This chapter discusses contemporary land transactions in the People’s Republic of China (PRC) such as sales, leases, exchanges and mortgages of land in general and agricultural land in particular.
To a civil-law reader of the Code Civil persuasion, the study of land transactions may seem surprising in a textbook devoted to commercial contracts. Yet, PRC land transactions are an integral part of agricultural, industrial and commercial enterprises whose volume and economic importance far exceed those of the PRC’s and many other countries’ strictly urban commercial trade. Further, the profits from the sale, lease and exchange of land use rights as well as the taxes and fees they generate are among the most important sources of revenue of the PRC.1 And, of equal importance for our contextual analysis, land transactions may show how the familistic components of yore have fared under a regulatory system in which PRC agencies and collectives are entrusted with the nation’s real property.
Because Deng Xiaoping’s “socialized market economy” policy started the commercialization of the nation’s real property a generation or so ago, the time is ripe to pose the question, “How did the massive selling and mortgaging of land rights fare under the PRC’s ‘socialized market economy’?” More specifically, how did the Chinese legislators’ attempt to combine local and foreign legal institutions succeed when commercializing China’s land and real property? Rules aside, was this commercialization governed by the same principles of protection of third party rights apparent in the German law of real property in the nineteenth and early twentieth century2 and especially in its land registry law? Or was it governed by the often contradictory and unpredictable principles, statutory, administrative and judicial rules encountered in China’s imperial history or by the Soviet-like regulation of “personal” and supposedly forbidden private property transactions that failed so miserably in their country of origin?
Finally, the ability to convey, mortgage or pledge land use rights with reasonable certainty to parties who are not members of the sellers’ or mortgagees’ circle of family, friends and Guanxi relationships will serve as the acid test of the success of the PRC’s legal institutions used in the process of commercialization.
Prior to our trip to China, I re-read an obituary of Deng Xiaoping, leader of the Communist Party of China (CCP) published by the New York Times.3 It described Deng as the “political wizard who put China on the capitalist road” and narrated how after having fought as a guerrilla with Mao [Tse-tung] and Zhou Enlai, he became part of the top leadership of the PRC. It also spoke of how after having been installed by Mao as general secretary of the CCP in 1954, he was “dragged down from those heights” twice and purged as a “capitalist roader.”4 Finally, it referred to his remarkable comeback following Mao’s death in 1976, and how he became China’s paramount leader (in fact, but not in an official position) in 1978 at the age of seventy-four, and thereafter “reigned for a generation.”5
Deng, as the paramount leader of the PRC, was responsible for an economic boom that significantly improved the lives of China’s 1.2 billion citizens. Patrick Tyler summarized the economic improvements experienced by average Chinese during Deng’s highly pragmatic rule and the meaning of that rule:
[I]n cities and in villages, real incomes more than doubled…. Most Chinese who have watched a television or used a washing machine or dialed a telephone have done so only since Mr. Deng came to power….
…
… Deng was best known as a pragmatist who focused on the problems of the day, unencumbered by history or ideology.6
Sadly, he will also be remembered for his ordering the June 1989 military crackdown on pro-democracy demonstrators in what history books around the world refer to as the Tiananmen Square massacre.
Deng was a man of few words and simple maxims. Some of his maxims, much as Mao’s and Lenin’s, reached the status of constitutional like principles, although expressed in a milder and folksier tone than by his predecessor and revolutionary ancestor. One of these maxims emphasized that there was no road map for economic reform and equated such reform to crossing the river “by feeling out the stones with our feet.”7 His most remembered aphorism was: “It doesn’t matter whether a cat is black or white, as long as it catches mice.”8 Clearly, this aphorism justified whatever means or labels were used to attain his goal of a “socialist market economy.”
One of Deng’s major premises for his socialist market economy was that:
[P]lanning … [and] market forces … [are] not the essential difference between socialism and capitalism. A planned economy is not equivalent to socialism, because there is planning under capitalism too; a market economy is not capitalism, because there are markets under socialism too. Planning and market forces are both means of controlling economic activity.9
This premise fallaciously assumed that both forms of planning were the same regardless of who did the planning, i.e., individual capitalists when deciding what contract to enter into or governmental economists acting for an entire polity. It also assumed that the planning was done in a similar fashion even though central planning does not take into account market prices while private planning does.
Stanley Lubman, a scholar and practicing lawyer specializing in Chinese law, has authored helpful analyses of post-Mao economic and legal reforms, and of the decentralization started in the late 1970s.10 As Mao’s rural communes were dismantled, much of China’s agricultural production was reassigned to the same familial households drafted into the collective system under Mao. Under Deng Xiaoping, some of the traditional land tenure and leasing practices were revived thereby “expand[ing] the discretion of 185 million peasant families to decide the crops they would grow.”11 Similarly, small scale enterprises could be formed by farmers or merchants.12 Further, Deng relied on material incentives rather than on political campaigns to motivate the peasantry, allowing them to sell the products of their private plots in the free market.
As a key component of his industrial policy, Deng shifted from Mao’s heavy to light industries—especially those with high export potential—and relied on local municipalities and provinces as the agents for this change. This shift took place in what Mr. Lubman refers to as a “dual-track” (central and provincial or municipal) approach. First, with respect to central planning, Deng reduced the scope of the state economic plans by loosening price controls and decentralizing budget and project administration functions. Goods produced by state-owned enterprises (SOEs) according to their applicable quota could be sold at the planned prices, while above-quota production could be sold at market prices or at higher specified prices.13 In approximately two decades, “by 1997, more than ninety-five percent of China’s industrial output was being sold at market price.”14 Hence, the planned sector of the economy was being replaced gradually by an “increasingly differentiated nonpublic sector composed of enterprises under widely varying degrees of control by local governments and private owners.”15
The manner in which Deng and his associates accomplished this shift and dual-track approach was largely through fiscal reform. At first, the central government granted to the local governments the right to retain tax and non-tax revenues that 698would have normally flowed to Beijing.16 As I will discuss shortly, this policy was replaced by a less generous revenue sharing system; nonetheless, the initial infusion of capital allowed local governments to set up light industries based upon the low cost of labor that generated significant foreign exchange earnings. Eventually, many of these industries, especially in the countryside, were sold by township and village enterprises to businessmen (local and foreign) for cash payments. Meanwhile, in the rural sector, industries were encouraged to take over agricultural processing and then to produce and sell in consumer markets.17 In due course, this dual (central and local) track ushered in a triple-track regime of rights to use the land and improvements thereon in which private parties and entities played a much larger role.
Professor Susan Whiting of the University of Washington has shed important light on how the PRC’s tax system encouraged the triple track of issuance of land use rights and attendant disputes and litigation.18 Since 1994, the central government determines tax bases and rates and assigns revenues from the various taxes to central, local and shared categories.19 As part of central government determination, local agricultural taxes were abolished leading to what she refers to as a “skewed alignment of revenue and expenditure assignments.”20 Local expenditures continued to climb creating a “revenue hunger” at the local levels of government.21 Hence, the sale of rural and suburban land became one of the most important sources of local government revenue.
The governmental requisition of land in “the public interest” continues to be a favorite means to satisfy this hunger.22 Accordingly, revenues are earned from: 1) the sale of low-priced land to industrial developers or investors; 2) the promotion of rapid real estate development (presumably by offering the land to commercial and residential developers or by jointly or separately promoting such developments); 3) the legal transfer fees earned by the above transactions; and 4) the use of land as collateral for loans.23
Eventually, local governments also started forcing transfers of agricultural land to non-agricultural uses with mostly inadequate compensation. A Chinese survey cited by Professor Whiting showed that of the total amount of the land transfer fee, the local government received on average twenty to thirty percent, the village twenty-five to 699thirty percent, and the farmers only five to ten percent.24 Not surprisingly, these transfers and readjustments became a major source of often violent protests to the point that during 2005 alone, 87,000 such incidents involving land disputes took place.25
Introduction: The “Stress” Test of the PRC’s Property Rights. Writing in 1999, Stanley Lubman called attention to the weakness of the land titles and especially of the industrial and commercial enterprises by the former townships and village enterprises (TVEs) and their associates or transferees, which as “nonstate enterprises” had “only ambiguous property rights that are poorly protected.”26 Among other reasons, the weakness was traceable to the transfer of ownership from the state to the townships and villages and from them to private owners. This transfer did not come about through a uniform and well-defined process but “through a disorderly variety of devices including the contracting or leasing of public assets, sale to private parties, illicit transfer of ownership to elites, and investment of public funds.”27
The fact that these legal uncertainties had not visibly diminished the fast pace of investments led some observers to conclude that “individuals may not need to have property rights over enterprise profits for economic growth to occur.”28 I do not share this conclusion. Thirty odd years of “market socialism,” a policy that is as internally contradictory as it is untested for society as a whole (including the rural sector), is too short a period to arrive at any conclusion concerning its long term economic, legal and political viability, let alone its supposed path-breaking success. To predict the viability of key legal institutions of market-socialism such as property rights, they must be “stress tested,” a term popularized by the recent financial crisis of the United States, but equally applicable to what may well be in store for the PRC for reasons discussed later.
The most basic questions of this test are how certainly, quickly, fairly and inexpensively property rights can be enforced, by whom, against whom, and under what circumstances. This enforceability must be tested not only between the parties to the original conveyance of state-owned land rights by, say, a village committee to a local Guanxi-inspired enterprise, but also among the parties who acquire their land use rights thereafter as purchasers, lessees, holders of usufructs or mortgagees from the enterprises who acquired their rights from the village committee.
First I will describe in general terms the nature of the legal system of land use rights and will show why I use the term “invertebrate” when referring to one of its most distinctive features, whether as apparent in the manner in which laws are drafted and implemented, and interpreted by courts and their political superiors. This will be followed by a discussion of the most important constitutional and statutory sources and provisions of the law of land and real property transactions. Having done 700this, I will then examine the meaning of key concepts under this law such as ownership, and land use rights, third party rights. The uncertainty of these rights will be tested in representative types of transactions such as the acquisition of residential urban property especially in large cities, or of rural or peri-rural land and in the manner in which typical disputes such as those involving land use certificates, and the right of usufruct are resolved.
The PRC’s law on real property transactions is as legally invertebrate as that of the USSR, if not more so. Not infrequently, a governmental entity is one of the parties to a land dispute, and the presumption since times immemorial is that state rights are superior to those of private parties. And then, there is the division of state and collectively owned land, each with its own legal regime, about which more later, Not surprising, land ownership and use law consists of a bewildering array of often hierarchically-disconnected enactments by central and local legislative, executive and judicial branches of government, including directives or instructions by the national or local congresses to the respective courts on how to interpret constitutional statutory and administrative provisions and vice-versa.
