dynasties. The Toba tribe of North Western China in 485 A.D. instituted a regime attributing to each man and woman a life leasehold on a certain plot of land as well as the right to a patch for growing mulberry bushes to supply silkworms. The first Emperor of the Tang dynasty undertook a major reform of landholdings to equalize the allocations to all peasants. In 780 during the Tang dynasty, peasants were enabled to claim full ownership to their land subject to paying their share of the land tax. In 1275, under the Southern Sung dynasty, the Government created a fund to acquire lands of the wealthy for redistribution to the poor. Through subsequent dynasties, the land tax played a pivotal role in imperial finances and the land-owning gentry assumed a dominant social role at the local level.
As China did not practice the rule of primogeniture, the splitting of properties among the surviving sons limited the size of estates. By the 18th century, among the elite of about one million landholders, estates varied between 100-150 mus. At that time, about 30% of farm families were tenants and another 20% both owned and rented land.
Land redistribution was a pillar of the Revolution of Sun Zhongshan (Sun Yatsen) in 1912 and of course it played a major role in the Communist Revolution in 1949.
At the time of the Communist Revolution, the average land holding of a Chinese peasant corresponded to 0.39 acres.7 The Party first implemented a policy of land equalization; it divided the rural population into great, middle and small landowning families (some 10% of the population), rich and middle class peasants (20%), and poor peasants (the remaining 70%). As of 1952, the landlord class had been stripped of its landholdings and some 118 million acres of farmland had been redistributed among some 300 million peasants. Even before the redistribution programme had been completed, the Communist Party led and encouraged the creation of rural cooperatives to achieve economies of scale. Peasants were induced to join them by granting them advantages such as access to loans.
Between 1952 and 1956, the Party led the rural community from mutual aid teams, to small-scale cooperatives to advanced producer’s cooperatives. In the initial cooperatives, villagers contributed their land by turning over deeds of sale, livestock and other property in exchange for shares. The peasants’ income was based on a proportional share of the cooperatives’ results as well as their individual labour. Advanced cooperatives comprising as many as a few hundred members from entire villages and sometimes several villages pooled their resources including land.8 By 1957, 120 million households, some 96% of the peasantry, had turned over their cooperative shares and there existed some 740,000 advanced agricultural cooperatives.
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While most rural land had been put under cooperatives after the Revolution, there remained privately owned plots of farmland, as well as private houses. But on August 29, 1958, the Central Committee of the Communist Party announced its directive instituting the regime of people’s communes into which would be merged the existing cooperatives. The communes might comprise some 2,000 peasant households.9 Ownership of rural land, however, remained vested in the village cooperatives. Peasants could still keep very small-scale garden plots (no larger than a fifth of an acre). By the end of 1958, the advanced agricultural cooperatives had been merged into 26,000 communes, later shrunk to 24,000. But the results of the reforms did not meet expectations and rapidly private property was returned to commune members who were again allowed to own their houses.
In March 1959, new directives decentralized the communes by instituting three levels of ownership: commune or township ownership, production brigade or village ownership, and ownership by production teams of some 10–20 families. Gradually, ownership of land, tools and livestock was concentrated in the villages and production brigades. Families could own their houses, private plots of land and a small number of domestic animals. In January 1961, this system was consolidated by a directive of the Communist Party’s Central Committee.
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In 1982, four years after the movement of opening up and reform, launched by Deng Xiao Ping, a new Constitution was adopted and it remains in effect subject to amendments.10 Its original article 10 stipulated that all urban land belonged to the State and all land in rural and suburban areas belonged to the collectives, which were administratively subject to the central and local governments. Sales, leases and all transfers of land remained prohibited. A duty was imposed on all organizations and individuals to make “rational uses” of land.
The April 12, 1988 amendment to Article 10 of the Constitution of 1982 served mainly to provide for transfers of land-use rights. The amended article provides as follows:
Land in the cities is owned by the State. Land in the rural and suburban areas is owned by collectives except for those portions which belong to the State in accordance with the law; housing sites and privately farmed plots of crop land and hilly land are also owned by collectives. The State may, in the public interest, take over land for its use in accordance with the law. No organization or individual may appropriate, buy or sell land or otherwise engage in the transfer of land by unlawful means. The right to use land may be transferred according to the law.
This constitutional amendment has grounded a normative structure governing landuse rights and their transfers, which has engendered the primary real estate market. Real estate development and transactions in land-use rights involve all levels of the country’s administration.
Article 12 of the Constitution stipulates that socialist public property is inviolable.
Article 13, as amended in 2004, provides that:
Citizens’ lawful private property is inviolable.
The State, in accordance with law, protects the rights of citizens to private property and to its inheritance.
When it is necessary in the public interest, the State may, subject to providing compensation and subject to acting in accordance with the law, expropriate or requisition private property for its use.
The State protects sites of scenic and historical interest, valuable cultural monuments and relics of the country’s heritage.11
Article 56 of the Constitution mandates the imposition of taxes, including on real estate.
In practice, land-use rights have been attributed to the Chinese enterprises and other entities that occupy and exploit them. Such Chinese undertakings are entitled to transfer their rights as well as to contribute them as capital to Chinese enterprises and foreign invested enterprises.
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Foreign investors, on the other hand, are obliged to acquire land-use rights, which of course puts them at a competitive disadvantage compared to Chinese counterparts.
One consequence of these situations has been a skewing of foreign investor preferences for joint ventures as an indirect method of obtaining rights to use land without paying the otherwise applicable fees.
In addition to constitutional provisions, those in the following laws and regulations may be enforced by courts throughout the territory. Investors or lawyers working in a particular region must also consult the locally applicable laws and regulations.
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For the purpose of implementation of the above basic laws, some of the more important regulations and rules include:
In a broader perspective, the following legislation also has an impact on real estate:
Also applicable at the national level are series of other regulations and implementation rules promulgated by the State Council or by State Council Departments, mainly the Ministry of Construction and the State Land Administration.
Important interpretations and notices issued by the Supreme Court include:
Furthermore, comprehensive, even if not always consistent, sets of implementing regulations and rules with respect to the classification of land, annual land-use fees, fees for grants of land-use rights and/or land taxes, conditions of registration, etc., have been promulgated by local governments in the provinces, autonomous regions and municipalities directly under the central government and by the corresponding local people’s congresses.
The Proprety Law contains five parts (General provisions, Ownership, Usufructuary rights, Secured interests and Possession). The general principles governing property rights in, and possession of, both movable and immovable are presented in the chapter on the Civil Law, as are those governing secured interests.12 Hereunder attention is focused on the Property Law’s provisions governing real property.
