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Print articleChina: Property Law Finally Issued
July, 2007 -
On 16 March 2007, the National People’s Congress issued the Property Law of the People’s Republic of China. Effective on 1 October 2007, the Law defines the scope of property and property-related rights, such as use and possession, and sets out the protections afforded to State, collective and private property owners.
Background
Work on the Property Law first began in 1993. Since then, the Standing Committee of the National People’s Congress has deliberated on six different drafts of the Law, something unprecedented in China’s modern legal history, and an article was added to the constitution specifically protecting the private property of citizens. The Law has been and remains controversial with dissenters claiming that it violates the spirit of socialism and does not address the concerns of ordinary Chinese citizens. Proponents of the Law argue that its latest and final form upholds the fundamental principles of the socialist market economic system. This national-level legislation offers private property equal protection with state property.
Property
The term “Property” under the Law refers to both movable and immovable property. Varying rules apply to each type of property. “Property rights” under the Law includes the right to directly control and use a specific property, including the right to ownership, the right to proceeds and the right to use as security.
The Law provides that the ownership of immovable property shall be reflected through registration. These registrations shall be handled in the locality where the property is located pursuant to a national uniform registration system. The creation, alteration and transfer of rights in immovable property shall be subject to registration and shall only become effective upon registration. The Law, however, does not make registration a condition of the effectiveness of a contract between two parties regarding immovable property. The Law sets out the materials and information that will be required in connection with the registrations.
The Law also provides a basis for interested parties to examine the immovable property registration records and creates a mechanism for filing objections if the information contained in the registration is inaccurate. Pre-transaction notice filings are permitted under the Law to protect a purchaser’s property rights prior to the completion of the transaction and registration process. These provisions modify existing practice and should help standardise the property search and registration process in China.
With respect to movable property, title is generally transferred on delivery, although there are other different methods of establishing title depending on the circumstances as the Law makes a special provision for rights established by operation of by law or involving third party property possession.
The Law recognises three classes of property ownership: state-owned property, collectively-owned property and privately-owned property. The Law establishes who may exercise authority over the different types of property. It also identifies the major types of state-owned property, which includes most land and natural resources, and collectively-owned property, which includes, amongst other items, land and natural resources designated as collectively owned property by law.
Privately-owned property falls outside of the state-owned property and collectively-owned property designations. The Law recognises that corporate personalities and social organisations have the ability to own and exercise property rights.
Ownership
The Law recognises three classes of property owners: the State, collectives and private citizens. The three classes of property owners are
generally held to have rights on the following types of property:
• The State: Natural resources and infrastructure belonging to the State, property belonging to State agencies and public institutions.
• Collectives: Natural resources, infrastructure, cultivated land, and any other movable or immovable property owned collectively according to the law.
• Private citizens: Legal income, housing, lifestyle goods, tools and raw materials.
State-owned property is owned by the People as a whole. The State Council has the right to exercise ownership over all state-owned property on behalf of the State unless otherwise stated in related regulations. No individual or institution is allowed to take ownership of any movable or immovable property exclusively owned by the State.
Collectively-owned property is owned by the villages and rural organisation. The ownership of collectively-owned properties is exercised by the collective economic organisations or committees of the relevant village, town or urban centre. Collectively-owned properties cannot be
occupied, privately divided, withheld or damaged by any individual or institution.
The Law also protects the legitimate property rights of all property owners without distinction and such property cannot be occupied, taken or
destroyed by any other individual or institution.
Property owners can invest their property to establish enterprises and enjoy the power to select management, make important decisions and reap earnings in proportion to the assets contributed.
The Law addresses the handling of property disputes and the infringement of property rights. The Law provides for methods of recovering property rights. Mediation, arbitration or litigation may be employed to resolve any infringement of property rights. Where property has unlawfully been possessed by others, the rightful owner may request the return of the property, and it may also pursue damages. If property is improperly transferred by an unauthorised individual, the property’s legal owner has the right to recover the property. If the transferee accepted the transfer in good faith, at a reasonable price or has received property that is not required to be registered, the legal owner can request compensation for damages.
Rights of Use
Those who own the use right of another’s movable or immovable property, e.g. state-owned land or natural resources, shall enjoy the right to earn profits from, use and possess such property. Use right holders whose rights are affected or lost as a result of the reclamation or confiscation of the property use rights have the right to obtain compensation for the loss.
Holders of use rights of state-owned land have the right to construct buildings and affiliated facilities on such land. The right to use such land for construction can be established by transfer or sale by open auction. If the use right holder wishes to change the purpose of the land usage, it must first gain approval from the relevant administrative department. Unless otherwise stipulated in the law, the use right holder can transfer, exchange, donate, contribute as capital or mortgage its land usage rights so long as the contract for such does not go beyond the duration of the use rights.
The owner of immovable property who wishes to improve it through the use of another’s immovable property must first establish easement with the other party by contract. However, if the immovable property is being used by a use right holder, the owner of such property must first get confirmation from the use right holder.
Security
The Law creates more security interest options than in the Security Law, allowing a broader range of property rights to be pledged as security. Debtors may mortgage buildings, land use rights for construction, production equipment, raw materials, products, large items under construction such as buildings or aircrafts, vehicles, and other such property as security to repay a loan. Debtors may also pledge certain movable properties, including promissory notes; bonds; certificates of deposit; dock warrants; bills of lading; transferable fund shares and stocks; transferable trademark rights, parents, copyrights, and IP rights; and accounts receivable to creditors to serve as security for a debt. The Law also permits the pledge of future property in the form of a floating charge, and it addresses the handling of mortgaged or pledged property in the event of a default.