As pointed out by Mitzi Huang, “[t]he manner in which laws are made in China continues to be extremely confusing and vague.”29 Article 2 of the 1982 Constitution [hereinafter Constitution] places the National People’s Congress (NPC, but also referred to as the National Congress of the Communist Party of China or NCCPC) at the top of its legislative hierarchy.30 It has the power to “supervise the enforcement of the Constitution [and] to enact and amend basic laws governing criminal offenses, civil affairs, the State organs and other matters.”31 In addition, the NPC’s Standing Committee (NPCSC) is also constitutionally authorized “to supervise the enforcement of the Constitution” and to enact statutes when the NPC is not in session as well as to interpret the constitution and statutes.32
Meanwhile, the Local Peoples’ Congresses (LPCs), which are the local counterparts of the NPC as established in “provinces … municipalities … counties … 701municipal districts, townships … and towns”33 are also authorized by the same Constitution to “ensure the observance and implementation of the Constitution and the law and the administrative rules and regulations in their respective administrative areas.”34 As with the NPC, the LPCs also have the power to adopt local regulations that “must not contravene the Constitution, the statutes and the administrative rules and regulations … [and can annul] inappropriate decisions and orders of the [P]eople’s government at the corresponding level.”35 If these were meant to be parallel or non-converging lines of authority, in reality they overlap, as will now be illustrated.36
As prescribed by Article 127 of the Constitution,37 the Supreme People’s Court (SPC) sits at the top of the judicial hierarchy and responds to the NPC and NPCSC as administrative superiors whose powers include the appointment and removal of SPC justices.38 Below the SPC and in a descending order of hierarchy, seat: 1) the Higher People’s Court (HPC) at the provincial level; 2) the Intermediate People’s Court (IPC) at the prefecture level; and 3) the Basic People’s Court (BPC) at the county level.39 As with the SPC (which responds to the NPC), the local courts at every level respond to the LPCs. However, Mitzi Huang reminds us that the entire judiciary is subject to the ideology and policies of the Communist Party40 and Columbia University School of Law Professor Benjamin Liebman, among many others, agrees. While commenting on the designation of a recent president of the Chinese Supreme Court, Professor Liebman noted that:
Unlike his predecessor, who spent a decade prodding judges to raise professional standards, Wang [Shengjun] isn’t trained in the law. He ascended to the position after a career as a Communist Party official. In one of his first big speeches, Wang laid out guidelines for courts to follow: First they should consider the needs of the Party, then the needs of society, and finally the requirements of the law.41
A similar deference to the CCP officials was reported by Professor Susan Whiting:
[W]hen local cadres, motivated by financial and career interests, become party to land disputes, the role of local courts in resolving such disputes appears to be weakened. Indeed … “local policy,” which makes reference to State Council directives, now prohibits local courts from accepting land dispute cases.42
The Luoyang Seed Case was decided in 2004 by a panel of judges of the Luoyang Municipal IPC only to be reversed by Henan People’s Provincial Congress; it illustrates both the supremacy of party policy and the invertebrate state of much of the PRC’s commercial contract law.43 This dispute was between two agricultural companies—one Chinese and the other foreign—and involved a contract for the delivery of corn seed.
Two different statutes appeared applicable, one was national (the National Seed Law of 2000) and the other a local regulation by the Henan’s People’s Congress. The former required that the damages for breach of contract be calculated according to the difference between the contract and market price for corn seed, the latter decreed that the damages be measured on the basis of government-set prices.44 The panel of judges held that the National Seed Law applied and gave judgment in favor of the foreign firm. Judge Li, one of the panel members, justified her decision by pointing to the higher normative weight of the national statute.45
Unlike cases decided under the supremacy clauses of the constitutions of western nations,46 the Standing Committee of Henan’s People’s Congress decided that Judge Li’s decision “violated the law by engaging in illegal judicial review and by encroaching on [their] legislative authority.”47 Even though the precise nature of the illegality was not clear, the Standing Committee demanded that the IPC fire Judge Li and another panel judge who agreed with her ruling.48 At first, the IPC removed the two judges, but as the authorized media objected to the harshness of their disciplinary action, the IPC “softened its stance and reinstated the judges.”49
This case illustrates the friction among converging sources and institutions of official and living law whose mission was to provide a certain and predictable law of commercial contracts: 1) a national statute; 2) a local administrative regulation; 3) an IPC court decision; 4) a local legislative standing committee order or decree; and 5) an “equitable” adjustment of an administrative order or decree as a result of pressure by the local cadres of the CCP as reflected in media opinion.
Prominent among the national constitutional and statutory sources responsible for the most recent reform of property law as will be discussed in this section are: 1) the Constitution of 1982 as amended, especially in 1988 (Constitution);50 2) the Property Rights Law of 2007 (PRL) which is the most important and encompassing statute and as such will receive most of our attention;51 3) the Land Administration Law and Registry Measures (LAL, 1986);52 4) the Law for the Administration of Urban Real Estate of 1994 (LAURE);53 5) the Land Management Law of 1998 (LML); and 6) the Rural Land Contracting Law of 2002 (RLCL).54 In addition, I will occasionally refer to contract law sources such as The Unified Contract Law of the PRC of March 15, 1999, and to the General Principles of Civil Law of 1985–6.55
The original version of Article 10 of the PRC Constitution of 1982 stated:
Article 10. Land in the cities is owned by the state. Land in the rural and suburban areas is owned by collectives except for those portions which belong to the state in accordance with the law; house sites and private plots of cropland and hilly land are also owned by collectives. The state may in the public interest take over land for its use in accordance with the law. No 704organization or individual may appropriate, buy, sell or lease land, or unlawfully transfer land in other ways….56
Consistent with the invertebrate nature of land ownership and use rights, Guoqiang Tian a Chinese economist refers to a collective enterprise as “characterized by two main features, property rights are vaguely defined and there is significant involvement of government officials.”57 My former student Catherine Jiang provides a slightly more precise description:
A collective economic organization consists of a single or several villages. It is the owner of land in the area of [the] villages and distributes it to the villagers for cultivation of residence…. The collective land is not permitted to be used for … commercial purposes unless it is converted to the state land.58
Despite the bucolic overtones of the property rights of a PRC collective enterprise, Guoqiang Tian, points out that following the introduction of market socialism and especially at the turn of the twenty first century, the PRC’s non-state sector was the main engine in China’s economy; “with an average annual growth rate of over 20% … [and] about 74% of the GNP. Interestingly, collectively owned enterprises comprise about 70% of this sector.”59
Article 12 of the same Constitution declared that “Socialist public property is sacred and inviolable,” and that any “[a]ppropriation or damaging of State or collective property by any organization or individual by whatever means is prohibited.”60 In addition, its Article 13 included a variant of the category of “personal property” found in the USSR Constitution of 1936 that created much uncertainty among hopeful owners of this type of property:61 “The State protects the right of citizens to own lawfully earned income, savings, houses and other lawful property. The State protects according to law the right of citizens to inherit private property.”62
During the First Session of the Seventh NPC of April 12, 1988, Article 10 of the 1982 Constitution was amended. Recall that its fourth paragraph provided that: “No organization or individual may appropriate, buy, sell or lease land or otherwise unlawfully transfer land….” It was amended to read: “The right to the use of the land may be transferred according to law.”63
Thus, what this provision characterized as “the right to the use of land” became transferable and marketable under socialist market conditions. Another supporting amendment to Article 13 was enacted in 2004. At first sight it read as a clear rejection 705of Lenin’s slogan “nothing is private here …” and of Articles 5 and 6 of the Soviet Constitution of 1936:64
The lawful private property of citizens is inviolable.
The state protects … the right of citizens to own and inherit private property.
The state may, in the public interest, appropriate or requisition private property of citizens for its use in accordance with the law, while making compensations.65
Thus, a reporter for the official Chinese newspaper China Today praised its language and quoted Beijing University Professor of Sociology Gao Bingzhong’s optimistic assessment that it “signals the end of the system whereby all means of production is publically owned.”66 Professor Gao added that prior to this amendment, a planned economy prevailed and so did a system of public ownership which required no protection of private property. The reporter noted that new forms of ownership encouraged a “non-public economy [which] accounts for one-third of China’s aggregate [economic income]”67 and noted that “[a] 2002 investigation showed that 93 percent of urban citizens wanted an article in the Constitution on private property protection.”68 Professor Gao’s and the public’s expectations of the new legal regime proved too optimistic.
Only three years later Zhu Keliang and Roy Prosterman (two well-known experts on China’s rural development problems) warned in their 2007 study of the insecurity of rural land rights, that:69
Farmers in China face multiple threats to their land rights from local government and village officials. The most prominent threat is land expropriation or acquisition through eminent domain to satisfy demands of industrial growth or urban expansion. Despite a series of central laws and policies, in practice, farmers who lose their land typically receive little or no compensation. Closely related as another source of insecurity of land rights is the persistent “readjustment” or “reallocation” of farmers’ landholdings that is administratively conducted by village officials. Today, such land-related problems are the number one cause for rural grievances and unrest in China, 706which reported 17,900 cases of “massive rural incidents” of farmers’ protests in the first nine months of 2006.70
As apparent from the preceding discussion, part of the invertebration that causes the uncertainty referred to by Professors Zhu, Prosterman and Whiting stems from the executive branch’s role as supreme decision-maker. As noted by Professor Minxin Pei of Claremont-McKenna College, most legislation in the PRC since 1978 stems from decisions made not by the legislature but by the executive branch, as the legislature mostly endorses bills drafted or sketched out by the executive.71 Its drafting method is, for lack of a better term, loose. Repeated instances of loosely-drafted legislation will appear throughout this chapter; the following are samples of what can be expected.
Consider, for example, Article 4’s enumeration of the rights in rem protected by the PRL: “Sanctity of Real Rights: The real rights of the state, the collectives and private persons, as well as the real rights of other rights holders, are protected by law, and no entity or individual may infringe on such rights.”72 Who are these “other rights holders”? As we will discuss in connection with the PRC land registry, this imprecision leads to much uncertainty and costly disputes.
The same imprecision is found in Article 12 with respect to the duties of the Registrar of Immovable Property: “The registrar shall perform the following duties: (1) … (2) … (3) …; and (4) Other duties prescribed by the relevant Laws and Administrative Regulations.”73 What laws and what regulations is this provision referring to? Since there are at least more than a dozen laws and regulations that deal with land rights and their registration and some are inconsistent with the others, how can one determine which, among the inconsistent ones, contain duties of the land registrar?
