At the recently completed San Francisco seminar on Chinese real estate, co-blogger and fellow China attorney, Steve Dickinson, highlighted the provisions in China’s New Property Law relevant to foreign investors in China real estate. Rather than seek to recreate that talk with my inadequate notes, I will instead, through a series of posts, put forth a paper on China’s New Property Law Steve wrote for the seminar.
This paper seeks to provide a summary overview of the new law, beyond just those provisions directly relevant to foreign investors in China real estate. However, because this new law is so sweeping and so important, it would be difficult to argue any of it is irrelevant to someone planning to invest in China real property.
Because the material is so dense and legalistic, I will be presenting it in parts. Today’s post is simply an introduction to the new Property Law and a short explanation of its purpose and overall scope. Tomorrow, we will get into some of its specifics.
On March 16, 2007, the National People’s Congress of the PRC adopted the New Property Law (wuquan fa , literally: “Law of the Rights in Things”). For the first time in the legal history of the PRC, this law provides for basic ownership rights in immovables (real property) and movables (personal property). Since individual property rights are the foundation of any market economy, the promulgation of a full Property Law is significant. For businesses and persons engaged in real property investment in China, the law is of fundamental importance. In providing for absolute ownership rights for private individuals and businesses, the Property Law marks a major change in the rights of both Chinese citizens and foreign investors. This law is set to go into effect on October 1, 2007.
The Property Law is quite difficult to understand. There are three reasons for this.
The first and most significant reason is that the Property Law is based on civil law models, primarily Chapter 3 of the German Civil Code. The Law also draws heavily on the Swiss and Japanese Civil Codes. Its fundamental principles differ significantly from the U.S. and British common law based real property system. In addition, the civil method of exposition is quite unfamiliar to most civil law practitioners. The structure and method tends only to make sense to those familiar with the German and Japanese codes.
Second, understanding of the Property Law is further complicated because it incorporates many provisions intended to deal with unique Chinese characteristics that would never be mentioned in a pure, German civil law type code, including those provisions meant to address the Chinese government’s monopoly on land ownership and those dealing with prohibitions on illegal land transfers and theft of government property.
Third, the Property Law was a hotly debated law, opposed by many elements of Chinese society. It is therefore intentionally vague on many important issues. This vagueness was the price paid to allow any form of Property Law to be adopted. The drafters frankly admit that if all the critical issues concerning property rights in China had been resolved in the Property Law, the law would never have been adopted. These issues are explicitly left for later resolution.
The Law is divided into Five Parts, 19 Divisions and 247 Sections. I will introduce the law division by division and explain the most significant features. The Property Law covers both immovables (real property) and movables (personal property), but I will limit my discussion only to the Divisions of the Law concerning real property.