2.3.1. Establishment, modification, transfers and termination of property rights
When the law requires that the establishment, modification, transfer and termination of rights in real property be registered, contracts to those ends may only take effect upon registration. However, State-owned natural resources are not subject to registration.13
Real property is registered with the registration department where it is located.14
The real property registration system is nationwide and imposed by laws and administrative regulations.15
Real property registers attest the existence of property rights.16 The ownership certificate of real property issued by the registration authority evidences ownership in the referenced real property. In the event of conflict in its information with that recorded on the register, the latter prevails.17
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Where parties reach an agreement to sell a house or other real property, they may apply to the competent registration office to pre-register their transaction. Thereafter, the disposal of the property without consent of the buyer on the pre-notice registration is of no effect.18
Any registrant that files false information is liable to pay compensation to those who suffer consequent damage.19
Where the registration department causes damage to others through its fault, it is liable to pay compensation while being entitled to recourse against those responsible in fact.20
Registration charges are determined according to quantity and may not be charged according to the size, volume or price of the real property. Standards are set by the competent departments of the State Council and their offices in charge of regulating prices.21
2.3.2. Apartment buildings
Within apartment buildings used for residential or commercial purposes, owners own the parts to which they have exclusivity, and jointly own and manage the common areas.22
Owners may possess, use, profit from and dispose of their exclusive areas of the building, but may not do so in a manner that creates a security risk or harms other owners’ rights and interests.23
Owners of apartments that waive their rights to the common areas do not avoid their correlative obligations.24 Transfers of apartments entail transfers of co-ownership to the common areas.25
Owners may constitute owners’ meetings and elect owners’ committees. Local people’s governments must provide instructions and assistance with regard to the establishment of owners’ meetings and the elections of their committees.26
The owners’ decisions to raise and use funds for the maintenance of their buildings and annexes and for their repair or reconstruction must be adopted with the consent of owners representing two thirds of all owners and whose properties account for more than two thirds of the gross area of the building. Other decisions are made with the consent of owners representing half of all owners and whose properties account for more than half of the gross area of the building.27
Owners may not violate laws, regulations or management rules, nor, without the consent of the concerned owners, may they put residential apartments to commercial uses.28
Decisions of owners’ meetings or committees are binding upon all owners and if any of the latter consider their rights and interests to have been infringed by such a decision they may apply to the people’s courts to obtain its cancellation.29
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Accounts with regard to raising and use of maintenance funds must be made public.30
In the absence of State-imposed measures or rules adopted by the owners, the apportionment of fees and profits arising from the operation of their building and its annexes is determined in proportion to their exclusive areas as related to the whole building.31
Owners may choose to appoint realty management companies to manage their buildings or choose to manage their buildings themselves directly.32
2.3.3. Neighbourhood relationships
Neighbouring users of real property must maintain “proper neighbourhood relationships”.33 In the absence of laws or regulations, such relations are governed by local customs.34
Users of real property must provide their neighbours with necessary access to water and drainage. Natural running water is distributed on a reasonable basis among neighbours and is drained according to the natural direction.35
Users of real property must offer their neighbours access necessary for passage36 as well as for construction or repair of their buildings and for installation of wiring, electric cables, heating and gas pipes.37 They may, however, claim compensation for the consequent damages.38
Buildings must be erected in compliance with the applicable State construction plans and so as not to affect the ventilation, line of sight or exposure to light of the neighbouring buildings.39
Users of real property may not, in violation of laws, release gas or water pollution, solid wastes or create nuisances such as noise, artificial light, or magnetic wave radiation.40
Users of real property may not endanger the security of the neighbouring properties by digging, construction, laying of pipes or lines or installation of equipment.
2.3.4. Rights to land contract management
Rural collectives conclude contracts with households for their operation of farmlands, forests and grasslands collectively owned by peasants and land owned by the State but collectively used by peasants, as well as for other lands used for agricultural purposes.41
Contracting households enjoy the rights to possess, use and profit from the contracted land and they are entitled to engage in such agricultural production as crop farming, forestry and animal husbandry.42
The longest contractual term for farmland grants is 30 years, for grasslands 30 to 50 years and for forests 30 to 70 years. After expiration of the term, the contracting households may extend the contract in accordance with applicable State rules.
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The people’s government above the county level issues certificates of rights to land contract management, forest management certificates and grasslanduse right certificates and records them as confirmation of the rights.43
Holders of rights to land contract management may sub-contract, exchange or assign their rights in accordance with the provisions of the Rural Land Contract Law.44
Such transfers may be registered with the people’s government above the county level, and if not, they are not binding upon subsequent takers in good faith.45
Except as provided in the Rural Land Contract Law, during the term of the contract, the lessor does not have the right to recover the contracted land.46
In the event of expropriation of its contracted land, the contracting household is entitled to compensation.47
2.3.5. Right to the use of construction land
The owner of the right to use State-owned land for construction enjoys the rights to its possession, its use and its lucre, and they have the right to erect buildings and their annexes.48
The right to use land for construction includes its surface and underground. Rights to the use of land for construction may not entail infringements of vested beneficial interests.49
The right to the use of land for construction may arise from grants (chu rang) or by so-called allocations50 (hua bo). Lands used for industrial, commercial, tourism, entertainment or commercial uses to which there are more than one claimant must be assigned by auctions or calls for tenders.51
Where the right to the use of land for construction arises from an auction or call for tenders, the parties concerned must conclude a written contract of assignment. The contract must include the following contents:
The right to the use of land for construction is subject to registration. The registration department issues to the owner a certificate of the right to the use of land for construction.52
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The owner of the right to the use of land for construction must make use of it in a reasonable manner and may not change its use without approval from the competent administrative department.53
The owner of the right to the use of land for construction must pay assignment fees as provided by law and the parties’ contract.54
Unless there is sufficient evidence to the contrary, buildings, structures and annexes built by the owner of the right to the use of land for construction belong to it.55
Except as otherwise provided for by law, the owner of the right to the use of land for construction must have the right to transfer, exchange, make capital contribution, donate or mortgage the right to the land.56
Where the owner of the right to the use of land for construction transfers, exchanges, contributes as capital, donates to others or mortgages the landuse rights, the contract must be set down in writing57 and the change must be duly registered.58
Where the right to the use of land for construction is transferred, exchanged, contributed as capital or donated, the buildings, structures and their annexes follow.59
The term of the land-use rights for building houses is automatically renewed upon expiration. The term of the right to the use of land other than for housing is renewed according to laws and regulations. The situation with respect to ownership of houses and other real property on the land, is decided firstly by agreement, and if not provided in the agreement, by the provisions stipulated by laws and administrative regulations.60
Upon lapse of the right to the use of land for construction, the registration department takes back the certificate of the right to the use of land for construction.
Collectively owned land may be used for construction purposes in accordance with such laws and regulations as the Land Administration Law.61
2.3.6. Right to the use of residential housing land
The owner of the land-use rights to residential housing land enjoys the right to possess and use such land as if it were collectively owned, and the right to build residential houses and annexes on such land.62
The conditions of acquisition, exercise and assignment of rights to the use of residential housing land are determined by such laws as the Land Administration Law and applicable State regulations.63
The right to the use of residential housing land terminates if the land is destroyed or lost due to natural disasters. In such situations, affected villagers are relocated and attributed other housing.64
Where the registered right to the use of the residential housing land terminates or is assigned, registration formalities must be carried out promptly.65
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2.3.7. Easements
The right of an owner of real property to improve it by using the real property of others according to the terms of a contract is called an easement (di yi quan).
Contracts for easements must identify the locations of the properties, the purpose and conditions of the easements, their term, applicable fees and the conditions of their payment and methods for resolving disputes.66
Easements need not be registered, but then they are not binding on takers in good faith of the property object of the easement.67 If a registered easement is modified, assigned or if it terminates, the registration must promptly be amended.68
Easement owners must make use of them in conformity with the agreed purpose and conditions and make reasonable efforts to reduce the restrictions to the property.69
The term of an easement may not exceed that of the right to land contract management or of the right to the use of land for construction.70
The household in land contract management and the owner of the right to the use of residential housing land succeed to easements existing prior to the obtaining of their rights.71
Where rights to land contract management or the rights to the use of land for construction or for residential housing land have been created, the owner of the land may not set up easements without consent from the owners of beneficial interests.72
Easements may not be assigned alone. Except as otherwise agreed in the contract, they are transferred along with the right to land contract management or the right to the use of land for construction.73
Easements may not be mortgaged alone. Where the right to land contract management or the right to the use of land for construction is mortgaged, the easement is assigned upon its realization.74
Where the right to land contract management or the rights to the use of land for construction benefiting from an easement are assigned and the assigned property concerns the easement, it is deemed to have been assigned.75
Where an easement is abused in violation of laws, regulations or the terms of the contract or where the beneficiary fails to pay the fees after two notices to pay within a reasonable time after the due date, the easement may be cancelled.76
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No significant changes were introduced into China’s socialist land regime in the early phase of economic reform. Access to land and housing by any entity or individual in China was under the ultimate control of government authorities. No real estate market could develop in such circumstances.