Similarly, assume that the researcher is trying to find out what property falls under the rubric of collective ownership. The PRL directs you to Article 58 which states:
Scope of Things under Collective Ownership
Immovables or movables owned by a collective may include:
(1) Lands, forests, mountains and hills, grasslands, barren lands, and shoals, to the extent their ownership is attributed to said collective under the relevant Laws;
(2) Buildings, production facilities, agricultural field irrigation facilities owned by said collective;
(3) Educational, scientific, cultural, healthcare, sports facilities owned by said collective; and
(4) Other immovables or movables owned by said collective.74
What if a collective offers to sell you the right to transform an ordinary rural lake into a profit-making recreational facility, does Article 58 answer whether the collective has the power to sell you the right to convert the lake from agricultural to recreational, profit-making land? Does it define what the collective’s “immovable or movable” property was so as to include or exclude lakes? Does it provide a hint of what the relevant laws are that it refers to? Consult, for example, Articles 46 and 153 of the PRL, do they answer the preceding questions?75
Typically, the missing rules in the above enumeration enable and encourage official arbitrariness and corruption. Depending upon the magnitude of the problem or conflict, the decisions’ missing legislative language are likely to be made by officials and judges influenced by Guanxi relationships which are, by definition, contrary to the protection of the rights of third parties.
It is now time to examine the results of legal invertebration, first at the conceptual and subsequently at the transactional and disputation levels.
As amended in 2004, Article 10 of the PRC Constitution listed two types of owners:
Land in the cities is owned by the State.
Land in the rural and suburban areas is owned by collectives except for those portions which belong to the State as prescribed by law; house sites and privately farmed plots of cropland and hilly land are also owned by collectives.76
Please recall that Article 2 of the Constitution as amended in 1988 had accepted an organization or individual’s right to the use of the land as well as to its transfer “in accordance with the law.”77 Thus, this provision confirmed the existence of a right in rem similar in some respects to the Roman law of usufructs, i.e., the right to use the land and appropriate its fruits without destroying or deteriorating the land.78 And this 708is one of the differences between the Chinese assignment or transfer of the rights to use land and the Roman usufruct—the latter imposed the duty upon its beneficiary not to alter the substance of the land (salva rerum substantia) including the inability to build on it.79 In addition, with some exceptions that allowed the beneficiary to lease part of the property or its fruits, the Roman usufruct was a personal right of the beneficiary and could not be transferred or sold.80
As pointed out by Walter Lee, a Chinese practicing lawyer, translator and commentator of the PRL, “before this amendment, the General Principles of Civil Law (enacted in 1985) set out the basic principle … that the [persons or] entities who occupy and use State-owned land can enjoy the land use rights but not the ownership right over the land.”81 If so, it is necessary to ask what is it that owners own?
The Land Administration Law of the PRC of 1986, as amended in 1988, 1998 and 2004 provides that land in the urban areas of cities is owned by the State and in the rural and suburban areas is owned by peasant collectives, except for those portions of land which belong to the State as provided for by law; house sites and private plots of cropland and hilly land are owned by peasant collectives.82
Article 9, makes it possible for state-owned land and land owned by peasant collectives to be used by private units or individuals as long as they protect and manage the land rationally.83 “People’s governments at the county level shall enter into registration in a register, issue certificates in confirmation of the ownership for the land collectively owned by peasants.”84 Similarly, for land owned by peasant collectives to be lawfully used for non-agricultural purposes, the “People’s government at the county level shall enter registration into a register, issue certificates in confirmation of the land use right for construction….”85
State-owned land used by units or individuals shall also be registered with and recorded by people’s governments at or above the county level, which shall, upon verification, also issue certificates to confirm their right to the use of such land.86 Registration is also required for changes in the ownership of land, in the right to use the land or in the purpose of the registered land.87
Crop cultivation, forestry, animal husbandry or fishery of land owned by peasant cooperatives is governed by a contract between the individual or group of peasants with members of the economic organizations of the peasant collectives. The duration of this contract is 30 years.88
The land use rights on urban, state owned land are not found in the PRL of 2007, but in the Provisional Regulations on Grant and Assignment of Urban State-Owned Land Use Rights. Article 12 of these Regulations sets forth the duration of land use rights as follows:
(1) land for residential purposes: seventy years;
(2) land for industrial purposes: fifty years;
(3) land for purposes of educational, scientific and technological, cultural, health care or sports: fifty years;
(4) land for commercial, tourism or recreational purposes: forty years;
(5) land for combined usage or other purposes: fifty years.89
The manner in which the state grants rights to the land or buildings matters under its jurisdiction seems more complex than that for lands owned by collectives. The state may grant land use rights for a price, in which case the land use right may be privately sold, mortgaged or inherited. Or, it may “allocate” rights for a public purpose and without any payment. In that case, the allocation is not subject to a disposition other than for the purposes of the grant and to the appropriate entity to discharge such a purpose.90 The public purposes for which land is allocated could be military, public welfare undertakings, infrastructure projects connected with the production of energy, transportation and many others.91 Generally, land so allocated is not subject to specified duration or term of use, but cannot be used for any other purpose and by users other than those who can carry out the allocated purpose.92
Chapter 10 of the “general part” of the PRL grants rights in the things of “others” (meaning the Chinese State or its Agricultural Collectives) much as the Roman law allowed for its iura in re aliena among private parties (also known as iura praediorum),93 and as Anglo-American law did with its reversionary interests such as in life estates and easements.94 As was discussed in the preceding chapter, the Chinese law on free tenancy dates back at least to the seventh century CE.95 It enabled the coexistence of rights in rem in the same land granted by an owner who at one time was 710the emperor and at another, the feudal lord or the head of a family or household. Occasionally, free tenants were given rights to the topsoil, and others were given rights to the subsoil.96 At this point, Chinese land law was conferring rights that appeared to be similar to those conferred by the English Doctrine of Estates in the Land.97 Yet, why did the English Doctrine of Estates in Land make possible a transition to a commercial system whose land and its yield became “commodified,” whereas in China, a very different result occurred?
Unlike the Roman usufructs which, as just noted, were deemed personal rights of the original grantee and could not generally be sold or transferred by him, Chinese imperial law allowed the sale and mortgage of land use rights and in some instances, also allowed the tenant to build on the owner’s land.98 Further, unlike Roman law, the PRL allows the holder of a right to build on another’s land and in addition grants the rights to inhabit, sell, transfer or mortgage this and other land use rights. However, as also just noted, the PRL also places the state exclusively at the top of the land tenure pyramid with the power to grant rights to “occupy, utilize and obtain profits from … resources as owned by the State, or … collectively-owned….”99 And, not to be overlooked, the State has the power to expropriate land or land use rights whenever it deems it in the “public interest” and “in line with the procedure and within the authority provided by the laws.”100 Also not to be overlooked is the fact that the meaning of “public interest” is uncertain especially in land takings under eminent domain and whose “rational” use is subject to questioning.101 What is even more unsettling is that when deciding what is in the public interest and who is the beneficiary of the taking, the State or the local government often replace the familistic treatment of the Imperial times with the Guanxi “favors” accorded to members of non-familial networks of political friendship and bribery.102
The hierarchical order of land tenure and ownership of rights under the PRL’s pyramidal scheme is, then, as follows: 1) the state or collectives are the absolute owners of the rural real property in the manner described by Article 10 of the 711Constitution; 2) the holders of land use rights are grantees of the state or collective governments for the purposes and during the time set forth in the Provisional Regulations and often these grantees are provincial or municipal governments who act as conduits for the transfer of land use rights to private parties; and 3) the owners of usufructs or of the rights to use and exploit the land or buildings on it are entitled to the “natural benefits” of that property in the manner and with the priorities specified by Article 116 of the PRL:
The natural benefits shall be obtained by the title holder of such properties; where there are both a title holder and an owner of the right to the usufruct of the natural benefits, the property [of the natural benefits or “fruits” of the land or buildings] shall be owned by the owner of the right to the usufruct; where there are agreements separately made by parties concerned, such agreements shall be observed….
[I]f there is no such or express agreement, the transactional practice shall apply.103
Among the most important “natural benefits” in a Chinese usufruct of land are the rights to manage land and build on it (Chapters XI and XII of the PRL) and to use the land for residential and easement purposes (Chapters XIII and XIV of the PRL). Professor Gregory Stein of the University of Tennessee College of law compares the Chinese land use right to the United States ground lease and concludes that the holder of a PRL land use right has greater freedom of action including the ability to build or tear down improvements on the raw land and exploit the surface without being subject to landlord-tenant law restrictions. On the other hand, the purchaser of a PRL right to use the land must pay the purchase price at the execution of the sale and unless he does so, he may not register his right.104 He points out that this is rarely the case with a United States ground lease, which is usually paid periodically or as the land is being used or developed.105
Professor Stein found other differences, such as the prohibition of “flipping” (or reselling) residential land by the initial purchaser of the land use right until he completes twenty-five percent of the proposed construction and the requirement that the holder of the land use right must also own the building constructed on that land.106 Stein’s interviewees qualified their opinions on these practices by referring to the possibility of different or contrary “practices.” The fact that these practices carry some normative weight at least with his interviewees is on the one hand a healthy development because it for crop cultivation, forestry, animal husbandry or fishery. to land contracts to fashion a law closer to the needs of the marketplace. On the other hand, to the extent that these practices are guided by traditional familistically-inspired, 712anti-third party rights’ clauses they are part of the widespread legal uncertainty.
In sum, an analogy exists between the free tenancies of Imperial law that we previously studied and the land rights of the PRL, albeit with important distinctions. The most important of these is that the PRL replaces the family or household with the PRC as the landlord and grantor of rights and often accords a familistic treatment to the participants in Guanxi networks. As part of the government’s status of absolute owner, its conveyance of land rights (directly or through provincial or municipal entities) does not require the insertion or disclosure of special clauses of revocation of rights of the Imperial law of land contracts. Under the PRL, the official grantor has the power to revoke or expropriate what it gave subject only to a duty of “relevant compensation” that rarely specifies the amount, time, source and procedure for it.107 It is also subject to “public interest” and “due procedure” provisions under Article 42 of the PRL.108
Third parties109 are generally defined as parties who despite their not being participants in the transaction in question are likely to be affected by it either as buyers of the same property rights or as creditors who relied on that property as security for their loans. Thus, under the PRL, a large number of third parties are likely to have their ownership or possessory rights negated by competing conveyances or security interests. For example, “B,” the buyer of land use rights will certainly suffer from a successful claim by “C,” another buyer of the same rights who bought his rights at a later time than B but was given priority over B as a result of a registry or court decision. Or consider the predicament of “D,” a mortgagee of the land use rights from C who could not enforce his rights against “E” a purchaser of the same rights because D had relied on a certificate of land use rights that was held unenforceable by the same administrative or judicial decisions or by their political superiors.
