What China’s new property law means

Li Datong
21 March 2007

China's first law providing the same level of protection for private property as for state-owned property was approved, with an absolute majority, by the National People's Congress (NPC) before it closed on 16 March 2007. The law was welcomed in academic and commercial circles, but opposed by a number of retired officials and left-wing academics. The conservatives may not be happy, but some of the well-known legal scholars who helped draw up the law have openly complained that the draft does not go far enough and is still a long way off what might be expected in a world-class contemporary legal system. They say that under pressure from various sides, they were forced to make too many compromises. However, despite the compromises, this law is still hugely significant. For China, it represents progress, but also retrogression.

When the People's Republic of China was established in 1949, ownership of private property was widespread. In agricultural areas, land was evenly distributed between the people. In the cities, people owned real estate that they had purchased themselves. Industrialists and commercialists had their companies and corporations. The first constitution of the New China, promulgated in 1954, clearly guaranteed ownership of these various kinds of private property.

Li Datong is a Chinese journalist and a former editor of Bingdian (Freezing Point), a weekly supplement of the China Youth Daily newspaper.

Also by Li Datong in openDemocracy:

"The story of Freezing Point"
(12 September 2006)

"China: a 'great nation'?"
(10 January 2007)

" China's contradictory signals"
(24 January 2007)

"Hong Kong's example"
(7 February 2007)

"Will China follow Vietnam's lead?"
(21 February 2007)

"Chinese political reform: official discourse, real meaning"
(7 March 2007)

Three icons: watch, bicycle, radio

But just a few years later, state expropriation of property began under the banner of "socialist reform". In 1958, during the People's Commune movement, farmers' land was brought under "collective ownership." Urban residents who earned income from renting out their property had their rental rights taken away by the state, with landlords being given only a small amount of the rental income. Owners of companies in the cities had their assets "bought" up by the state, with the cost to be paid back to them in installments over thirty-three years (in fact, payments stopped after less than ten years).

From 1964 to 1967, after various directives from party central, land in the cities was brought under state ownership, and this ownership was then written into the constitution in 1982. By this stage, all the private assets of the Chinese people - in particular immovable assets such as land, which had massive potential for price increases - had all been expropriated with no compensation. In the 1950s and 1960s, there were only three items of private property left for most Chinese to aspire to owning: a watch, a bicycle and a radio.

From the beginning of the period of reform and opening up in 1978, the amount of property owned by the Chinese started to increase. In addition to cash assets, the state-owned housing provided to urban cadres and working people was mostly sold off at low prices to individuals. Large numbers of urban residents also started to buy homes at market prices. Tens of thousands of people became owners of their own private companies. Today, more than half of China's GDP is produced by privately owned companies.

Throughout all this, owing to a lack of legal protection, privately owned companies have had to falsely register as "collective enterprises". This has become known as "putting on a red hat". This has led to countless cases of officials violating the rights of privately owned companies. Meanwhile, China's cities have been undergoing massive transformation and expansion. Without explicit legal protection, the rights of private real-estate owners to reasonable compensation when their homes are scheduled for demolition have been seriously violated by both government and property developers.

With the rise of the private sector in China, one issue has attracted particular controversy: from the end of the 1980s, policies came into effect allowing many of the state-owned companies that were performing badly or saddled with enormous debt to be bought up by private individuals. This kind of sale had two basic characteristics. The first was that the purchase price of the companies was often only 10% (or even less) of the total value of the companies' assets. The second was that the people who bought the companies were often their original heads, or private business people with enormous amounts of capital. These sales led to people talking scathingly about "turning the public private", "massive loss of state assets" and the "original sin" of private business people.

A propertied future

Most economists agree that the so-called "state assets" sold off were, in fact, mostly the dregs of the planned economy, which year after year churned out low-quality products for which there was hardly any demand. Despite massive overstocking of these products, the ministry of finance and state banks still had to give these companies transfusions of cash. Assets which looked impressive on paper were worthless, and with the companies' debts taken into account, their true value was in negative figures.

For such companies to be given to private owners, who could turn loss into profit and start paying taxes to the state, was good for the country and good for the people. It is undeniable, however, that during these sales, the rights of ordinary employees were not looked after by the system, and policy was tilted severely in favour of "achievers" and investors. The sales were indeed full of collusion between the financially rich and politically powerful. Working people who had enjoyed all kinds of social benefits as "owners of the state" had become "slaves of the capitalists" overnight. It was hard, of course, for people to come to terms with the fact that they could lose their livelihoods at any moment. These people formed the section of public opinion which provided a supportive base for conservative attacks on the new property law.

To put it in general terms, in the last thirty years of economic development in China, policy has tended to favour efficiency over fairness. But from the point of view of half a century of change in China, the most fundamental underpinning of the concept of fairness has to start from the protection of private property rights. Without these, other rights are baseless. Although the property law is not as complete as it could be, the fact that the authorities have pushed it through in the face of ideological resistance represents one of the most important changes to have taken place in Chinese society.

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