The fundamental principle of the new regime is that, while no enterprise or individual (domestic or foreign) can claim ownership of land, the right to use land can be transferred from the State for limited periods.
The ownership of land stipulated in the Constitution has never been changed. Reform with respect to land tenure has focused on land-use rights.
Rural land reform started at the end of 1970s, when collectively owned farm land-use rights were granted to rural families under the terms of land contracts. The original contract term was three to five years, which was renewed at first for 15 years, and now those contracts are in their second term renewal for another 30 years.77 Peasants’ land-use rights are protected by the Land Administration Law and the Rural Land Contract Law.
Urban land reform started later. Not until November 1987 did the State Council approve experimental schemes worked out by the State Land Administration and the Ministry of Construction to reform the land regime in major coastal cities, including Shenzhen, Shanghai, Tianjin, Guangzhou, Xiamen and Fuzhou. In April 1988, the NPC ratified an amendment to the Constitution that legalized commercial transactions of land-use rights.
The Land Administration Law proclaims that “the State shall implement a regime of compensated use of State-owned land”.78
The Law applies to the use of land by sino-foreign equity joint ventures, sino-foreign cooperative ventures and wholly foreign-owned enterprises, except where other laws have specific provisions, in which event the latter prevail.79
According to the Land Administration Law and the Land Administration Rules, China practises socialist public ownership of land as defined in article 10 of the Constitution cited above.
Rights to use State-owned land as well as that owned by collectives may be attributed to units or individuals.80
People’s governments at the county level or above manage registries and issue certificates of rights to use land belonging to peasants’ collectives as well as to that belonging to the State.81 Transfers of land-use rights and changes of the purpose of land-use must be registered.82
No unit or individual may buy or sell land ownership and only the land-use rights may be traded.83
The State may attribute the management of its land by contract to individuals or units for periods subject to negotiation.
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Any party intending to develop land must apply for the use of State-owned land or obtain that of collective-owned land through prior requisition by the State.84
Conversion of agricultural land requires approval at the level of administration determined as a function of the size of the project.85 Construction of roads, pipelines, cables and major infrastructure projects is subject to approval of the State Council.86
The approval of the State Council is required for conversions of:
Planning is carried out at all levels of the administration using a system of zoning.88 Article 19 defines the objectives of the planning system to be the following:
When agricultural land is requisitioned, compensation of six to ten times the average annual output value in the three years prior to requisition must be paid to the dispossessed peasants. In addition, they receive resettlement subsidies calculated on the basis of the average number of occupants of the land multiplied by four to six times the average annual output value in the three previous years. Article 48 requires that the views of the concerned peasants and rural collective economic organizations be solicited, and under article 49 the rural collective economic organizations must publish the compensation fees of the requisitioned land. It is forbidden to embezzle or divert land compensation fees and other related charges.89
Normally, the use of State-owned land for a construction project should give rise to a payment, but for the following projects, appropriations may be made subject to the approval of the people’s government at or above the county level:
Use of land may not commence until the required fee has been paid.
Of these fees, 70% are retained by the local people’s government concerned, and the balance accrues to the central government. The receipts are intended to be used specially for the development of cultivated land.91
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The right-to-use of State-owned land may be withdrawn, subject to the approval of the competent department of the people’s government, under any of the following circumstances:
A similar provision is made in favour of rural collective economic organizations with respect to agricultural land.93
Each village household may only possess one house, the area of which may not exceed the standards prescribed by the provinces, autonomous regions and municipalities directly under the central government. Selling a house excludes the seller from applying for another house.94
The right to use land collectively owned by peasants may not be transferred, or rented out for non-agricultural development.95
Land administration departments of the people’s governments from the county level and above have the following powers:
When a land administration department learns of an infraction of the laws and regulations within its purview, it first tries to resolve the problem. Violations of the provisions of the Land Administration Law expose the wrongdoer to having to take down any illegal buildings, to fines and other administrative sanctions and, where appropriate, to criminal pursuits.
Claims over land are brought first to the local people’s government and, if the solution proposed is unsatisfactory, either party may resort to the people’s courts.
The Law on Administration of Urban Real Estate which came into effect on January 1, 1995, sets out general principles governing urban real estate development, transfers, leases and mortgages of urban real estate, as well as title registration procedures and legal liabilities arising in connection with real estate.
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It is China’s first national law concerning urban real estate but many local authorities had already formulated their own measures and regulations. It should be noted that if any such local rules are in conflict with the Urban Real Estate Law, the latter prevails.
Article 2 of the Law defines the scope of its application as including “the obtaining of land-use rights for development of real estate, developments of real estate and transactions in real estate, and the administration of State-owned land within a planned urban district”. Furthermore the Law applies to “transfers and mortgages of real estate and leases of houses”. By “development of real estate” is meant “acts of building infrastructure and houses on State-owned land, the land-use rights for which have been obtained in accordance with the Law”.
Under article 3, the general rule is that the use of State-owned land is subject to compensation and must be of limited duration, but allocations of land-use rights by the State are exempt.
Except where the law provides otherwise, all companies, enterprises, other organizations and individuals in and outside of China may acquire land-use rights and carry out land development, use land and carry on business thereon.97
Land-use rights belonging to individuals may be inherited.98
The department of construction administration and the department of land administration under the State Council jointly exercise jurisdiction over real estate throughout the country but the lower level institutional structures, functions and powers of the departments of housing administration and of land administration are determined by the people’s governments of the provinces, autonomous regions, and municipalities directly under the central government.99 These second-level authorities are in fact sources of a large number of rules that frequently vary among jurisdictions.
Original distribution of use rights to urban land is carried out by the State through so-called grants (chu rang) or by so-called allocations100 (hua bo).
Grants of land-use rights are “acts whereby the State grants land users the right to use State-owned land for a certain number of years for which the users pay the State a fee”.101
Land-use rights to collectively owned land within a planned urban district may be granted with payment only after the land has been requisitioned and converted into State-owned land.102
The grant of land-use rights must comply with the land-utilization master plan, the urban plan and the annual allotment of land for use in construction projects.103
Article 12 the Urban Real Estate Law provides that the initial grant by the government of the right to use land may be carried out in the following ways:
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As regards land used for commercial, tourism, recreation and luxury housing, auctions or bidding are the preferred methods of attribution. Fees for granting the land-use rights by agreement may not be lower than the lowest price as set down by laws or regulations.104
Grants of land-use rights must be reduced to a written contract with the competent department of land administration under the people’s governments of the cities or counties. The purpose and plan for the use of the land must be defined in the contract, and the price should be in line with local usage.105
The amount of fees due and the terms of their payment are set down in the grant contract and must be respected lest the grant be cancelled.106
Upon payment of the fees, the grant contract must be registered at the land authority and a certificate granting the right to use State-owned land is then issued.107
The purpose to which land is dedicated may not be changed without the grantor’s consent as well as that of the competent administrative authority. The change must be recorded in an amended contract and additional fees may eventually be claimed.108
All the fees for grants of land-use rights are turned over to the State Treasury and incorporated into the budget for construction of urban infrastructure and land development.109
Land-use rights may also be obtained, under specific circumstances, by means of allocation.
Article 22 of the Urban Real Estate Law defines the allocation of land-use rights as an act, approved by the people’s government above the county level, whereby a piece of land is attributed to a land-user. While the land-user may be required to pay resettlement fees, the land-use rights may be allocated without consideration.