Prior to the enactment of the PRL, three possible original grantors were responsible for the creation of third party ownership rights: the central and local governments with respect to urban land and the agricultural collectives for rural-agricultural land. The parties seeking the protection of the PRL, thus, would be the contracting parties (purchasers, lenders, lessees, mortgagees and assignees of rights) in their transactions with: 1) the PRC’s central or local governments or governmental enterprises; 2) the collective entities who are the grantors of the rights to use their agricultural land and buildings or who seek the transformation of their land into commercial or industrial property; 3) the public, private, or public and private enterprises who convey their land rights to other private or public and private enterprises; and 4) the owners of the right to inhabit urban and rural dwellings as well as of the rights to the commercial, industrial or agricultural exploitation of lands and buildings. What characterizes the above enumeration of third parties is that all are holders of temporary rights that revert to the government upon the termination of their specified terms. These rights are acquired directly or indirectly from or through 713governmental entities and are traceable to government grants, assignments or transfers.
In free market societies, third parties derive their rights occasionally from government grants or assignments but mostly from pre-existing contracts between or among private parties and few of these rights revert back to the government. In contrast, reversion to the government determines the legal nature of land use rights in the PRL. Where the government is the holder of the ultimate reversionary interest, most other rights become expressly or tacitly subordinate to those of the government. This happens often and en masse as has been the case with the “readjustments” and reallocations mentioned earlier by Professors Zhu Keliang and Roy Prosterman.110
The contrast between the protection of third party rights associated with governmental reversionary rights and those of a free market society is sharp. For example, assume that “A,” the owner of Blackacre in a free market society conveys it to buyer “B” who pays part of the purchase price and secures the payment of the remainder by mortgaging Blackacre to A. Assume that shortly after acquiring Blackacre, B sold it to “C,” another bona fide purchaser who also became the mortgagor of Blackacre for the unpaid portion of his sale price. Finally, assume that B recorded his mortgage prior to the time that A recorded his. In most land registry systems of free market societies, B’s recorded right will have priority over A’s.111 In addition, in many such societies B will enjoy a priority over a judicial lien that was not recorded until after his own mortgage was recorded and would enjoy the same priority over an unrecorded administrative expropriation decision.
In contrast, Article 28 of the PRL states:
Vesting of Real Rights Appropriated by Way of Judicial Instrument or Expropriation Decision.
For [the] creation, alteration, transfer, or extinguishment of a real right resulting from a judicial instrument issued by a People’s Court or an arbitration commission, or an expropriation decision issued by the relevant People’s Government, etc., the real right is vested at the time of effectiveness of said judicial instrument or expropriation decision of the relevant People’s Government, etc …112
Please note that the priority of the right in rem associated with a judicial and an administrative expropriation decision is vested at the time of their extra-registry “effectiveness” and not when recorded in the land registry. This deprives third parties who recorded their rights in the appropriate registry of fair notice of the existence of the judicial or administrative actions.
Article 137 of the PRL provides that where the land is developed for industrial, commercial, tourism, entertainment or commercial housing, the procedure for acquiring a land use right by developers and builders is by participating in an auction or in an invitation to bid, rather than by agreements between the state and developers.114 The purpose of this provision is to prevent the “rampant corruption in the course of assigning land use right[s] [by] … agreements between developers and competent government agencies.”115
The right so acquired by the developer is transferred by him to the individual purchasers of houses with a maximum duration of seventy years. At the end of that term, Article 149 of the Property Law states that land use rights for residential purposes will be extended automatically upon expiration of its term but does not specify what fees, if any, will need to be paid for that extension. It defers such a determination to the by-now customary laws and regulations in effect upon expiration.116
Among the key documents that need to be presented by the developer to obtain his building license is his Land Use Right Certificate, issued by the Ministry of State Land Resources.117 Another is the Developer’s License for the presale of a commercial or residential house, which requires the developer to show evidence of prepayment of at least twenty-five percent of the proposed investment in the project. Without this presale license, the presale agreement is null and void. The nature of this nullity is also unclear: Is it one that occurs ipso iure or does it need to be invoked by a party to the presale agreement or by an administrative official? What if the party who invokes it is a developer trying to get out of a deal that is less profitable than another one waiting in the wings? In the absence of applicable statutory or case law, a legal scholar suggested to me that the Latin maxim “Nullus commodum capere potest de injuria sua propria” (No one should benefit from his own injustice) should apply and would support the enforcement of such contracts.
What are the legal consequences of the lack of recordation of a presale contract? Article 10 of the Rule on Presale of Urban Commercial Houses requires the developer “to record the presale contract with the government agencies in charge within thirty days of signing the contract.”118 This provision does not clarify the effects of the lack of recordation. A Chinese attorney mentioned a Supreme Court Interpretation that 715provides that “the Court shall not consider the contract void for failure of recordation unless otherwise stated in the contract itself.”119 In this scholar’s opinion, this interpretation undermines the function of presale contract recordation. Without this recordation, a subsequent third party who purchased the subject house from the developer and recorded the presale agreement is likely to prevail over earlier purchasers with unrecorded presale agreements. Such earlier purchasers would be left with only in personam actions against an all-too-probable fraudulent developer.
Once the developer has complied with the administrative requirements, he can either prepare his own contract of sale or rely on the model contract supplied by the Ministry of Construction or other provincial or local governmental entities. The transfer of title to the rights in the sold house, however, will have to await its recording in the Land Registry and shall become effective from the date of its recording.120
As a Chinese attorney stated to me in 2008, “Few people in China will dispute nowadays that to invest in real estate is the quickest way to get rich.” This attorney then went on to give the example of her friend “S,” a professional person who had made real property purchases and sales her main investment since 2001. In 2001, S bought a condominium in Shanghai. She paid twenty percent of the purchase price as a down payment on the total price of 800,000 RMB (approximately US$100,600). S then immediately leased the property to someone else at approximately US$350 a month. This rent helped her repay her mortgage in a shorter time than anticipated. She then sold the condominium for one million RMB in 2005, and bought her second, third and fourth housing units from the profits she made. The rate of return in these transactions was high by any standard.
In 2007, S decided to buy a condominium worth two million RMB in a prime location in town. It was still under construction but was available for presale. Delivery was scheduled in August 2007; S tried to bargain, but in 2007, housing units were in short supply and so she wound up accepting the asking price. She then executed the sale agreement. Since the purchase of a home with an investment purpose is likely to involve significant sums of money, the Ministry of Construction, developers and local government agencies have published model contracts for the presale of housing units. In S’s case, the model contract that she chose to use was prepared by the Shanghai Housing and Land Administration Bureau. Before signing the contract, S checked the License of Presale and confirmed that her unit was within the scope of the license. It is important for a buyer to use a presale agreement as each of these agreements is registered with the real estate administration authority. In many local practices in China, only a template presale agreement such as the one S used will be accepted for registration with authorities; without a presale license, the presale contract would be deemed null and void. On the other hand, where a developer obtains the license before a judicial or administrative action is filed against him, it has been held that the presale contract is valid.121
But what would happen if the developer sold his right to the collection of the payments due to him on the presold units to third parties? How could these third parties—say lenders secured by the developers’ right to collect future payments as account receivables—find out if these accounts stem from presale agreements, and further, how could they find out if the developer obtained his license to pre-sell units? Would these third parties be protected against the developer’s or other creditors’ defense that the presale license was not obtained or was not filed in time? Theoretically, a developer is not permitted to sell his right to the collection of installments on the presale units. All the funds collected by the developer for selling the units during the presale process must be directly paid into an escrow account with the bank which serves as an escrow agent. This escrow account is created under the name of the developer for the purpose of administration of the payments collected in the presale process. The escrowed funds should only be used for the purpose of construction of incomplete units, and the fund will not be released until the units are delivered to home buyers. Therefore, it would not be feasible for the developer to sell or pledge the accounts receivable until the escrow is removed, i.e., until the units have been delivered. In addition to this escrow requirement, it is worth noting that each presale license, including the particulars of the presale units, is published on a website that is easily accessible to the public.
The presale contract registration serves a similar notice function as the registration of the transfer of a complete unit upon which the buyer obtains title.122 Through the presale agreement registration, the buyer is able to legally secure its prospective title to the target unit. After the registration of the presale agreement, the seller (the developer) will not be able to sell it to other buyers. In other words, if the seller enters into two presale agreements with two buyers in respect to one specific unit; the buyer who has the registered presale agreement will obtain title to that unit, while the other buyer will not, and may only resort to filing a complaint against the seller for breach of contract. Although some suggest that the PRL should have made it clear that neither the filing nor the failure to file should affect the rights of a bona fide third party, it has been widely accepted and confirmed by judicial practice that the recordation of the presale agreement confers a quasi-proprietary right upon the filer. As stated by Article 14 of the PRL, the effectiveness of the creation, change, transfer or elimination of a right in real property is at the time of its registration in the Land Registry. In other words, delivery of the house does not mean an automatic transfer of title. Article 12 of the Rules on Presale Contacts further states that, “within ninety days of delivery of presale of a commercial house, the buyer shall complete recordation of transfer in order to obtain the Certificate of Housing Ownership and Land Use Right.”123
Acquisitions such as the one described by the Chinese attorney in the previous section are financed in one of three ways: 1) a lump-sum payment where the buyer will 717pay ninety-five percent of the price when signing the contract and remainder at the time of delivery; 2) installments, where the buyer will complete payment of the contract price in a defined number of installments before delivery of the house; and 3) a down payment plus mortgage loans. Presently, this third option is the most common way of financing the purchase of a home; mortgage loans are available through what are known as “Provident Fund Loans” or through commercial housing loans. Chinese employees are required to contribute a certain percentage of their salary to their “personal provident fund account,” and the employer is required to provide a matching amount to that fund. Provident Fund Loans thus come from this set-aside money; they have a maximum term of thirty years and a ceiling credit line of 500,000 RMB (as of 2007) to eligible home buyers who make their Provident Fund contributions on time.
Taking Shanghai financing transactions as an example, the use of Provident Fund financing involves four parties: 1) the Shanghai Provident Fund Center (SPFC); 2) the Shanghai Housing Guarantee Company (SHGC); 3) a bank; and 4) a home buyer or loan applicant. The SPFC manages the lending and ordinarily signs a trust agreement with the SHGC by which the SPFC authorizes the SHGC to review and approve Provident Fund Loan applications. It also signs a trust agreement with the banks by which SPFC authorizes the bank to handle and disburse these loans. The next steps taken are: 1) The home buyer applies to a bank or to the SHGC for a provident fund loan and fills out an application form for a Provident Fund Guaranty Loan to purchase a house; 2) The SHGC reviews the form to determine if the applicant is eligible for the loan; 3) If approved, the applicant signs a loan contract with the bank and also signs a home purchase guaranty contract with the SHGC to guarantee the repayment of the loan; 4) The application opens an account with the bank for the purpose of repayment of the loan; 5) The applicant records the mortgage and provides this recordation to the SHGC as a counter-guarantee; 6) Upon receipt of the mortgage certificate, SHGC notifies the bank to disburse the loan to the developer, and the home buyer begins to repay the loan through deposits into the account opened with the bank; and 7) If the loan applicant defaults on his repayment of the loan, the SHGC as guarantor repays the balance of defaulted loans to the SPFC.124
Despite the legal uncertainties discussed above, property prices of homes in major Chinese cities continue to rise at an average of 6.4 percent per year.125 This happened even though the central government raised the minimum down-payment for second home purchases from fifty percent to sixty percent of the property’s value on January of 2011 and approved new property taxes for Shanghai and Chongqing.126 Beijing’s new rules allow banks to further raise the down-payment requirements for apartment buyers and raise interest rates on mortgages. In addition, China’s central bank has increased interest rates three times since October, and hiked the banks’ reserve requirement ratio seven times since the start of last year.