Background
Work on the Property Law first began in 1993. Since then, the Standing Committee of the National People’s Congress has deliberated on six different drafts of the Law, something unprecedented in China’s modern legal history, and an article was added to the constitution specifically protecting the private property of citizens. The Law has been and remains controversial with dissenters claiming that it violates the spirit of socialism and does not address the concerns of ordinary Chinese citizens. Proponents of the Law argue that its latest and final form upholds the fundamental principles of the socialist market economic system. This national-level legislation offers private property equal protection with state property.
Property
The term “Property” under the Law refers to both movable and immovable property. Varying rules apply to each type of property. “Property rights” under the Law includes the right to directly control and use a specific property, including the right to ownership, the right to proceeds and the right to use as security.
The Law provides that the ownership of immovable property shall be reflected through registration. These registrations shall be handled in the locality where the property is located pursuant to a national uniform registration system. The creation, alteration and transfer of rights in immovable property shall be subject to registration and shall only become effective upon registration. The Law, however, does not make registration a condition of the effectiveness of a contract between two parties regarding immovable property. The Law sets out the materials and information that will be required in connection with the registrations.
The Law also provides a basis for interested parties to examine the immovable property registration records and creates a mechanism for filing objections if the information contained in the registration is inaccurate. Pre-transaction notice filings are permitted under the Law to protect a purchaser’s property rights prior to the completion of the transaction and registration process. These provisions modify existing practice and should help standardise the property search and registration process in China.
With respect to movable property, title is generally transferred on delivery, although there are other different methods of establishing title depending on the circumstances as the Law makes a special provision for rights established by operation of by law or involving third party property possession.
The Law recognises three classes of property ownership: state-owned property, collectively-owned property and privately-owned property. The Law establishes who may exercise authority over the different types of property. It also identifies the major types of state-owned property, which includes most land and natural resources, and collectively-owned property, which includes, amongst other items, land and natural resources designated as collectively owned property by law.
Privately-owned property falls outside of the state-owned property and collectively-owned property designations. The Law recognises that corporate personalities and social organisations have the ability to own and exercise property rights.
Ownership
The Law recognises three classes of property owners: the State, collectives and private citizens. The three classes of property owners are
generally held to have rights on the following types of property:
• The State: Natural resources and infrastructure belonging to the State, property belonging to State agencies and public institutions.
• Collectives: Natural resources, infrastructure, cultivated land, and any other movable or immovable property owned collectively according to the law.
• Private citizens: Legal income, housing, lifestyle goods, tools and raw materials.
State-owned property is owned by the People as a whole. The State Council has the right to exercise ownership over all state-owned property on behalf of the State unless otherwise stated in related regulations. No individual or institution is allowed to take ownership of any movable or immovable property exclusively owned by the State.
Collectively-owned property is owned by the villages and rural organisation. The ownership of collectively-owned properties is exercised by the collective economic organisations or committees of the relevant village, town or urban centre. Collectively-owned properties cannot be
occupied, privately divided, withheld or damaged by any individual or institution.
The Law also protects the legitimate property rights of all property owners without distinction and such property cannot be occupied, taken or
destroyed by any other individual or institution.
Property owners can invest their property to establish enterprises and enjoy the power to select management, make important decisions and reap earnings in proportion to the assets contributed.
The Law addresses the handling of property disputes and the infringement of property rights. The Law provides for methods of recovering property rights. Mediation, arbitration or litigation may be employed to resolve any infringement of property rights. Where property has unlawfully been possessed by others, the rightful owner may request the return of the property, and it may also pursue damages. If property is improperly transferred by an unauthorised individual, the property’s legal owner has the right to recover the property. If the transferee accepted the transfer in good faith, at a reasonable price or has received property that is not required to be registered, the legal owner can request compensation for damages.
Rights of Use
Those who own the use right of another’s movable or immovable property, e.g. state-owned land or natural resources, shall enjoy the right to earn profits from, use and possess such property. Use right holders whose rights are affected or lost as a result of the reclamation or confiscation of the property use rights have the right to obtain compensation for the loss.
Holders of use rights of state-owned land have the right to construct buildings and affiliated facilities on such land. The right to use such land for construction can be established by transfer or sale by open auction. If the use right holder wishes to change the purpose of the land usage, it must first gain approval from the relevant administrative department. Unless otherwise stipulated in the law, the use right holder can transfer, exchange, donate, contribute as capital or mortgage its land usage rights so long as the contract for such does not go beyond the duration of the use rights.
The owner of immovable property who wishes to improve it through the use of another’s immovable property must first establish easement with the other party by contract. However, if the immovable property is being used by a use right holder, the owner of such property must first get confirmation from the use right holder.
Security
The Law creates more security interest options than in the Security Law, allowing a broader range of property rights to be pledged as security. Debtors may mortgage buildings, land use rights for construction, production equipment, raw materials, products, large items under construction such as buildings or aircrafts, vehicles, and other such property as security to repay a loan. Debtors may also pledge certain movable properties, including promissory notes; bonds; certificates of deposit; dock warrants; bills of lading; transferable fund shares and stocks; transferable trademark rights, parents, copyrights, and IP rights; and accounts receivable to creditors to serve as security for a debt. The Law also permits the pledge of future property in the form of a floating charge, and it addresses the handling of mortgaged or pledged property in the event of a default.