Except where laws and administrative regulations provide otherwise, allocated landuse rights are not subject to limitations of their terms of use. Land-use rights may be allocated:
Subject to approval of the competent authority, land-use rights allocated without compensation and the title to the buildings and other fixtures thereon may be transferred, leased or mortgaged if the following conditions are satisfied:
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By virtue of article 47 of the Urban Real Estate Law, when land subject to allocated land-use rights ceases to be used (for instance after bankruptcy of the occupant), the land-use rights revert to the municipal or county government. The government may also recover allocated land-use rights to meet the needs of urban construction and development and the requirements of urban planning without compensation as well as the buildings and other fixtures on the land subject to paying appropriate compensation.112
The terms of land-use rights are specified by the State Council in article 12 of the Interim Regulations on Granting and Transferring the Right to Use of State Owned Land in Cities and Towns as follows:
In accordance with the provisions of articles 39, 40 and 41 of the Land-use Right Grant and Transfer Regulation, the right to use land terminates for the following reasons:
In principle, land-use rights acquired by grant in accordance with the law may not be recovered by the State prior to expiration of the contractual term, but where it is justified in the public interest, the State may recover land-use rights subject to paying compensation based on the number of years of utilization and the actual development of the land.113
Upon expiration of the term for the use of land, if the land user intends to continue its use, it may apply for an extension of the term, subject to notifying the competent governmental department at least one year in advance for approval.114 In principle, the application is approved except for land to be reclaimed in the public interest. If the extension is approved, the land-user must conclude a new contract for the granting of the land-use rights and it must pay the fees entailed for the grant. Where the land-user does not apply for an extension or where its application is not approved, the land-use right reverts to the State, automatically and without compensation.
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In the Urban Real Estate Law, no compensation is guaranteed for recovery by the State of land-use rights upon expiration of their term. Where land-users have not applied for a renewal or where an application for renewal has not been approved pursuant to the preceding paragraph, land-use rights may be recovered by the State without compensation upon expiration of the term of use specified in the original contract. Article 4 of the Land-use Right Grant and Transfer Regulation is very explicit: “When the term of land-use right expires, the right and the title to the buildings and other fixtures on the land shall be acquired by the State without compensation. The land user shall return his land-use certificate and have the registration cancelled according to regulations”.
Land-use rights may be transferred, leased, or mortgaged or may be used for other economic purposes.115 Transfers include sales, gifts and exchanges.116 Acquirers of land-use rights enjoy a term equal to what is left of the seller’s term.117 When the land-use rights are transferred, ownership in the buildings and the fixtures thereon pass to the buyer.118 Owners of land-use rights enjoy the rights to use the land underneath the surface and when land-use rights are transferred, so are the rights to the under soil.
Similarly, when land-use rights are transferred, the title to buildings on the land is deemed to have passed as well.119 When title to the buildings and other fixtures is transferred separately from the land-use rights, the approval of the administration departments for land and real estate under the municipal or county people’s government must be obtained.120
Assignments, transfers, leases, mortgages and terminations of land-use rights and of rights to the buildings and other fixtures thereon must be registered by the government departments of land administration and real estate administration. In principle, such registrations are accessible by the public. These departments supervise transactions in land-use rights.121
Municipal and county people’s governments may pre-emptively purchase land-use rights when transfer prices are substantially lower than market prices as well as take necessary measures when market prices rises unreasonably.122
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Real estate development is subject to rigorous urban planning. Development is organized according to principles of rational distribution and comprehensive development in pursuit of economic, social and environmental benefits.123
Land to which the use rights have been obtained by grant must be developed in accordance with the conditions set down in the grant contract as well as within the stated time limits.124 Idle land fees may be charged at a rate equivalent to no more than 20% of the fee for the land-use rights. Except where commencement of construction is delayed due to force majeure or an act of government, or due to the need for preliminary work prior to commencement of development, if development does not commence within two years, land-use rights may be recovered without compensation.
Design and construction must comply with the relevant standards and specifications of the State.
Completed real estate development projects may be delivered for use only after having been examined and accepted as complying with applicable standards.
In its article 29, the Urban Real Estate Law stipulates the conditions applicable to the establishment of a real estate development enterprise. The enterprise must:
Applications for registration of an establishment are submitted to the administrations of industry and commerce. Where a limited liability company or a joint stock limited company is established to engage in real estate development business, the relevant provisions of the Company Law are applicable.125
The ratio of registered capital to the total amount of investment of a real estate development enterprise must comply with relevant State regulations.126
Real estate development enterprises enjoy management autonomy. Their lawful rights and interests are protected by law.
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Contracts for construction projects are specifically governed by Chapter 16 of the Contract Law. These include contracts whereby the contractor performs project construction, and the developer pays the price. Included are such contracts as those for surveys and designs.127 They must be in writing.128 Tendering in construction projects must be conducted in an open, fair and impartial manner.129
Provided that it does not interfere with the normal operation of the contractor, a developer may inspect the progress and quality of the work at any time.130 Inspection of concealed works is conducted according to contractual milestones.131
Upon completion of construction projects, developers take the initiative to organize acceptance procedures in accordance with the official rules governing construction and quality inspections.132 The developer pays the price after acceptance. The project cannot begin operations until acceptance has been formalized. Contractors are liable for defects of the works during their reasonable period of use.133
Developers are protected against peremptory suits by contractors for unpaid claims but in the event of liquidation of a project they have priority to the proceeds.134
Under the Urban Real Estate Law, legal forms of real estate transactions include transfers by assignment, sale, gift, exchange, mortgage, and lease. The ownership of buildings and the use rights to the land on which such buildings are located are in principle assigned or mortgaged simultaneously.135 The remaining term of the land-use rights is transferred. All the rights and obligations stipulated in the original contract are assumed by the transferee.
Transfers and mortgages of real estate must be registered.136
Article 38 provides that, where land-use rights have been obtained by grant, the following conditions must be satisfied before any transfers can be carried out:
Article 37 also prohibits transfers of real estate:
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Where land-use rights obtained by allocation are transferred, the approval of the competent authority must be obtained. Then the formalities for grants are accomplished and the fees paid. If the formalities are waived by the authority, then the proceeds of the sale must be passed through to the Government.138
A transfer contract of real estate must be concluded in writing and the origins of the land-use rights must be specified.139
As for pre-sales of commercial housing, the following conditions must be met:
Mortgages of land-use rights and buildings are covered in the Land-use Right Grant and Transfer Regulation141 providing that the mortgage of the one entails that of the other.142 The Urban Real Estate Law contains a similar provision in its article 31, as does the Property Law.143
Mortgages of property interests refer to acts whereby a mortgagor provides a mortgagee with a security for the performance of an obligation. The object of the security is the property but there is no transfer of possession of such property. Where the debtor defaults, the mortgagee has priority with respect to the proceeds of the auction of the mortgaged real estate.144
For purposes of mortgage transactions, the land-use right certificates and the building ownership certificates determine ownership.145
Mortgage contracts must be in writing and must be signed by the mortgagor and the mortgagee.146
Mortgages may be created on a house together with the land-use right. A mortgage may be placed on land-use rights alone provided that they were obtained by grant.147
In mortgages placed on land-use rights obtained by allocation, the mortgagee’s claim ranks after amounts due on account of the fees for the granting of the land-use rights.148
If the term of the loan secured by the mortgage expires and provided that the loan has been repaid, then the mortgage registration is cancelled. If the payments are not made, then the mortgagee may claim the land-use rights and re-register them in its own name.