And as if these restrictions were little, on February 17, 2011, Beijing’s municipal government issued new rules limiting the number of homes each family can purchase in order to “cool the property market.”127 Beijing families who own two or more apartments, such as the Shanghai families described in the preceding section, can no longer make new home purchases and Beijing families who own just one apartment can only buy one additional apartment. These restrictions were issued on the heels of an April 2010 regulation that limited each Beijing family to buying only one extra apartment.128
Clearly the Chinese central and local governments are concerned with the rise in the prices of residential investment real estate in China’s largest cities which are making homes increasingly unaffordable for most Chinese urban dwellers:
Prices in … Beijing, have more than doubled over the past two years due to easy credit and low lending rates. One square meter in a new apartment in Beijing on average cost 20,000 yuan last year. But the square meter price for apartments within the Third Ring Road, the central urban area, exceeded 30,000 yuan, more than 10 times the monthly income of an average Beijing resident.129
To make matters worse, Wang Xiaoguang, chief director of the Macroeconomic Division of the Institute of Economic Research, under the National Development and Reform Commission has forecasted that the prices of residential units in China’s largest cities will remain the same for the foreseeable future.130 Does this rise in prices foretell increasing frictions between those who can afford buying several residential units and those who cannot?
The Beijing 2011 regulations also forbid non-Beijing registered families who have no residence permit (hukou, 户口) or other documents that certify that members of the family have been paying social security or income tax for five straight years are also banned from buying apartments. By the time of my visit to China, I was familiar with the legitimating function of national identity cards in some Latin American countries. They provided their holders not only with the status to claim basic state services such as social security payments, healthcare and so on, but also with legal capacity to enter into binding contracts, file claims or give notice of their rights in public registries.131 The hukou is a small red passbook with information on every family “including marriages, divorces, births, and deaths, as well as the city or village to which each person belongs.”132 One of the differences between this identity card and its Latin American counterpart that I am familiar with is that the hukou still treats its holder’s family as an economic unit, while the Latin American identity card is given to citizens 719or residents in their individual sui iuris capacity. An additional difference is that the Latin American identity card is usually national in nature and as such can be used anywhere within the national territory. As described by Bloomberg’s Businessweek, that is not the case with the hukou:
What comes attached to the hukou are benefits including health care, a pension, and free education for one’s children. These benefits are only available if a Chinese citizen lives where he or she is registered. Not having a hukou for where one lives makes it more difficult to get a driver’s license, buy a house, or purchase a car.133
As made clear by the Beijing regulation of February 2011, the legal status of these non-residents and non-holders of valid hukous as buyers-mortgagors of homes is precarious at best. Consequently, Bloomberg’s Newsweek recently reported that hundreds of millions of Chinese live in China’s biggest cities with no access to social benefits and limited ties to the locales in which they work.134 This non-existent legal status causes the lower consumption and lower productivity of migrant workers and explains why despite China’s boom as an industrial nation and as one of the world’s largest exporters, the contribution of its private consumption’s to its gross domestic product dropped from forty-six percent in 2000 to thirty-three percent in 2010.
For while China’s urban population in 2011 approached 700 million, approximately 200 million of them lacked a hukou.135 Add to this legal uncertainty that of the third parties who deal with such a major segment of the urban population by employing them, selling them products or extending credit to them. Add also the fact that quite often these migrant workers obtain fake hukous and use them to assure their suppliers of goods and services as well as their lenders as assurances of sources of income and reimbursement that can easily be challenged as non-existent.
In the past, the serious disparity between the rights and access to better salaries and benefits of lawful and unlawful city residents was justified economically because the need for hukous forced farmers to remain in their provinces and “produce cheap food to sustain industrialization.”136 Yet, as China’s competitiveness in foreign markets declines caused by its higher costs of labor, its top leaders have begun to pay attention to the role of hukous. In March of 2012, China’s cabinet of ministers announced that it would make it easier for rural migrants to obtain a city hukou and Premier Wen Jiabao confirmed this policy to the NPC by promising that migrant workers will become “permanent urban residents in an orderly manner.”137
Meanwhile, Professor Kam Wing Chan of the University of Washington has shown not only why the hukou system is holding up China’s desirable urbanization one of the most obvious ways in which China’s local consumption could rise to replace China’s almost exclusive reliance on exports as the source of its growth. In his words: “The 720assumption that China’s urbanization will create a very large middle class is proving not accurate.”138
During my visit to Shanghai, our guide continuously pointed to impressive buildings and attributed their ownership to “the people” as with the “people’s gymnasium, art museum,” etc. After one such a designation, a Chinese passenger startled our guide by asking “Who is the People?” Much as our good guide tried to answer this seemingly naïve question, he could not. The best he could do was to say that “The people is the people.”
The PRL equates the state’s ownership of land to the ownership of “the whole people” as represented and managed by the State Council.139 In contrast, the owners of the land of collective-agricultural organizations are not the “whole people,” but the members of these collectives,140 and collectives, as encountered throughout this chapter can own real or personal property.141 Collectives can also transfer rights in rem to real property to third parties.142 Yet, as now highlighted by Professor Whiting, the term “the collective” is much more centered on the village and its local or Communist part governance than apparent to a first time reader of PRC land rights law:
In general, “the collective” refers to the village, a rural community organization below the township, which is the lowest level of formal government defined in the constitution. Villages are, in principle, self-governing entities with elected leadership…. It is the village that enters into land-use contracts with individual households. According to the Land Management Law, changes to contracted land holdings are permitted with the agreement of two-thirds of the villagers’ representatives, as well as the approval of the local government…. [V]illages are also led by Communist Party Committees appointed from above.143
Moreover, the PRL indicates that “the collective” refers to “members of the collective community,” but as also noted by Whiting, this indication does not answer who is empowered to act in the name of the collective, even though it allows its members to sue the collective when the members’ rights are violated.144 She also provides other instances where the land use rights of the collectives are “attenuated” by present law. For example, even when local farmers may have an interest in having the land they occupy being used for industrial or commercial purposes (so as to be able to enjoy a better income), they are precluded from transferring their land use rights to third parties: “In order for land to be transferred from agricultural to non-agricultural 721use, it must be converted from collective to state land through government requisition or takings.”145
And as she also points out, compensation for the taking of that collectively-owned land is divorced from the real market value of the land, thereby allowing the opportunity for the local governments to appropriate the difference between the expropriated and market value; furthermore, under Article 26 of the Land Management law, compensation for the taking of the transformed land is made to the collective which then allocates a certain portion of it to the affected individual households.146 Once the land is converted to state land, the local government can decide on land transfer fees that reflect the true market value of the land whose status as a new “peri-urban” area adjacent to large cities is much more valuable than what would be paid to the farm households’ original owners of the agricultural land use rights.147
The widespread conversions of agricultural land to state land (or “the people’s land”) and the subsequent transfers to local and foreign investors or enterprises, was, as we later found, one of the reasons behind his question “Who is the People?” For as he explained to us the official attribution of ownership to an amorphous “people” masked an ownership pillaged by those well situated in the CCP hierarchy. As if the above ambiguity were not enough, a Chinese real property expert interviewed by Professor Gregory Stein of the University of Tennessee Law School added a new layer of rights and ambiguities. He described a practice in which agricultural collectives convert their land to commercial uses and request a permit to build a commercial structure. With that permit comes the authorization to “retain the profits resulting from the change in land use and pass them along to … [certain] members of the collective in the form of dividends.”148 Such transactions, while supposedly illegal, are very common.149 And with this practice comes a new set of ambiguous rights to the dividends yielded by converted commercial structures: Were these rights of the collective as a collective or was it only a right owned only by certain households or individuals and was it saleable by them or inheritable by their heirs?
Based on the facts relayed to Professor Whiting by a local government official,150 it appeared that the land use rights certificate granted to family household “A” on Blackacre was reassigned to family “B” after A had abandoned it to live with a younger son elsewhere. A was away for two years during which time he did not pay fees and taxes on Blackacre. Following what the official described as local policy and after A’s two-year absence, the land was reassigned to B. Yet, A had retained his unchanged certificate of land use rights and B did not receive a new or amended land certificate indicating the transfer in the ownership from A to B.
The head of A’s household returned to the village and disputed the reassignment action in a local court. Basing its decision on the unmodified text of A’s land certificate, the court agreed with A that he had the right to reoccupy his land. Nonetheless, when A tried to execute the judgment, the villagers organized a rally in support of B who in their view was the morally deserving party—he and his family had farmed the land, paid the taxes and fees and had to support a young family. Violence between A and B and their supporters ensued and, in yet another instance of invertebration, the court decision could not be enforced.
As pointed out by Whiting, having reassigned the land, the local officials were “implicitly a party to the dispute”;151 still, the same officials mediated the dispute. Their decision was that A was allowed to continue to hold his land use rights but he was made to agree to rent the land to B for nothing. This nonpayment would last as long as B’s children remained in school. Thereafter, A agreed to B’s one-time payment for the sale price of the land. Professor Whiting was informed by a county justice bureau official that cases like this were common and reflected the local policy and that courts had decided that they would not hear new land dispute cases and would defer to the mediation of relevant government agencies.152 She also found that many of the administrative takings were arbitrary and corrupt: Many about-to-be-converted parcels were not sold in auctions but certain buyers were privately indentified by local officials who also arranged for the transfers. Aside from the arbitrariness of the officials’ takings, villagers complained about the unfairness of compensations they received for the loss of agricultural land that, once converted into commercial, residential or industrial, became very valuable. They also complained that with their loss of land came the loss of a minimal economic safety net as only a few of the families were allowed to become part of social security schemes.153
One cannot help but to ask about the value given by the official mediators-arbitrators to the certificate of land use rights. What is the value of such a document if it can be so easily disregarded by decision makers? I was also surprised by the unabashed judicial deference to the same local officials whose policies and actions had caused the dispute.
