2+2=5: Property Rights in China

2+2=5: Property Rights in China
Apr 02, 2013 By Thomas Hale , eChinacities.com


Source:
yahoo.com

The Chinese property market has been the subject of considerable speculation over recent weeks. On March 1, a new capital gains tax was proposed. This will require sellers to pay up to 20% tax on profits made through selling properties. As reported by Xinhua and various other agencies, the impending tax sparked a huge rise in people attempting to sell their properties. Meanwhile, various Western media outlets continued to warn of an emerging bubble. Leaving aside for a moment the prospect of a housing crash in China, a large part of the general fascination with this topic is a consequence of the peculiar notion of property rights in China. The next decade will see certain aspects of a highly obtuse system under the spotlight, especially as the interplay between rural and urban China continues to unfold.

Shrouded in mystery

Property rights in China are extremely ill defined. The legacy of a socialist model which abolished private property continues to determine policy and ownership long after Mao’s death in 1976. In the period after this a nascent private sector began to emerge, yet the question of who should have owned what, given that no one previously ‘owned’ anything, was a complex, almost unanswerable one. This confusion extended, and yet extends, into the relationship between law and property. Private ownership of housing did not properly flourish until the 1990s, and it was not until 2004 that the constitution was changed to ratify private ownership rights. In 2007, property rights were officially defined and various leases, according to the type of property, were enshrined in law.

This law, however, retained the ambiguity typical of policy ever since China opened up, and the politics have, as ever, had to balance a respect for the PRC’s socialist origins with a desire for reform. Property can be leased and developed or used in any other way, but not quite owned in the purest sense. For residential properties, such leases usually last 40 or 70 years, throughout which period of time the tenant can develop or use the property while the government retains ownership.

Uncertain rights

Despite reforms, which have gone a long way towards developing China’s property market, property rights remain a serious issue. According to the Global Property Rights Index, Mainland China scores only 20 for property rights, compared with 90 for Singapore and Hong Kong. This has a significant impact on the security of people buying property, and often motivates wealthy Chinese to invest in real estate abroad. Beyond private property used for residential or business purposes, this kind of insecurity has also prominently affected the use of rural land, which employs a different system of ownership altogether.

Maoist politics afforded great importance to collectivism in farming, an economic system whereby land is ‘collectively owned’ through fixed-term leases from the government. Again, this terminology is profoundly ambiguous, and it is precisely this ambiguity which officials have, in some cases, been able to exploit. The ‘collective’, for example, is often represented by an unelected village chief. Land collectively owned by poor farmers has frequently been appropriated for development without the agreement of these farmers, which, over recent years, has incited tens of thousands of small scale local protests. Such issues have been made possible by the habitual absence of official documentation.

The government has recognised these problems, and certain measures have been introduced to tackle them. The 2007 amendment to property rights, for example, ensured that farmers could renew their typically 30-year leases after they expired. In another recent development, on March 5, 2013 a government report claimed that ‘protecting farmers rights and interests’ is ‘essential to China’s long term rural stability and development’. Yet there are other kinds of development at play.

The relationship between rural and urban land

Like Chinese property rights, the Chinese middle-class is notoriously ill defined. This is in part because the middle-classes in the West are often easily identifiable by their owning of, or through mortgage payments aspiration to own, a property. In China, property ownership is less of a concrete notion and therefore less of an idealistic ambition for an entire class to identify itself around (consider the ‘right-to-buy’ housing initiative in Thatcherite Britain as part of a drive to expand the British middle-class). Yet as income increases, the ownership of property is likely to be ever more sought after. At the same time, rising property prices have meant that only the wealthiest can afford to buy homes, with the extremely wealthy often owning many properties that remain uninhabited as they accrue value. A government report in June 2012, for example, estimated that there are 3.8 million unoccupied homes in Beijing, although this number was later contested.

This kind of urban, homeowner property development has a significant relationship with parallel property rights issues in rural areas. Rural land has been seized because of a need, or desire for construction of factories or residential buildings. Flimsy, ambiguous property rights afforded to farmers have meant that the re-appropriation of rural land for urban expansion and quick profits has occurred with less trouble than may have been expected; many farmers were left without land as a direct consequence of this expansion.

A fundamental conflict

All of this is underpinned by a fundamental political conflict within China: between the faction who continues to support left-leaning policy limiting or controlling private ownership, as well as the remnants of agricultural collectivism; and the reforming faction who encourage even deeper forays into a capitalist economic model. Stronger property rights for private owners would clearly play into the hands of the latter camp, but this, in turn, could conflict with farmers whose rights have so often been sacrificed in the name of urban development.
China’s increasingly middle-class, self-aware urban population is expected to soar by another 200 million this decade. Such expansion will necessitate huge amounts of construction, which will in turn inevitably require the re-appropriation of rural land governed by a different attitude to property ownership. The way in which rural and urban ideas of property ownership intermingle will play a huge role in China’s long-term future, and eventually a watertight legal basis that affords power to one camp will have to be chosen.
 

Related links
How To: Buy Property in China
The Pains of Moving: Tips on How to Find a Hassle-free Apartment
No Car, No Apartment, No Deal: Chinese Singles Reach 180 Million

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Keywords: Chinese property market property rights in China

4 Comments

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Guest992158

The bloke in the picture looks like Martin Freeman. Great article too by the way.

Apr 02, 2013 08:43 Report Abuse

DaqingDevil

People keep asking me why I don't buy an apartment here (I can't make myself call them 'houses') and this article just answered the question. Thanks.

Apr 02, 2013 08:34 Report Abuse

carlstar

They are places to live in and those places to live have doubled in price in a few years. Stay with it for five years and you won't have to pay extra taxes, just a standard gains tax. I think that is why people are confused why you won't buy something that is not just a house, sorry, place to live but also a good proven investment in a relatively short term.

Apr 04, 2013 10:55 Report Abuse

bill8899

Well written and informative. Thanks.

Apr 02, 2013 03:51 Report Abuse