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When new buildings are added on land after the land-use rights have been mortgaged, they may be auctioned in the event of foreclosure on the mortgage. However, the mortgagee is not entitled to priority in receiving compensation from the proceeds of the auction.149
Mortgages contain at least the following particulars:
Mortgagors and mortgagees may not stipulate that ownership (understood for land as referring to the land-use rights) of the mortgaged property will be transferred to the creditor directly if the mortgagee’s claim has not been satisfied, totally or partly.151
Mortgages on land, urban buildings, factories and other buildings, forest trees, means of transport and equipment are void unless they have been registered.152
The departments responsible for the registration of mortgaged property are the following:
Mortgages to other property may be registered lest they forfeit their privileges against third parties in good faith but their dates of execution are considered to be the dates of their effect. Such mortgages are registered with the notary department in the place where the mortgagor resides.154
To register mortgages, the following documents or their duplicates must be submitted to the registration authority:
The public may consult and duplicate mortgages recorded with the registration departments.156
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Unless otherwise provided in the mortgage contract, mortgages include the principal debt and interest thereon, default penalties and compensation for damages arising from the enforcement of the mortgage.157
If a mortgagor transfers mortgaged property, it must notify the mortgagee and inform the transferee that the transferred property is mortgaged; if the mortgagor fails to do so, the transfer is void. Where the proceeds expected from the transfer of the mortgaged property are manifestly less than its value, the mortgagee may demand that the mortgagor provide an additional guarantee; if the mortgagor fails to provide such additional guarantee, the mortgaged property may not be transferred. The proceeds from the transfer of the mortgaged property are used first to liquidate the claim secured by the mortgage. If the proceeds exceed the claim, the balance belongs to the mortgagor; if the proceeds do not fully cover the claim, the difference is owed by the debtor.158
Mortgage rights may not be separated from the creditor’s rights nor may they be used to secure other creditor’s rights.159
The mortgages may demand that the mortgagor cease acts likely to cause the value of the mortgaged property to decline. In the event of such declines, the mortgagee may demand that the mortgagor restore the original value of the mortgaged property or provide security corresponding to the lost value. If the mortgagor is not responsible for the decline, the mortgagee may only demand security to cover the decline in value.160
When the creditor’s right connected with the mortgaged property terminates, so does the mortgage.161
If the mortgaged property is seized by a people’s court due to the debtor’s failure to honour its debt, the mortgagee is entitled, from the date of seizure, to collect the revenues from the mortgaged property as well as those arising separately from the mortgaged property. The mortgagee must notify concerned third parties of the seizure. Theses revenues are used as a matter of priority to offset the collection expenses.162
When the mortgage is not honoured before its expiration, the mortgagee may bring a lawsuit in a people’s court to cause the property to be auctioned.163 Mortgages terminate upon loss or destruction of the mortgaged property but apply to any compensation obtained as a result.164
Where the same property is mortgaged to two or more creditors, the proceeds from the auction or sale of the mortgaged property are distributed according to the following priorities.165 Where a mortgage contract takes effect at its registration, the proceeds of liquidation benefit the mortgagees in the order of their registration in time; where registrations are simultaneous, the mortgagees share the proceeds in their respective proportions of the claims.166
Where the land-use right to contracted barren hills or those relating to land bearing factories or other buildings of a township (town) or village enterprise are mortgaged, the collective ownership and the uses of the land may not be altered without following the legal procedure after clearance of the mortgage.167
In the event of auction of mortgaged land-use rights to allocated State-owned land, the mortgagee ranks after the creditors to which granting fees for the land-use right are owed.168
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Only land developed in conformity with the grant may be rented. The lease of the land-use rights entails a lease of the buildings and fixtures thereon.169
Leases of land-use rights must be in writing.170
Lease agreements do not discharge the lessor of its obligations under the grant contract.171
Leases of land-use rights must also be registered at the initiative of the lessor with the real estate authorities.172
Leases of houses are subject to article 52 and following of the Urban Real Estate Law. The parties must conclude a written contract, defining such matters as the term, purpose, rent, and the liabilities for repairs. Housing leases must be registered with the department of housing administration.
Where an owner of a house built on State-owned land, the use rights for which were obtained by allocation, rents the house, the rent must be passed on to the State.173
Leases are expressly covered in Chapter 13 of the Contract Law that defines a lease as a contract whereby the lessor delivers the leased property to the lessee that pays rent.174
Where a lease’s term is longer than six months, a written contract must be set down, otherwise it will be deemed a lease for an indefinite term.175
Leases may not exceed 20 years and the excess of any term is invalid. At their expiry, however, leases may be extended, provided the period from any extension does not exceed 20 years.176
Where the lessee is allowed to remain on the premises after the expiration of the lease, it is considered to have been renewed for an indefinite term.178
Leases should stipulate the uses to which the property will be put and lessees must cause their activities to comply with such stipulated uses.179
Lessors must deliver properties to lessees fit for the uses stipulated in the contracts and must maintain them in such condition during the term of the leases.180
Lessees may only add to or improve properties with the consent of the lessor.182 They may not sublet without such consent.181 Untimely payment of rent is cause for rescission.182
Changes in ownership of properties do not affect the lessee’s rights.183
Tenants of residential housing enjoy a right of pre-emption in the event of sale of the rented property184 and the remaining occupants succeed to a deceased tenant’s rights under the lease.185
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The lessee may request a reduction of the rent or not pay the rent when the leased property is damaged, destroyed or lost unless the lessee was the cause thereof.186 If it is impossible to implement the purpose of the contract, the lessee may rescind it.
Where the leased property endangers the safety or health of the lessee, the latter may rescind the contract at any time.187
Articles 56 and following of the Urban Real Estate Law include in their scope the activities of real estate consulting agencies, real estate appraisal agencies and real estate brokerages. These activities are also governed by relevant provisions of the General Principles of the Civil Law and of the Contract law.
To establish a real estate intermediary service organization, the candidate must:
Applications are submitted to the administrations of industry and commerce, and business may commence only after a business licence has been obtained.188
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5.1.1. Land Administration
The Ministry of Land and Resources (the MLR) was established in 1986 (named at that time the State Land Administration Bureau) as the national regulatory authority for the State’s land. It is placed directly under the State Council. The duties of the MLR are:
Land administration departments are established under the people’s government at various levels (provincial, municipal and county). The land administration departments of local people’s governments at or above the county level are in charge of the unified administration of land in their respective administrative areas. The people’s government at the township level is in charge of land administration in its own administrative area, in conjunction with administrators of the county government.
5.1.2. Urban Real Estate Administration
The Ministry of Construction is in charge of real estate at the national level, under which are set up real estate administration departments. The duties of the Construction Ministry regarding real estate include:
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5.1.3. Administration of Real Estate Development
Under article 4 of the Administrative Regulations on Urban Real Estate Development and Management adopted by the State Council, the Ministry of Construction supervises and administers real estate development throughout the whole country. Real estate administration departments at or above the county level are in charge of the supervision and administration of real estate development within the territories over which they have jurisdiction. Land Administration Departments at the county level and above are responsible for land administration within their jurisdictions.
Their duties involving real estate development include:
Chinese laws implement an appraisal system for the valuation of real property. Value is appraised on the basis of:
Standard land premiums, determined land premiums and replacement prices for all kinds of buildings are determined and announced on a regular basis.
Real property appraisals are necessary in connection with certain operations such as:
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China has implemented a system for certifying the qualifications of real property appraisers. The two relevant administrative regulations are the Regulations on Administration of Real Estate Evaluation Organizations, issued by the Ministry of Construction and last amended on October 12, 2005 and the Regulations on the Administration of Registrations of Real Estate Assessors that was last amended on August 15, 2001.
The State implements a registration and licensing system for land-use rights and building ownership.189 Under the provisions of the law, all real estate transactions, including acquisitions of land-use rights, transfers, mortgages and other forms of title changes in real estate, must be registered with the competent government authorities. Registration is a pre-condition of execution and validity.
With respect to land-use rights that are acquired by means of grants or allocations, an application for registration is submitted to the land administration department of the local people’s government above the county level. After verification by the land administration department, a land-use right certificate is issued by the people’s government at the same level.
Where buildings have been erected on land acquired in accordance with the real estate development law, an application for registration is submitted to the local people’s government above the county level on the faith of the land-use right certificate. After verification, a building ownership certificate is issued by the real estate administration department of the local people’s government above the county level.
Detailed procedures are provided in the Regulations on Administration of Urban Housing Registration issued by the Ministry of Construction and last amended on August 15, 2001.
