The impact of political forces on urban land ownership reform in transitional China

• Author: Xiaojing Qin
• Position: University of Manchester, Manchester, UK

1 Introduction

This paper critically reviews the evolving concept of urban land ownership in China. It explores the way in which the separation of the concept of land from its status as an ideological symbol within a socialist state has contributed to the development of a real estate sector, and how the concept of land ownership should now be regarded in the new free market era. Specifically, it evaluates the impact of political forces¹ on the changing patterns of land allocation during the transitional period of China's economic development and reform. Two periods of reform are addressed with respect to the effect of political power on land ownership: the initial reform period between 1979 and 1990, and the period of more radical reform which has been under way from 1990 to the present day. Before considering each of these periods the paper first describes the urban land ownership regime which existed during the central planning period which developed after the founding of the People's Republic of China (PRC) in 1949.

2 Urban land ownership during the central planning period (pre-1979)

2. 1 Principles of land ownership

Before the PRC was founded, land in China was privately owned and could be legally transferred by mutual agreement ( Wang, 2007 ). In 1946, three years before the foundation of the PRC, the Communist Party initiated a process of land reform in rural areas within its administrative control by expropriating the land of landlords and transferring it to the peasant tenants ( Klein, 1961 ). When the Communist Party came into power in 1949, this private form of peasant land ownership remained unchanged. Indeed, the 1954 Constitution guaranteed legal protection of private ownership of land and other means of production². However, during a period of socialist transformation during the 1950s the state increasingly confiscated land and proclaimed a new era of public land ownership ( Brugger, 1981 ).

The socialist government insisted that the ability to control land resources was crucial to the security of the newly founded socialist state as land ownership was regarded as the source of all wealth. In rural areas, it therefore, encouraged peasants to transfer their pooled privately owned land to collectively owned and controlled production cooperatives. In urban areas, the government introduced a socialist system of state land ownership through which it exercised monopolistic power over all land resources. As a result, by 1958, public land ownership had been established throughout the country, either through a system of state ownership or, in rural areas, through collective ownership.

2. 2 Constitutional arrangements for urban land

State-owned urban land was generally allocated to social-economic work units called danwei for their own use free of charge for an indefinite period. The state, therefore, performed a dual role in this process, both as the economic property owner and as the political administrator of land. As the danwei units were also state-owned, land use rights and land ownership were institutionally inseparable. The amounts of land allocated to danwei were determined by government policy objectives and the extent to which the purposes of an individual danwei supported these. In other words, land resources were allocated to danwei according to the political ideology of the work units rather than to principles of economic efficiency ( Zhu, 2002 ).

According to The Constitution of the People's Republic of China adopted on December 4, 1982, urban land ownership was vested in the state³. No organization or individual could appropriate, buy, sell, release or transfer land in any other way⁴. In a legal sense, land was entrusted to the state as trustee to manage the asset in the interest of the whole people. In practice, however, the state's role was more akin to that of an absolute owner as there was no mechanism by which the so-called “whole people” could collectively make use of or enjoy the land. As the constitution banned land transactions, neither land, nor land use rights could be considered as a commodity and they, therefore, had no commercial value which could be reflected in the market ( Chan and Kwok, 1999 ). The state had made it clear through constitutional announcements that the economic value of land was not a priority at that time as the primary objective was to maintain the strength of socialism. This required it to maintain absolute control over land allocation and transfer through the system of state-owned land ownership and usage. This lack of any economic channel for the transfer of land use rights resulted in the inefficient use of land and triggered serious social conflicts and disputes surrounding the allocation of land ( Yao, 2003 ).

3 Initial reform period (from 1979 to 1990)

3. 1 The emergence of land use rights

A process of economic liberalisation began in late 1970s, when many overseas Chinese nationals became attracted by the unexplored economic market in China. China's urban land reforms were thus initially stimulated by increased demand for land by these foreign investors. In response to this, and as a means of encouraging inward investment and economic growth, the government relaxed the strict concept of public ownership in order to allow foreign investors to gain access to land resources. Although there was no change, at this stage, to the legal framework of land ownership, the notion of public ownership was significantly diluted in practice by a new law relating to joint ventures between Chinese citizens and overseas business partners. These so-called “Sino-Foreign Equity Joint Ventures” typically consisted of joint manufacturing enterprises in which a danwei contributed the land and premises and the capital investment was provided by an overseas partner. According to the Law of the People's Republic of China on Chinese-Foreign Equity Joint Venture:

[…] The investment provided by the Chinese joint venture partner may include the right to the use of a site provided for the joint venture during the period of its operation. If the right to the use of the site does not constitute a part of such investment, the overseas joint venture partner shall pay the Chinese Government a fee for its use […]⁵.

Land continued to be owned by the state. However, this freedom for a danwei to invest its right to use land as part of a private commercial enterprise represented a significant diminution in the state's political control of the institution of land. This, together with the state's willingness to charge land use fees also indicated the emergence, for the first time, of a commercial value for land ( Chan and Kwok, 1999 ). The concept of land use rights, and their associated value, was thus created ( Chan and Kwok, 1999 ). This was obviously a radical change compared with the situation during the command economic period. However, it should be emphasized that the alienation of interests in land was initially still prohibited, reflecting the strong social characteristic of the prevailing political ideology ( Li, 2000 ).

Nevertheless, in 1988, Article (iv) of the PRC Constitution was amended and included “the right of land use to be transferred in accordance with the relevant legislation”⁶. This new rule, therefore, formally recognised land use rights in law and legitimized their transfer, subject, of course, to the continuing requirement for state ownership of land. The revised Land Administration Law described the detailed operation of the changes introduced by the constitutional amendment ( Li, 1999 )⁷. Meanwhile, a modern land registration system was established with the enactment of the first land registration law contained in the Rules for Land Registration⁸. These reforms collectively established the concept of the “Chinese socialist market economy” in regard to the market for land ( Potter, 1991 ).

3. 2 The birth of the Chinese land market

Alongside these economic reforms, the pattern of allocating land resources has itself been undergoing transformation. The previous planning-oriented system, based on government control, has gradually been replaced by a more market-oriented system ( Zhu, 2002 ). These changes have witnessed a divorce between (state) ownership and (user's) control as the state has been more willing to gave autonomous power to land users, who are now recognised to be able to develop their land in a more efficient way. However, in the context of these gradual reforms, the interaction between the marketization of real estate development and the surviving characteristics of the central planning land system generated a number of problems ( Zhu, 2002 ).

Owing to economic liberalisation the enormous demand from overseas investors for a wide range of land resources was quickly reflected in dramatic increases in the land values, particularly in many coastal cities. Substantial demands for industrial sites and commercial buildings have also brought about explosive growth in construction. The danwei were ideally placed to take advantage of this demand, and to...