As transcribed earlier, Article 116 of the PRL sets forth the priorities of claims to the “natural benefits” yielded by the usufructs on land or buildings and their surface and sub-soil.154 These benefits belong to “the title holder of such properties” (the assignees or holders of usufructs) and where there are both title holders and owners, the natural benefits belong to the latter, unless otherwise agreed and in the absence of an agreement, subject to the practice common with that transaction.155
The following dispute illustrates the difficulties of applying Article 116 to competing claims on co-existing usufructs.156 “A” was the owner of a usufruct granted by “C,” an agricultural collective. His usufruct was to enable him to grow milk-producing cattle on Blackacre. “B” was the owner of a usufruct on a segment of Blackacre which C had assigned to the bottling and distribution of the milk produced by the cows grazing in the remaining portion of Blackacre. A was paid a certain amount for the milk produced by his cows but because this amount was minimal, he claimed priority over a certain percentage of the proceeds of the sale of the milk produced by the cows under his care. B claimed that his right to bottle and distribute the milk was independent of A’s usufruct and that he should only share the proceeds of the sale of milk with the collective. The main issues in this dispute were whether in the absence of a clear specification in the respective grants, the proceeds from the sale of the milk were a “natural benefit” of A’s or B’s usufruct or a benefit of whoever registered them, even though no land registry was in operation in the Blackacre area. According to my interlocutor, the result was ultimately found in favor of the collective.
One of the unresolved issues in this dispute was the effect that the lack of recording of both usufructs had upon the rights to the proceeds from the sale of milk. Please recall that Article 10 of the PRL requires that A’s and B’s land use or usufruct rights be recorded in order to be established and therefore enforceable.157 Nonetheless, as stated by Jinchang Lai, a Chinese expert on PRC secured lending registries, during an October 19, 2010 meeting of the World Bank, “rural registries are very few in the PRC.”158
An effective system of recording land rights is indispensable for the marketability of these rights. It tells the buyers of the rights as well as to those who lend on the security of these rights that what they are intending to buy or lend on is legally enforceable, for how long, against whom and with what priority. Thus, it enables the setting of prices for what is attempted to be sold and the ratios between amounts lent and value of the land collateral. If taxes are to be imposed upon the value of the land or of the transaction, it enables that imposition. If it is also a “cadastral” registry,159 it provides a clear and reliable physical description and accurate measurements of the land and or buildings involved.160 If the parties contemplate obtaining insurance of the title to the land or rights, the registered data enables the assessment of the insurable risk. In short, it is very difficult to conceive of a secondary (third party) market for land use rights, i.e., a market other than that comprised by original sellers and buyers, and lenders and borrowers, in the absence of an affective and reliable land registry.
When I visited Shanghai in 2007, I was told by Chinese real estate lawyers that there were “at least six or seven” land registries in the Shanghai province alone and that the most “important ones” were the registries for buildings and for developable land. One of my interlocutors said that interested parties could apply to register their land use rights, building permits and ownership rights in either one of these two registries. The other two were not sure about the availability of interchangeable filings, but indicated that these two registries were required to share their information.
Third party access to the registry was an additional problem. An international law firm with offices in the PRC reported to its clients that the customary practice of the land registries (prior to the enactment of the PRL) was not to make available registry information to interested third parties “except with the registrant’s written consent.”161 This firm added that it was unclear under the PRL if “any person will be entitled to search the registry or whether applicants must establish some relationship to the property at issue.”162 These were only a few of the troubling features of a registry system whose data was intended to reassure an increasingly large number of third parties (local and foreign purchasers of land use rights) that their acquisitions, investments or secured loans were legally enforceable.
Two competing systems of recordation of rights in rem in real property existed in Europe during the codification period: the German “constitutive” system whereby the acquisition of the in rem right to immovable property depended upon it being recorded, and the French “notice” system in which recordation was only to provide public notice of the existence of the recorded transaction but without “constitutive” effects.163
As described by Feng Wenli, an official of the PRC’s Ministry of Land (the administrative agency responsible for overseeing this registry), the PRC registration system was inspired by two models: the German registry of land titles (Grundbuch) that grants title to the land or buildings after careful scrutiny of the previous recordings and the submitted documents, and Australia’s certificate of title issuing Torrens system.164 Regardless of the models that inspired it, the crucial question is who is protected by it.
The Torrens system165 (named after his proponent Sir Robert Torrens an Irish-Australian economist and customs collector) was adopted first in South Australia in 1858 and from there it spread to other common and civil law countries.166 It was modeled after the recordings of transfers of ships under the English Merchant Shipping Act of 1854 which required that every transfer be listed on a separate page of a general register of ships so that title to each ship could be determined “at a glance.”167 Upon registry, a duplicate-certificate of the register page was given to the new owner. When this new owner assigned or transferred his certificate, the transferee would present it to the Registry office where the former entry was canceled, a new page was opened and a duplicate page was issued to the new owner.
As applicable to the registration and transfer of land, the examination of the chains of titles and of recordable documents in the Torrens system was done by officially appointed title examiners. They were and are responsible for the decision to record the creation of an interest in the land or building or of its transfer. Following this recording, a registry certificate was issued. The Torrens certificate was and is enforceable as the title to the land or building except when it is procured by fraud. If a mistake was made by the examiner of titles, an insurance fund pays for the damages suffered by the person who holds the valid claim against the land or relied on the Torrens recording to his detriment.
The key features of the Torrens system, then, are: 1) it “constitutes” or creates rights in rem; 2) it grants to the examiner of title a broad scope of examination; and 3) it protects those who rely on what was stated on the face of the certificate by means of an insurance fund which pays for the registry’s mistakes.168 An important drawback of the Torrens system was the inaccuracy of some of the descriptions of the land or buildings. Often these descriptions were inconsistent with those in “cadastral” or surveyed and graphic renderings of the parcels. Some survey plans showed the location of contiguous parcels, but others did not.169 This led to the scattering of survey records of contiguous parcels and to the inability to rely on a “continuous cadastre” and to disparities between the actual or physical location and dimensions of the parcels and their legal description in the registry and certificates.170
Drawbacks aside, Professor Alejandro Garro quotes an English commentator who attributes the success of the Torrens system in England to its requirement that all titles related to land be recorded.171 This success would not be possible where the law directs the registration of “all other rights” in the land, but does not specify which rights these are, as is the case with the PRL and as will be discussed shortly.
In the Grundbuch system,172 enforceable rights in rem do not exist outside the registry. The sale or mortgage of lands or building is executed before a notary public whose deeds contractually bind the original parties to what they promised but this is only an in personam liability. As stated by Section 873 of the BGB173 (in language copied by Article 9 of the PRL),174 the transfer, acquisition, alteration or loss of a right in rem does not take effect until recorded in the Grundbuch. This provision made it a constitutive registry, i.e., one without which rights in rem cannot be enforced even between the original parties to the transaction, let alone against third parties.
Although the BGB did not expressly list the rights in rem susceptible to registration in the Grundbuch (as was done by other codes associated with the BGB family such as the Austrian Civil Code),175 the BGB implicitly restricted the number of rights in rem to those governed by Book III. These were: possession, ownership, rights to the use or exploitation of the surface of the land, easements, usufructs or life estates, mortgages and territorial debt.176
In addition, the contemporary Grundbuch combines the legal description of the land or buildings with data on the actual location and dimensions of the land and individual parcels as found in the surveys of the cadastral office.177 As the cadastral data accumulated, so did the ability to provide a more precise description of parcels, especially their dimensions and boundaries, as a result of the “parcel identifiers” in cadastral maps. Eventually, these parcel identifiers became part of the recordings in the Grundbuch and multi-purpose cadastral survey data such as on soil composition, usage and zoning became easily searchable using the same parcel identifiers of the Grundbuch.178
The Grundbuch is part of the German court system and is open to public examination of its data and not merely to the parties whose names appear in the registry or their heirs or representatives.179 Each registry is headed by a municipal or district court judge who acts as the Registrar of Titles and who reviews the legality of recordings and of the certificates issued by land registry officials.
Unlike the Torrens System, the Grundbuch system does not have a public compensation scheme or insurance fund to indemnify the parties to the transactions or third parties who relied on what was recorded for errors or omissions in the recording process. The person who makes the mistake bears the loss, including a party to the 111 transaction, a lawyer or notary, or an official of the registry.180 The quality of the examination of title has been such that the number of complaints has been relatively small.181
The reader will recall that the concept of public faith attaches to documents executed before the notary publics of countries that belong to the system known as that of the Latin Notariat.182 This system endows these notarial documents with a prima facie presumption of validity. A similar and perhaps even stronger presumption attaches to the recordings in the Grundbuch. In a rather circumlocutory fashion, Paragraph 1 of Section 892 of the BGB expresses the Grundbuch’s guiding principles of “public faith” and of the protection of reliance by third parties:
For the benefit of a person who by a legal transaction acquires a right in rem with respect to a parcel of land, or a right in rem with respect to such right, the entries in the land records [of the Grundbuch] are deemed to be correct, unless an objection against the correctness has been recorded, or unless the incorrectness is known to the acquirer [of these rights]….183
Professor Garro’s analysis of this provision provides the needed clarity and precision. He points to the clearer text of Article 973 of the Swiss Civil Code: “Whoever in good faith has relied upon an entry in the land records, and thereby acquired property or other rights in rem, is to be protected in such acquisition.”184 Garro clarifies that the principle of public faith (Öffentlicher Glaube) and its presumption of correctness of the recordings only benefits he who acquires the right in rem in an inter vivos transfer, as opposed to a mortis causa conveyance such as by a will or legacy. 728Then, he draws attention to the protection of a third party’s negative and positive reliance on recorded data.
A negative reliance takes place when the third party is misled by what was required to be recorded and was not recorded. This protection “is the hallmark of the recording systems claiming to protect negative reliance only.”185 In contrast, other systems protect not only against what was not recorded, but also “against … claims arising from … [what appears] recorded … [as an] apparently valid transaction or interest….”186
One land registry system where positive reliance was not possible was that of Mexico, at least during the 1970s.187 In a group of decisions on the protection of third parties, Mexico’s Supreme Court questioned the diligence that these parties had to evince in order to be protected as good faith purchasers or creditors. The Court asked: How far back must a diligent searcher go into the chain of title of a parcel to qualify as a bona fide purchaser of the recorded property?188 At first, it held that a diligent and bona fide searcher did not have to go back further than to those recordings that immediately preceded the transaction in question. Yet, in subsequent decisions, it extended the time of the search first to earlier recordings and finally to the time of the first recording of the parcel in question, regardless of how far back one had to search and of the sorry state of the Land Registry’s records. Simply put, a purchaser could not qualify as bona fide unless he exhibited the skill of the most expert and well-endowed of searchers. Clearly such a degree of diligence and good faith would be completely unrealistic and unreasonable under the circumstances of Mexico’s land registry and denied third parties the benefits of a positive reliance on the registry’s records.