The Urban Real Estate Law in its articles 63 and following contains disciplinary and criminal sanctions for government officials guilty of illegally granting land-use rights or wrongly levying fees on real estate development enterprises, or of committing negligence of duty, abuses of power, or embezzlement in connection with real estate transactions.
Illicit transfers of land-use rights and other illicit real estate transactions give rise to confiscation of the proceeds and fines.
Unlicensed real estate development or service agencies are ordered to cease their business operations. In addition, proceeds may be confiscated and heavy fines imposed.
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In connection with grants of land-use rights, development projects and real estate transactions, a wide variety of fees and taxes are charged.
When land-use rights are granted by the State, the land users pay the State a fee for the grant.
There is no unified standard for calculating this fee. Land-use fees vary greatly from locality to locality. They are decided by local government regulations or through negotiation, auctions or tenders. The process takes account of the following considerations:
Fees for grants of land-use rights may not be less than the floors determined under State regulations.
Fees correspond to at least 40% of the determined land price announced by the local municipal or county people’s government.
Payment of these fees is one of the pre-conditions:
On September 27, 1988, the State Council promulgated the urban land-use tax regulation that replaced land-use fees by land-use taxes. In practice, either land-use fees or land-use taxes are due by the land user.
Where real estate development is carried out on land the use rights of which were acquired by grant, the land must be developed in line with the uses and the deadline for commencement of development set down in the contract. Where development does not commence within one year, an idle land fee may be charged at a rate equivalent to no more than 20% of the fee for the grant of land-use rights. Where development does not commence within two years, land-use rights may be redeemed without compensation unless the commencement of construction was delayed by force majeure, an act of government or preliminary work necessary for the commencement of development.
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The land capital gains tax is levied on proceeds realized by the taxpayer from real estate transfers, less the amount of allowable deductions; including the following:
Taxpayers are required to file capital gains tax returns within seven days from the date of conclusion of a real estate transfer contract subject to registration.
Other fees and taxes include the following:
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The first foreign investment in real estate projects involved hotels operated as joint ventures with Chinese partners. Typically, the Chinese partner contributed the land-use rights and the foreign partner its professional skills, capital and network. Industrial investors were later able to extend the model to their own negotiations with Chinese partners.
Foreign investments in the development and construction of ordinary residential houses are classified as “encouraged” in the Ministry of Foreign Commerce’s Catalogue for the Guidance of Foreign Investment Industries.190
Foreign investments in the development of plots of land, in the construction and operation of upscale hotels, villas, high-class office buildings, international exhibition centres and largescale theme parks are classified as restricted and therefore subject to approval of the MOFCOM at the competent level in terms of the value of the project. Investments in the development of plots of land may be undertaken only by equity joint ventures or contractual joint ventures.191
For international investors with direct operations involving real estate in China, land acquisition is an essential concern. Particular issues arising in the present legal framework include:
Generally speaking, eight methods are available for foreign investors to obtain land in accordance with the relevant laws concerning land regime. These are reviewed in the following sections.
7.1.1. Capital contributions
When a Chinese party participates in a foreign invested enterprise (FIE), such party is encouraged by law and policy to contribute its land-use rights and premises as equity to the venture. From the foreign investor’s viewpoint the advantage is that it may avoid having to pay any land-use fees to the State. This result arises from the declension of the 1979 Law with respect to Equity Joint Ventures192 (EJVs) and its 1983 Implementing Rules, as well as the Law on Co-operative Joint Ventures of 1988 (CJVs).193
Investment contributions by the Chinese party to EJVs as well as CJVs may take the form of land-use rights. Whereas such contributed land belongs to the Equity Joint Venture to which it is contributed, in CJVs, the imputation of rights and liabilities arising in connection with the land-use rights is determined contractually.
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In these operations, the following points should be noted:
7.1.2. Applications for land-use rights by foreign investment enterprises
Preferential rates are available for FIEs that bring high technology, make long-term commitments or have other merits. But such enterprises in order to maintain their qualification for preferential treatment must satisfy the following conditions:
7.1.3. Leases from the government by foreign investment enterprises
In this case, rent is either based on an evaluation of the land, and a preferential rate is granted, or depending on the merits of the project.Such land-use rights may not be transacted during the lease term. Lease contracts are concluded and registered.
7.1.4. Leases from the Chinese partner by foreign investment enterprises
The FIE and the Chinese counterpart are equal parties in their civil undertakings. Thus, the following points need to be considered:
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7.1.5. Government grants by agreement
Acquisition of land-use rights by a grant agreement is undoubtedly a preferred method. As mentioned above, signing a grant agreement remains popular in practice, although the Urban Real Estate Law seeks to restrain local government’s discretion in granting land-use rights in less transparent circumstances. Whether a preferential rate is obtained depends on the merits of the project.
The main conditions applicable to these operations are the following:
Upon payment of the land-use fee, which must be paid within 60 days of conclusion of the contract, and registration with the State Land Administration Bureau, a land-use licence is issued. Until the license is issued, the investor is not entitled to begin using the land.
7.1.6. Government grants by auction or tender
The Urban Real Estate Law gives priority to auctions and tenders. This reflects the legislator’s will to avoid official corruption. In this manner also, prices tend to be competitive. The comments with respect to grants by agreement are equally applicable to these operations. Auctions and tenders are subject to specific procedures that are formulated by the governments at the level of the provinces, autonomous regions or municipalities under direct administration of the central government.
7.1.7. Transfers by existing users
This kind of transfer is the same as the assignment of land-use rights between two domestic enterprises in China. Its main features are the following:
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7.1.8. Leases from existing users
Leases must be concluded in writing. The parties should ensure that leasing is indeed permitted by the original grant contract and that the preconditions for leasing, if any, have been satisfied.
The parties are generally free to stipulate the terms of the lease contract. Of course, the lease contract cannot last longer than the remainder of the term of the original grant.
On May 19, 1990 in order to attract foreign investment in the development and management of tracts of lands and extend the construction of public facilities as well as to improve investment in the environment, the State Council promulgated the interim measures for the administration of foreign-invested development and management of tracts of lands.194
In accordance with these measures, foreign-invested development and management of tracts of land refers to the comprehensive development of State-owned land in accordance with approved plans. After acquiring the land-use rights for an area of State land, the ground is levelled and drainage, water, electricity and heating facilities, roads, transportation, communications and other public facilities are built to prepare the land for use in industrial or other construction projects. The land-use rights and the rights of operation of public utilities built on or beneath the land may then be assigned and the rights to buildings, such as general-purpose factory buildings and related production and service facilities that have been constructed on or beneath the land, may be assigned or leased.
Development and management of tracts of land must have clearly determined development objectives, as well as projected construction projects to utilise the land following its development.
If less than 1,000 mu of cultivated land or less than 2,000 mu of other land is required and the amount of investment for comprehensive land development comes under the examination and approval jurisdiction of a provincial government, autonomous region or municipality under direct administration of the central government, the final examination is conducted by the State Council, which decides whether or not to approve the project.
Article 4 provides that foreign investors in commercial land development establish equity joint ventures, cooperative joint ventures or wholly foreign-owned enterprises to engage in land development operations in accordance with the relevant Chinese laws. Recourse to wholly foreign-owned vehicles is presumably subject to a modification of the Guidelines on Foreign Investment that currently prohibit such investments.
Development enterprises enjoy autonomy in their business operations and management. But they do not have executive powers within the development zone. Development enterprises must obtain rights to use State land within development zones.
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Development enterprises must prepare a commercial land development programme; a feasibility study that clearly outlines the overall objectives as well as those for each stage of development and construction; the specific tasks and requirements to carry out the development; and land-utilization plans for the post-development phase. Such development programmes and feasibility studies are subject to the final examination and approval of the governments at the provincial level.
Development enterprises may only assign rights to use State land after having completed the commercial land development programme and after having satisfied the conditions of the land-use rights transfer contract.
