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1. Property Rights
1.1 Legal Protection
1.2 Registries
1.3 Formal Owndership
In-Country Assessment Information

There are two types of title in China: title that has been formalized by the government (“big title”) and property on collectively owned rural or peri-urban land that has not been formalized (“small title”). Many owners of small title business properties do not feel secure in their property rights and do not trust government institutions to formalize this property fairly. When land takings occur, buildings have been arbitrarily destroyed without prior notification and the level of compensation to the owners has been inadequately low. This happened, for instance, during the new town construction in Yizhuang Town of Daxing District, Beijing.

Most small companies rent properties for commercial use. Most feel that as tenants they are not secure in their rights. There are cases where renters’ rights were violated because of political pressure. In land takings, they often suffer the loss of value of their equipment and investment in the property they rent because city governments negotiate compensation only with the owners, not tenants.

Lease termination notice periods given to tenant businesses are often too short for them to find new suitable properties to rent. As they relocate, they also have to pay new rental rates, which are often higher than before given high price inflation. The precise design of a land lease contract also matters in dispute settlements. Meanwhile, many small businesses never enter into formal contracts and have no means of dispute resolution when their lease is improperly terminated.

Another common problem has to do with land takings that involve suburban factories. Village collectives in the suburbs often rent out standard factory halls to small companies. Such standard factory halls are “small title” properties without official use certificates. In land taking cases, the renters of such premises suffer great loss in terms of their investment in the improvement of the factory halls, their cost of moving equipment, and the loss of new orders.

There are also many cases of unregistered and/or illegal uses of commercial properties. For instance, there are many “small title” properties that are used for commercial purpose in the suburbs or neighborhoods within the downtown areas of cities. Some parts of buildings were illegally added or their structure was changed. Such phenomena are very pervasive. The presence of informal markets for goods is also common. The competition of small companies with informal firms, such as itinerate or unregistered vendors, is fierce especially in the mediation services often required for small businesses to participate in the real estate sector.
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Goal – Property rights that are legally protected, secure, recorded in a single, accurate, widely accessible electronic registry and that lead to high levels of formal ownership for all citizens

1.1 Legal Protection
Core Question: Does an effective and sufficient legal framework exist to protect property rights for all citizens? No – Weak. While many new laws have been passed recently, all land in urban areas remains the property of the state with only land use rights granted for limited duration. Rural land is owned mainly by villages or villagers’ groups. However, they are not allowed to sell the land directly on the market. Many properties in rural and peri-urban areas do not have land use certificates and titles.

Legal Framework
1.1.1 Are property rights clearly defined and protected by law? No – Weak – Ranking 41st out of 142; Score 5.04 out of 7 Trend ↓ Property rights are clearly defined in Chinese constitution and Property Law. However, they are not properly protected. While the legal framework is ranked highly at the World Economic Forum, in practice local protectionism, party discretion, and judicial corruption hinder law enforcement.

Security of Tenure
1.1.2 Can citizens challenge the legality of government takings? No – Weak – 44th out of 142; Score 3.9 out of 7; while procedures are clear for properties with formal government recognition, many properties have not been formalized. Also, most cases against government takings are not accepted by the courts.

Source:Global Competitiveness Report 2011-2012 – World Economic Forum,

www.weforum.org/issues/global-competitiveness

Bundle of Rights
Survey Question
SQ1: What is the bundle of rights (group of rights such as occupancy, use and the right to sell or lease) associated with both residential and commercial property ownership? Weak – Land in rural areas is mainly collectively owned, all other land is state-owned. Individuals and firms may own and transfer long-term leases on land and buildings, but not true ownership.

Source: Land Administration Law, Ministry of Land and Resources www.mlr.gov.cn/mlrenglish/laws/200710/t20071011_656321.htm;

Rural Land Contracting Law of the People’s Republic of China

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1.2 Registries
Core Question: Does a reliable property registry exist including cadastral, title and mortgage lien information? Yes – Strong, over the last 20 years the system of cadastre, land use rights registration, and mortgage registry have continually improved.

1.2.1 Cadastral Information Status – Strong

Survey Questions
SQ2: Is cadastral information (information about the dimensions and location of land parcels) accessible to the public? Yes

SQ3: Is zoning/permitted use information included and are use regulations respected and enforced? Yes, generally. However, there are many new buildings that do not match zoning/use information.

SQ4: Are Geographic Information Systems (GIS) including Global Positioning Satellite (GPS) information used to create and update the registry? No, most information still comes from physical survey.

Source: State Bureau of Surveying and Mapping http://en.sbsm.gov.cn/

Civil Society Resource: Chinese Society of Geodesy, Photogrammetry and Cartography

1.2.2 Title Registry
Strong – Ranking – 40th out of 183 Trend ↓procedures, time, and costs are low but many properties lack official ownership certificates

1.2.2.1What is the number of procedures required to register the transfer of a property from one owner to another? 4

1.2.2.2 What is the duration of time in calendar days that it would take to complete the transfer? 29

1.2.2.3What is the total cost of the transfer including all fees, taxes, etc. expressed as a percentage of the value of the property? 3.6%

Source:Doing Business 2012 – Registering Property, World Bank
www.doingbusiness.org/data/exploreeconomies/china

1.2.3 Mortgage Registry
Status – Weak, the mortgage market is still relatively new in China.

Survey Questions
SQ5: The mandatory use of notaries or similar officials slows down and adds cost to the process. Does a notary need to be involved in the registration process? Yes

SQ6: Is information in the registry available electronically? Yes, available from the local property administration.