Professor Garro concludes that the Torrens and the Grundbuch systems offer the benefits of both a negative and positive reliance protection to third parties. He provides the following supporting quote from E.J. Cohen’s Manual of German Law:189
[Section 892 of the BGB] … does not require any reliance on the part of the transferee upon the contents of the Grundbuch. The transferee is protected in any case in which he did not positively know that the contents of the Grundbuch were incorrect. It does not matter whether his ignorance was due to lack of care. It does not even matter whether he ever consulted the Grundbuch. Even if he did not know the actual contents of the Grundbuch the latter are treated as if they were correct.
According to Article 10 of the PRL, land rights that are sought to be conveyed, amended or canceled must be registered in a land registry whose location corresponds to that where the land is located.190 The PRL does not specify if the PRC registry will 729emulate the Grundbuch’s joinder of cadastral and legal descriptions of the subject parcels.191 Only in a vague manner does Article 11 of the PRL allude to the need for such a joinder when it requires that the filer “provide evidentiary materials showing the ownership as well as other necessary materials specifying the site and size of the real property.”192
This requirement disregards the fact that most filers are often unaware of the information available in governmental cadastral surveys or are unable to integrate such information with the descriptions that appear in the registry’s “cards” or “folios” for each parcel. And if the cadastral information is already part of the land registry records, in all likelihood there will be a reference to it in the registry’s certificate of ownership or a cross reference in one of the previous entries in the land registry’s card of file for the parcel in question. And these records are not usually available to private filers. Clearly, then, the duty to supply cadastral information beyond a cadastral number or other designation should not be the filer’s but the Land Registry’s, as is the case in Germany.193
On the other hand, the history of land and cadastral surveys in the PRC has been as topsy-turvy as that of its land tenure regimes. During the 1949–1952 period of land reform, all rural land was surveyed and registered in village registries, yet in 1956–1978 during Mao’s collectivization process, land tenure was consolidated and land registration was abolished; finally, land surveying and registration were reinstated from 1978–1984 during Deng’s regime.194 Meanwhile, the magnitude of the task of creating and cross referencing cadastral and legal description data has only increased by geometric proportions. Feng Wenli reports that after starting a cadastral inventory of the PRC on September of 1989, thirteen years later (on October 31, 2002) a total of 24,200 square kilometers of urban land and 45,160 square kilometers of rural land had been surveyed.195 If one takes into account that it took three years to survey approximately 70,000 square kilometers of land and that the land surface of the PRC is of 9.6 million square kilometers, one can see why this registry official referred to the number of districts in which a cadastral administration has been established in 2008 with a non-specific, non-committal “many.”196
Land registration in the PRC is governed by the Measures for Land Registration, adopted by the Ministry of Land and Resources on November 28, 2007, effective from February 1, 2008.197 Accordingly, the PRL expects the registrars to: 1) examine and 730weigh the “evidentiary materials” on ownership of rights in the land as submitted by the filer; 2) ask the filer to answer questions with respect to any aspect of the registration materials that arise from them; 3) conduct the registration in accordance with the facts as submitted by the filer and do so in a timely manner; and 4) perform whatever other duties are required by laws and administrative regulations, including the request for additional materials from the filer and for field surveys if necessary.198 The result of the above enumerated functions is the entry of the data so gathered in registration “cards” or files for each individual parcel. The data contained in these cards or individual files is the one that proves, in the registrars’ opinion, the ownership of land use rights and other rights and interests in land.199
For some unexplained reason, however, the registrar’s own search for the proper order of succession of conveyances and other transactions, based upon what he independently of the presentation establishes in the pre existent chain of title is absent from his list of functions. Otherwise, how could the examiner satisfy himself that a legally-warranted sequence of rights exists that justifies the validity and effectiveness of the present filing? Should he just rely on the sequence set forth by the filer? This is why the principle of “proper sequence” is central to the Grundbuch registries.200 It can only be relied upon where the registrar is charged to employ his “power of review” or “evaluation of land titles” which include the all the pre-existent recorded documents with respect to Blackacre as well as those submitted by the filer and claimant as the last “link” of a given chain of title.201
Upon registration in the land registry of the PRC, a certificate is issued to governmental units or to individuals holding the rights or interests in the land conveyed by these units. Yet, as noted earlier, PRC governmental units at or above the county level are the “double track” entities referred to by Professor Stanley Lubman as responsible for issuing State-owned Land Use Certificates, Collective Land Ownership Certificates and Collectively Owned Land Use Certificates. And also noted during the discussion of residential land use rights, these certificates are standardized by the Ministry of Land and Resources and are printed by it or its authorized units or entities.202 Walter Lee, Esq., describes their issuance as follows:
The owners of the land use rights apply [for the appropriate certificate] to the land administration department … at or above county level where the land is situated, and the people’s government at the country level will compile a register, verify and issue certificates of State-owned land use right, and confirm the [existence of] land use rights …203
[Typically, a] land use right certificate contains the name of the registered land user, location of the land, permitted usage, term of grant, and will usually attach a site boundary map or floor plan. Some Land Use Right 731Certificates also contain information on whether the land use right is “granted” or “allocated.” If such information is not found in the certificate, it is important for those who carry out due diligence to check the Land Grant Contract.204
Please note Mr. Lee’s warning about the need for information on whether the land use right was “granted” or “allocated”:205 Granted land use rights require payment of consideration, while allocated rights generally do not require such payments because of their public purpose such as for military, scientific, artistic or other governmental endeavors.206 Yet, please recall that such allocated rights can only be used for their designated purpose. In contrast, land use rights that were granted in exchange for compensation may be used for their designated use as well as for other purposes. They may also be transferred, leased, mortgaged or inherited.207 This is one of the reasons for Walter Lee’s warning not to rely solely on what appears recorded in the Land Registry, but also to check the land grant contract or allocation.208 This warning reflects the fact that the data recorded in the land registry are far from being all the relevant data required for determining the existence and scope of land use rights or the grounds for disqualifying a given holder for holding such rights.209 Something as basic as the fact that the land attempted to be conveyed for private use may not be so used because of the land’s “allocated” status may be missing from the land registry records.
An equally significant datum is that PRC land use certificates, unlike those of the Torrens system, are not conclusive proof of the creation and transfer of a land use right or security interest or lease of the land use right. While the registration records of the land registry are “conclusive proof” of the above transactions or conveyances, the “land certificate is merely a duplicate of part of the contents of the land registration card.”210 In fact as noted earlier in connection with the principle of positive reliance, Article 17 of the PRL makes it clear that in the case of disparity between what is stated in the ownership of rights certificate and what is found or could be found in the registry certificate (most likely the registry ownership card or file), the latter prevails.211 John 732Jiang’s translation of the primacy of land registry records over statements in the certificate of ownership of land use rights is even more categorical:
The certificate of rights in immovable [property] is the proof establishing that the purported rights [the] holder enjoys … in the subject immovable. Items recorded on the certificate of rights in immovable[s] shall be consistent with those recorded in the register of immovables. In case of discrepancy, unless [the] evidence proves that the items recorded in the register … are indeed erroneous, [the] items recorded in the register of immovables prevail.212
For administrative purposes, including zoning, the Land Administration Law213 grouped the types of land use rights in the preceding sections into three categories: 1) agricultural land or land “directly” used for agricultural production; 2) land used for construction or lands on which buildings and structures could be built, including for residential, industrial, mining, transportation and water conservancy facilities; and 3) land not in use or unused land and thus not part of categories 1 and 2.214
Despite the intent to clarify the meaning and scope of land use rights215 and of the need to record these rights to consider them “established,” it is still unclear what rights can or need to be recorded. John Jiang’s translation of the list of holders of property rights in Article 4 of the Property Law refers to it as including the state, collective, private persons and “other rights holders.”216 The Lehman et al. translation, in turn, refers to these unspecified persons or entities as “other obligees.” Who are these holders of “other rights” or “obligees” and what right or rights in rem do they hold? This is a significant question because depending upon the answer, the PRC registry would be either a “numerus clausus” or “numerus apertus” registry. If it were the former, it would only allow the recording of a listed number of rights in rem. If it were the latter, listed as well as unlisted rights in rem could be recorded.
The PRL does not clarify the meaning of “other rights.” The above-mentioned Measures for Land Registration217 refer to “Other interests in land’ … [as] interests in land other than the land use right and land ownership right, which include interests created by charge … lease and other interests relating to land which are required to be registered by laws and regulations.”218 Obviously, this provision also fails to clarify the meaning of “other rights” because the presumably similar term it uses (“other interests”) is defined in an illustrative fashion by stating what they include, leaving 733the door open to other unlisted “interests.” Further, it refers the reader to other “laws and regulations” without specifying which ones or where they can be found.
Feng Wenli, the above-mentioned land registry official, defined “other rights on land” as also including: mortgage rights, leasing rights and neighborhood rights.219 Note his addition of a category not mentioned above by the same Ministry of Land and Resources, i.e., “neighborhood rights” (with overtones of traditional familistic China). Note also that Feng Wenli utilizes the same gerundial “including,” thereby acknowledging that his listing of rights is also open-ended and that conceivably there are or may be other recordable rights entitled to registration. Simply put then, under the PRL, the list of recordable rights in rem is an open number of rights whose acceptability will be determined in the future perhaps by the legislature, the courts, or by each registrar when properly motivated to record such a right by a Guanxi filer.220
Since the effectiveness of these “other” rights depends mostly upon registration, unless the potential purchaser or mortgagee of a land use right knows which are “the other” rights or interests, a system of registration that was dysfunctional in 2007 will continue to generate significant uncertainties. Consider the case of “A,” a lessee or maybe even a sub-lessee of a land use right in Blackacre who is aware of the fact that a friendly official in the land registry will accept his filing of his land use rights whenever A deemed it appropriate. A finds out that “B” has just acquired from government agency “C” an industrial land use right in Blackacre. At this point, A files his land use right in one of the possibly appropriate registries. B is confronted with the need to have to pay a significant additional sum to have A waive or subordinate his land use right to B’s. I was told by some of the lawyers and developers who I met with in Shanghai in 2007 that the above situation is far from unusual.
Professor Garro’s comparison of the benefits and burdens of a numerus clausus approach supports this analysis. He refers to the numerus clausus approach as:
[A] feature that contributes in turn to the speed, simplicity and security of land transactions…. [T]he task of searching the title which a purchaser or mortgagee receives is greatly lightened under a legal system with a limited number of permissible rights in things….221
This assertion is especially valid for real property transactions which are less malleable and less apt to produce new types of contracts than transactions involving personal property. And if the economic need for a new or hybrid type of transaction arises such as with a lien that secures rights in both the rolling stock of a railway (personalty) as well as the land surface for its tracks (realty) as was the case with the post-World War II reconstruction of the German railroad system,222 the statutory list should be open to include new legislatively sanctioned rights in rem.