Postal and telecommunications services in development zones are subject to a unified plan, and are established and operated by postal and telecommunication undertakings. Subject to approval by a department in charge of postal and telecommunications services at the provincial level, those services may also be established by development enterprises with their own funds or jointly established by development enterprises and postal and telecommunications undertakings. In this case, the development enterprise is compensated financially in accordance with the contract signed by the parties.
Business and social activities prohibited under State laws and regulations may not be permitted in development zones.
This market may be segmented between housing for Chinese citizens and that intended for foreigner investors. The Chinese Government would like to attract foreign investors into the former, but its potential for returns is limited due to the buying power of the Chinese population.
The segment of housing intended as living or working accommodation for foreigners is attractive to foreign investors but the Government is less keen for fear of overheating. Transactions on this market are executed in foreign currency.
A potential method of financing such projects is pre-selling the units. The rules governing such operations are often set down at the local level. To qualify for such operations, candidates must meet the following conditions:
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In summary, the following legal issues will have a major impact on potential foreign investment projects in China.
The legal foundation of the current land regime should remain stable in the foreseeable future. Perpetual real property rights are likely to arise in the future.
Preferential prices and terms of land-use rights are available for high-tech, large-scale, export-intensive and long-term investment projects, or projects of high priority in the government’s development strategy.
For joint ventures, contribution of land by Chinese partners is encouraged and may be a convenient, efficient and economical option.
Among the abundant choices of acquisition modes, and despite the fact that the Urban Real Estate Law attaches priority to auctions and tenders, compensatory grants from the land authority through direct negotiation and agreement may be optimal because of their presumably moderate cost and flexible legal constraints.
When attempting to acquire land, foreign investors should understand that allocated land-use rights must be converted to granted land-use rights and that collectively owned land must be expropriated by the State before being transferred by any existing user.
1 In 2007, the land retained for cultivation throughout China only totalled 1.83 billion mu (or 122 million hectares), that is some 1.4 mu (or about 0.0933 hectares) per head, corresponding to one-third of the world average level.
2 The national population density was 135 persons per square kilometre in 2003. The most densely populated provinces are in the East: Jiangsu (712 persons per square kilometre), Shandong (587 persons per square kilometre), and Henan (546 persons per square kilometre). Shanghai was the most densely populated municipality, with 2,646 persons per square kilometre. Library of Congress, Federal Research Division, China, Country Profile, 2005, http://216.239.59.104/search?q=cache:BIc8f6Y9XQ8J:lcweb2.loc.gov/frd/cs/profiles/China.pdf +china+administration+of+foreign-+invested +development+of+tracts+of+lands+&hl=en.
3 China’s real estate industry contributes about 2% of annual Gross Domestic Product and the sector regularly grows at some 20%, http://www.com-law.net/library/real-estate.htm. The outstanding balance of property development loans reached RMB 665.74 billion in 2003 up 3.2 times since 1998. Liu Tinghuan, China’s Real Estate Finance and Policy Implications, Bank for International Settlements, 46/2004.
4 The PRC, with some 9.56 million square kilometres, is the third largest country in the world after Russia and Canada. About 90% of its some 1.3 billion population lives in the eastern half of the country. 42% of the country’s land surface is mountainous or hilly, 26% is on plateaus, and 20% in basins and only 12% is composed of plains. Population and economic activities are concentrated in the great plains, in the valleys of the mountains and hills and in the river deltas.
5 One of the major debates over the explanations of China’s remarkable economic growth since the instauration of the policies of opening up and reform has concerned the importance of property rights for economic development, or as appears to be the case with China, their lack of importance.
6 While some 80% of the funding for land development comes from banks, there were in 2004 some 70 real estate companies quoted on the Chinese stock exchanges with a market capitalization of some RMB 150 billion. Liu Tinghuan, China’s Real Estate Finance and Policy Implications, Bank for International Settlements, 46/2004.
7 Edgar Snow, Red China Today, Penguin, New York, 1961, p. 430 and following.
8 These cooperatives were managed by councils elected by their participants. Income was collectively owned and could be invested for the benefit of its members. Wages were paid in accordance with work performed.
9 Co-operative members were allowed to keep a small number of domestic animals.
10 The current Constitution of the PRC was adopted and promulgated on December 4, 1982 at the Fifth Session of the Fifth NPC and entered into effect on the same date; it was successively amended by the First Session of the Seventh NPC on April 12 1988, by the First Meeting of the Eighth NPC on March 29, 1993, by the Second Session of the Ninth NPC on March 15, 1999, and by the Second Session of the 10th NPC, on March 14, 2004.
11 Article 22 of the Constitution.
12 The Property Law’s provisions governing movable property are treated in the chapter on Trade Finance.
13 Articles 9, 14 and 15 of the Property Law. If registration is not required by law, then contracts for the establishment, modification, transfers and termination of rights in real property take effect immediately upon their execution. Their validity is not affected by registration failures.
14 Article 10 of the Property Law.
15 Article 10 of the Property Law.
16 Article 16 of the Property Law.
17 Article 17 of the Property Law.
18 Article 20 of the Property Law.
19 Article 21 of the Property Law.
20 Article 21 of the Property Law.
21 Article 22 of the Property Law.
22 Article 70 of the Property Law.
23 Article 71 of the Property Law.
24 Article 72 of the Property Law.
25 Article 72 of the Property Law.
26 Article 75 of the Property Law.
27 Article 76 of the Property Law.
28 Article 77 of the Property Law.
29 Article 78 of the Property Law.
30 Article 79 of the Property Law.
31 Article 80 of the Property Law.
32 Articles 81 and 82 of the Property Law.
33 Article 84 of the Property Law.
34 Article 85 of the Property Law.
35 Article 86 of the Property Law.
36 Article 87 of the Property Law.
37 Article 88 of the Property Law.
38 Article 92 of the Property Law.
39 Article 89 of the Property Law.
40 Article 90 of the Property Law.
41 Article 124 of the Property Law.
42 Article 125 of the Property Law.
43 Article 127 of the Property Law.
44 Article 128 of the Property Law. The contracted land may not, without authorization, be used for purposes other than agriculture.
45 Article 129 of the Property Law.
46 Article 131 of the Property Law.
47 Article 132 of the Property Law.
48 Article 135 of the Property Law.
49 Article 136 of the Property Law.
50 Article 137 of the Property Law and article 22 of the Urban Real Estate Law.
51 In Chinese, these words suggest a clear distinction that is, however, difficult to translate. Grants evoke the notion of “disposal”. Allocation is characterized as “integration into a plan”.
52 Article 139 of the Property Law.
53 Article 140 of the Property Law.
54 Article 141 of the Property Law.
55 Article 142 of the Property Law.
56 Article 143 of the Property Law.
57 Article 145 of the Property Law.
58 Article 146 of the Property Law.
59 Article 147 of the Property Law.
60 Article 149 of the Property Law.
61 Article 151 of the Property Law.
62 Article 152 of the Property Law.
63 Article 153 of the Property Law.
64 Article 154 of the Property Law.
65 Article 155 of the Property Law.
66 Article 157 of the Property Law.
67 Article 158 of the Property Law.
68 Article 169 of the Property Law.
69 Article 160 of the Property Law.
70 Article 161 of the Property Law.
71 Article 162 of the Property Law.
72 Article 163 of the Property Law.
73 Article 164 of the Property Law.
74 Article 165 of the Property Law.
75 Articles 166 and 167 of the Property Law.
76 Article 168 of the Property Law.
77 Article 13 of the Land Administration Law.
78 Article 2 of the Land Administration Law.
79 Article 85 of the Land Administration Law.
80 Article 9 of the Land Administration Law.
81 Article 11 of the Land Administration Law.
82 Article 12 of the Land Administration Law.
83 Article 2 of the Land Administration Law.
84 Article 43 of the Land Administration Law.
85 Article 43 of the Land Administration Law.
86 Article 44 of the Land Administration Law.
87 Article 45 of the Land Administration Law.
88 Article 4 of the Land Administration Law.
89 Article 48 of the Land Administration Law.
90 Article 54 of the Land Administration Law.
91 Article 55 of the Land Administration Law.
92 Article 58 of the Land Administration Law.
93 Article 65 of the Land Administration Law.
94 Article 62 of the Land Administration Law.
95 However, transfers of land-use rights in connection with bankruptcies and mergers are excluded, Article 63. of the Land Administration Law.