SQ7: Title insurance is indemnity insurance against financial loss from defects in title and from the invalidity or unenforceability of mortgage liens. Is title insurance available to lenders? No, however, home owners must have property insurance before receiving a loan.

Source: Financing Homes 2008, World Bank and International Housing Finance Corporation

www.ifc.org/ifcext/sme.nsf/AttachmentsByTitle/financinghomes/$FILE/FinancingHomes.pdf

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1.3 Formal Ownership
Core Question: Do citizens understand and trust property rights institutions and avoid the informal sector? No – Weak – conflict between formally recognized “big title” property and “small title” properties without ownership and use certificates creates a dual system.

Survey Questions
1.3.1 Land
SQ8: What is the status of land ownership? Weak – although the Property Law of 2007 does establish the concept of private propertyrights (Chapter V, Article 64), private ownership of land is still excluded.

Source: Property Rights Law of the People’s Republic of China

www.lehmanlaw.com/fileadmin/lehmanlaw_com/laws___regulations/Propoerty_Rights_Law_of_the_PRC__LLX__03162007.pdf

1.3.2 Home Ownership
SQ9: What is the percentage of formal home ownership? 89.3% of the properties in urban areas belonged to private persons at the end of 2010 – Strong

Source: Chinese Government Statistics

Informal Sector
1.3.3 What is the percentage of service firms that report competing with unregistered or informal firms? Large – Weak, the presence of informal markets for goods is pervasive. Also, informal activities by formal firms are widespread.Source: Interviews with small businesses.

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In-Country Assessment Information
Field Question (FQ) 1: Even if legal provisions exist, what is the actual status of property rights and ownership for small businesses?

While property rights are clearly defined in the Constitution and other laws, public ownership still has priority over private ownership, especially when it comes to land takings. All land remains the property of the state in urban areas. Small businesses can own commercial properties but land use rights for those properties last only for max. 50 years (70 years for residential, 30 years for farm land). Courts do not support property owners in the case of government takings, especially for properties that have not been granted ownership certificates. Owners of properties purchased from more recent commercial real estate developers have a better position in challenging government takings. The general position of the government and the courts is that “public interest” takes precedent over private property. Many takings are not really in the public interest since the land ends up in the hands of connected commercial developers. Many cases against government takings are not allowed to proceed. Often administrative regulations and discretion are more detailed and restrictive than the Property Law to the disadvantage of private property owners.

FQ 2: Are standard leases used for commercial space? If not, what is a typical arrangement for rental?

Standard forms of lease contracts are available for leasing commercial space. However, there are sometimes informal arrangements in which the rental was understated in the contract so that the owner does not have to pay too large an amount of taxes and fees. A small company can sublease from an existing lease holder through a legal process. Most small businesses feel that as tenants they are not secure in their rights. Some believe renters can protect their interests by formulating better clauses to avoid the property owner changing the contract, especially to increase rent. Some renters of business properties say it is a common practice to pay rent upfront first and for renters to also pay the tax the owners owe the government. Villages in suburbs often rent out standard factory halls to small companies.

FQ 3: What are the processes for government expropriation of property especially notice and due process for owners? Are those followed or do expropriations happen by collusion between officials and connected elites?

There is no independent judiciary and the law enforcement system does not work well. Sanction mechanisms are also lacking to deal with judicial corruption or judicial inaction. There have been extreme cases of individuals committing suicide to protest unfair government takings. Rural land is mainly collectively owned and cannot be sold directly into the market. Municipal governments monopolize the purchase of rural land for urban expansion, but only tolerate “small title” properties that are not recognized by the central government.There have been cases of land taking in which “small title” properties were destroyed without prior notification and the level of compensation to the owners was inadequately low. The new land taking regulation, State Council’s “Regulation on the Expropriation of Property on State-owned Land and Compensation Therefore” of January 21, 2011, improved the land taking procedures.

FQ 4: Are businesses owners compensated fairly when their property is taken for public use?

In land takings, the government provides insufficient protection of the interests of renters from the loss of value of their equipment and their investment in the immovable property. City governments negotiate compensation only with the owners, not renters. With their forced move to another location, renters report that some commercial equipment (including showcases, machines, etc.) lost value without any or insufficient compensation. If there was compensation, it was made by the property owners who got an overall compensation from the government. Representatives of small companies believe that such problems exist and are more severe outside of Beijing and Nanchang.

FQ 5: What protections do businesses have who lease space from arbitrary eviction by owners?

Notice is often too short in advance on the part of the owners or the primary renters so that companies as (primary or secondary) renters do not have sufficient time to find new suitable locations. They also have to pay current market prices for their newly rented business properties, which are often higher than before. Small businesses reported that, in land taking cases, some renters of standard factory halls suffer losses in terms of their investment in the improvement of the premises, cost of moving equipment, and loss of some new orders.

FQ 6: What is the actual experience of transferring a property, accessing the registry and dealing with registry officials?

The registration of a transfer of property ownership is in general quite efficient in urban areas. If all the necessary certificates and required documents are complete, the transfer can be done within the same day in Beijing. However, if the necessary certificates and required documents are incomplete, the transfer cannot be done easily. Small businesses report that some companies have registered their ownership of business properties with the Real Estate Bureau but have not received the title yet because of incomplete certificates and documents.

FQ 7: How large is the presence of informal markets for goods, i.e. itinerate vendors?

There are many unregistered companies, and many informal deals and services in the property market. Most small companies compete with itinerate or unregistered vendors. Individuals of many registered big or small companies are also frequently involved in providing or receiving informal deals and services.

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