96 Article 67 of the Land Administration Law.
97 Article 3 of the Land-use Right Grant and Transfer Regulation.
98 Article 48 of the Land-use Right Grant and Transfer Regulation.
99 Article 6 of the Urban Real Estate Law.
100 Article 22 of the Urban Real Estate Law.
101 Article 7 of the Urban Real Estate Law.
102 Article 8 of the Urban Real Estate Law.
103 Articles 9–11 of the Urban Real Estate Law.
104 Article 12 of the Urban Real Estate Law.
105 Article 14 of the Urban Real Estate Law.
106 Article 15 of the Urban Real Estate Law.
107 Article 16 of the Land-use Right Grant and Transfer Regulation.
108 Articles 17 and 43 of the Urban Real Estate Law.
109 Article 18 of the Urban Real Estate Law.
110 Article 23 of the Urban Real Estate Law.
111 Article 45 of the Land-use Right Grant and Transfer Regulation.
112 Article 21 of the Urban Real Estate Law.
113 Article 19 of the Urban Real Estate Law as well as article 42 of the Land-use Right Grant and Transfer Regulation.
114 Article 21 of the Urban Real Estate Law. The Law’s article 41 provides that: When the term of land-use right expires, the land user may apply for its renewal. Where such a renewal is approved, a new contract shall be entered into in accordance with the provisions of Chapter 2 of this Regulation and the land user shall pay the fee for the assignment of the land-use right and renew the registration.
115 Article 4 of the Land-use Right Grant and Transfer Regulation.
116 Article 19 of the Land-use Right Grant and Transfer Regulation.
117 Article 22 of the Land-use Right Grant and Transfer Regulation as well as Article 42 of the Urban Real Estate Law.
118 Article 23 of the Land-use Right Grant and Transfer Regulation.
119 Articles 23–24 of the Land-use Right Grant and Transfer Regulation.
120 Article 25 of the Land-use Right Grant and Transfer Regulation.
121 Articles 6–7 of the Land-use Right Grant and Transfer Regulation.
122 Article 26 of the Land-use Right Grant and Transfer Regulation.
123 Article 23 of the Urban Real Estate Law.
124 Article 25 of the Urban Real Estate Law,
125 Article 29 of the Urban Real Estate Law.
126 Article 30 of the Urban Real Estate Law.
127 Article 269 of the Contract Law.
128 Article 270 of the Contract Law.
129 Article 271 of the Contract Law.
130 Article 277 of the Contract Law.
131 Article 278 of the Contract Law.
132 Article 279 of the Contract Law.
133 Article 282 of the Contract Law.
134 Article 286 of the Contract Law.
135 Article 31 of the Urban Real Estate Law.
136 Article 35 of the Urban Real Estate Law.
137 Article 38 of the Urban Real Estate Law.
138 Article 39 of the Urban Real Estate Law.
139 Article 40 of the Urban Real Estate Law.
140 Article 44 of the Urban Real Estate Law.
141 Articles 32–38 of the Land-use Right Grant and Transfer Regulation.
142 Article 33 of the Urban Real Estate Law.
143 Articles 132 and 133 of the Property Law.
144 Article 46 of the Urban Real Estate Law.
145 Article 48 of the Urban Real Estate Law.
146 Article 49 of the Urban Real Estate Law.
147 Article 47 of the Urban Real Estate Law.
148 Article 50 of the Urban Real Estate Law.
149 Article 51 of the Urban Real Estate Law.
150 Article 39 of the Law with respect to Secured Transactions.
151 Article 40 of the Law with respect to Secured Transactions.
152 Article 41 of the Law with respect to Secured Transactions.
153 Article 42 of the Law with respect to Secured Transactions.
154 Article 43 of the Law with respect to Secured Transactions.
155 Article 44 of the Law with respect to Secured Transactions.
156 Article 45 of the Law with respect to Secured Transactions.
157 Article 46 of the Law with respect to Secured Transactions.
158 Article 49 of the Law with respect to Secured Transactions.
159 Article 50 of the Law with respect to Secured Transactions.
160 Article 51 of the Law with respect to Secured Transactions.
161 Article 52 of the Law with respect to Secured Transactions.
162 Article 47 of the Law with respect to Secured Transactions.
163 Article 53 of the Law with respect to Secured Transactions.
164 Article 58 of the Law with respect to Secured Transactions.
165 Article 54 of the Law with respect to Secured Transactions.
166 Where a mortgage is registered without such a requirement, claims secured by registered mortgages prevail over claim secured by unregistered mortgages. The liquidation proceeds on unregistered mortgages and mortgages registered in the absence of such a requirement are distributed according to the order of the effective dates of the contracts; if the order of the effective dates is the same, the proceeds are distributed according to the respective proportions of the claims, article 53 of the Law with respect to Secured Transactions.
167 Article 55 of the Law with respect to Secured Transactions.
168 Article 56 of the Law with respect to Secured Transactions.
169 Article 28 of the Land-use Grant and Transfer Regulation.
170 Article 29 of the Land-use Grant and Transfer Regulation.
171 Article 30 of the Land-use Grant and Transfer Regulation.
172 Article 31 of the Land-use Grant and Transfer Regulation.
173 Article 55 of the Urban Real Estate Law.
174 Article 212 of the Contract Law.
175 Article 215 of the Contract Law. Article 232 provides that the parties may rescind such contracts at any time, provided that the lessor gives reasonable notice.
176 Article 214 of the Contract Law.
177 Article 236 of the Contract Law.
178 Article 217 of the Contract Law.
179 Articles 216 and 220 of the Contract Law.
180 Article 223 of the Contract Law.
181 Article 224 of the Contract Law.
182 Article 227 of the Contract Law.
183 Article 229 of the Contract Law.
184 Article 230 of the Contract Law.
185 Article 234 of the Contract Law
186 Article 231 of the Contract Law.
187 Article 233 of the Contract Law.
188 Article 57 of the Urban Real Estate Law.
189 Article 59 of the Urban Real Estate Law.
190 http://english1.mofcom.gov.cn/aarticle/topic/lawsdata/ForeignInvestment/200501/20050100015843.html.
191 Catalogue for the Guidance of Foreign Investment Industries, Tuesday, December 7,2004, Order No.24 of the State Development and Reform Commission, the Ministry of Commerce. The Catalogue came into force on January 1, 2005. The Catalogue for the Guidance of Foreign Investment Industries that was promulgated by the former State Development Planning Commission, the former State Economy and Trade Commission and the former Ministry of Foreign Trade and Economic Cooperation on March 11, 2002 was repealed at the same time.
192 Law on Chinese-Foreign Equity Joint Ventures, adopted on July 1, 1979 at the Second Session of the Fifth NPC, and amended by the Fourth Meeting of the Standing Committee of the Ninth NPC on March 15,2000.
193 Article 8, the law was adopted on April 13 1988 at the First Meeting of the Seventh NPC. See in particular, article 18 of the Detailed Rules for the Implementation of the Law on Sino-Foreign Contractual Joint Ventures, approved by the State Council on August 7, 1995 and promulgated by the Ministry of Foreign Trade and Economic Cooperation on September 4, 1995.
194 Promulgated by Decree No. 56 of the State Council on May 19, 1990 and effective as of the date of promulgation.