On April 22, 2010, China Daily reported that Bank of Communications Ltd., China’s fourth-largest publicly traded mortgage lender, disclosed that it made fewer mortgage loans in February and March of that year while trying to rein in lending and property speculation.223 It also reported that China’s bank regulator directed the larger banks to conduct quarterly stress tests on property loans and to ensure that risks are strictly controlled.224 This regulator also disclosed that Chinese banks extended a less-than-estimated 510.7 billion RMB (US$74.8 billion) of new loans in March after the central bank told lenders to set aside larger reserves and pace credit growth. Further, the housing ministry ordered developers not to take deposits for sales of uncompleted apartments without proper approval.225
In light of such a large number of mortgages in the portfolios of their bank-mortgagees, one wonders why the PRC has not developed a private sector-based secondary market for mortgages, especially after the government officials interviewed by Professor Stein recognized the importance and need for such a market.226 Professor Stein attributes this failure to the “murkiness and unreliability of lending standards, particularly for residential loans….”227 Much of this murkiness and unreliability results in the creditors’ inability to recover a reasonable amount of what they lent by realizing prompt and inexpensive returns on their real estate collateral. As found by Professor Stein and other foreign legal experts, “those who have been buying, selling and lending against Chinese real estate have been operating in a world of significant legal uncertainty.”228 In fact, Professor Stein was also told that the inability to rely on collateral “exists to an even greater degree in the growing automobile loan industry, with lenders having great difficulty tracking down this mobile collateral after a borrower defaults.”229
Uncertainty, then, lurks behind each stage in the life of a land use right as well as of a personal property security interest. As the preceding discussion shows, the uncertainty exists during the creation, renewal and termination of land use rights. Issues such as who is the private owner or usufructuary of a land use right and what is the scope of his rights cannot be answered by researching the land registry. First, because the land registrars unlike those of the Torrens or Grandbuch registries, do not have the duty to establish the enforceable chain of titles to those rights. Second, because the exact number as well as the jurisdiction of these registries is far from clear, as contrasted with the government agencies that grant or allot the ownership or possession of land use rights. Third, because the land registries’ data is incomplete and 735often dependent upon what appears in the certificates of land use grants or allocations as issued by other administrative agencies. Fourth, because a recorded right or security interest may well be subject to a superior but unrecorded right that the PRL vaguely refers to as “other rights.”230 Fifth, because the disparities between the “legal” description of the land or real property in the registry and in the cadastral survey are only growing in number. A third party may thus assume—based upon what appears stated in the land registry—that his rights are in a parcel of a certain number of square meters only to find out that the parcel is much smaller or nonexistent once its physical description is found in the cadastral survey or registry.231
And where residential urban property is concerned, hundreds of millions of actual or potential buyers and mortgagors presently lack the legal capacity to enter into the required contracts, thereby rendering the contracts they entered into null or subject to nullification. And at the end of the life cycle of many if not most land rights, it is uncertain whether they will be renewed, for how long and at what cost.232 Conversely, if a land right is terminated abruptly by official expropriation, the amount of compensation is similarly uncertain.233 There is little question then, that unlike the protection afforded by its supposed Torrens and Grundbuch models, the PRL land registry protects neither the positive nor the negative reliance of third parties.234 In terms of third party protection, their predicament seems not much different from that described in a popular saying during Imperial law rule: The private parties write their contracts but ultimately it is the state who writes the applicable rules.235
It is well known by now that “safe and sound” standards of lending were ignored by United States banks and other financial intermediaries that engaged in the issuance and negotiation or resale of “sub-prime” mortgages, as well as by many of their regulators. Professor Stein’s study shows that PRC regulators have similarly ignored these standards when lending on the basis of the land use rights of the PRL.236 Chinese real estate experts interviewed by Stein described the lending policies of PRC bankers as follows:
[T]he only preconditions of any significance … are imposed to ensure that the project is legally permissible and socially desirable. Banks appear to make the decision to lend based solely on the legality of the project and the government’s wish to see the project proceed and are far less concerned with the financial viability of the completed development….
… The government uses the banking system as an instrument of social policy, subsidizing construction of politically desirable projects even if those projects are not otherwise financially viable.237
This lending rationale is reminiscent of the debate on the adoption of the cost accounting principle of Khozrachet or of Khozrachiot as advocated by the Soviet economist Evsey Liberman and by Marcelo Fernandez, the president of the Cuban central bank during the early 1960s, a principle vehemently opposed by “Che” Guevara, among other radical or utopian socialist leaders.238 At the root of this debate was whether government agencies, including central banks, should function as self sufficient, profit-seeking entities or whether they should disregard self sufficiency or profit considerations as contrary to socialist dogma.
Professor Stein mentions some possible reasons for the “looseness” of Chinese lending and regulatory policies. These ranged from the expectation that the market price of the collateral would inexorably continue to rise with the governmental encouragement of relaxed attitudes toward the economic feasibility of projects to the Guanxi relationships between favorite developers and their silent partner-bankers.239 He also called attention to increasing governmental concerns with the overheating of the real estate market and the catastrophic consequences for Chinese families if the real estate bubble bursts.240 It is difficult to ascertain if the PRC had rejected or disregarded Khozrachet as a cost accounting regulatory policy. If it had, this would explain the reports of numerous insolvencies among state-owned banks and their being allowed to continue to do business despite their de facto insolvency.241
Professor Stein explains the bizarre manner in which a seemingly capitalistically-driven PRC real estate market was financed by first posing the central question: “Where do the banks in a rapidly developing but still poor nation come up with the funds their borrower clients are demanding?”242 His answer was that a major source seemed to be the high rate of savings of China’s 1.4 billion citizens and their limited investment choices. The absence of attractive and safe investments led many to invest in residential real estate and bank accounts, despite the low yield of the latter.243 Some of his interviewees also alluded to the fact that government prints money as needed to keep the construction boom going.244 One of his interviewees, a surprisingly candid government official, provided what sounds to me as the most accurate description of the government’s role in real estate lending:
[T]he primary source of financial support for China’s government, and thus for its lending institutions, is “our ancestors” …. The Chinese government currently owns all the land … aside from land owned by agricultural collectives, and the government retains the power to requisition agricultural land whenever it chooses….
… [It] supports its operations in large part by selling off land use rights in this same land, often to the same types of real estate professionals who were the primary targets of uncompensated nationalization during Mao’s time. There are currently no ad valorem property taxes in China, so … China cannot depend on a steady stream of revenues flowing from a stable real property tax base. China relies instead on income taxes, real property transfer taxes, and, most significantly, proceeds from the sale of long term rights to use the same land that the government requisitioned between 1949 and 1982.245
As concluded by Professor Stein, the Chinese government funds its operations in significant part by selling land to private parties that it previously seized from other private parties.246 This datum explains the negative results of the test of third party rights. For in the final analysis, the uncertain or random enforcement of land use rights was not as important to a highly centralized and non-market-determined policy of land marketability as was the government’s continuous receipts of revenues derived from land transactions. It is true that the relatively free market system that one now observes in China could well bring down the entire “house of land use rights cards.” If individual buyers and lenders are no longer willing or able to buy or lend, or the government is forced to print an exorbitant amount of increasingly valueless money to keep transactions alive, its land rights policy may well fail. Nonetheless, it is worth reiterating that those few who approved the enactment of the PRL were not as keenly interested in having a highly certain and effective law of property rights (despite pronouncement to the contrary) as they were in having a regulatory system that would not interfere with the government’s receipt of massive revenues from a hyper-active real estate marketplace. A similar governmental attitude was observed with regard to a brand new form of secured lending that involved moveable property as collateral and particularly accounts receivable. Much attention was given to attaining a high volume of lending as a means of aiding the development of small and medium-sized industries in the free economic zones.
Chapters 16 and 17 (on mortgages and pledges) of the PRL deal with a form of lending that could help at least in theory to develop internal markets for goods and services; they comprise the law of secured transactions in movable property. Properly drafted and implemented, this law can make it possible to provide credit for micro, small and medium-sized businesses at reasonable rates of interest. Thus, “asset based lending” or secured transactions law has contributed to the reduction of poverty in developing as well as in developed countries.247 And according to the People’s Bank of China (CRC): “One of the constraints to SME [small and medium enterprise] financing in China was the underdeveloped secured transactions system … There used to be a 738law (China Security Law) but it focuses mainly on … immovable collaterals (sic) and does not provide effective secured transactions options for SMEs.”248
The preceding assertion by the CRC does not mention the “Chinese generic mortgage” (Di Ya, 抵押) which as its Roman law ancestor249 encompasses both immovable as well movable property and which does not require a transfer of title or possession to the secured creditor.250 One can only speculate that this mortgage does not have the business importance that the PRL has assigned to its pledge even though in principle, the generic mortgage is, as will be discussed shortly, more adaptable to contemporary asset based lending than is the pledge.
As just noted, Chinese commentators distinguish the Di-Ya regulated by Chapter XVI of the PRL from the common law mortgage in that it does not involve a transfer of title from the mortgagor to the mortgagee and suggest that it is “in substance similar to a common law legal fixed charge, whereby a mortgagor grants a security that attaches to the secured property but does not require [a] transference of title or possession of the asset.”251 They add that “[s]hould the mortgagor default in repayment of the secured sum, the mortgagee is entitled to convert the secured property into money to satisfy the debt. Further, a properly registered mortgage will have priority over any other creditor in the event of the mortgagor’s insolvency.”252 The reason I added this emphasis is because the words in italics are, in my opinion, crucial when understanding the little use of this device in contemporary Chinese asset-based lending. Without a proper registration of these mortgage rights, i.e., one that would provide public, accurate and timely notice of the creation of the security interest in collateral such as a merchant’s equipment, inventory, accounts receivable, proceeds and good will or other forms of intellectual property, this type of generic mortgage is ineffective. For neither its perfection nor its priority vis-à-vis third parties such as other secured and unsecured creditors could be established.
Consider, for example, the economic importance and physical characteristics of the collateral that secures the security interests subject to the generic mortgage in the PRL:
Article 180:
The following property which the creditor or third person is entitled to dispose of may be mortgaged:
….
(iv) Production equipment, raw materials, semi-finished products and finished products;
(vi) Means of transportation;
(vii) Other property that may be mortgaged according to law and administrative rules.
Article 181:
Enterprises, small business of industry and commerce and rural contractors may mortgage their existing and future production equipment, raw materials, semi-finished products and finished products according to the agreement between the parties, if the debtor defaults, the creditor shall have priority in satisfying his claim from such property.253
With some exceptions such as selected production equipment and means of transportation under Article 180 (iv) and (vi), the other assets listed in Articles 180 and 181 are not susceptible to easy identification either by serial number or plaques or by their individual dimensions (as is the case with the identification of real property). Thus, the registry that best responds to the need to identify collateral such as generic goods (including equipment, inventory accounts receivable, proceeds as well as raw materials) is not a registry of ever changing or interchangeable things but of debtors. Further, it must be a registry quick and responsive enough to provide notice of the existence of the security interest or lien to a vast number of actual or likely third parties. It cannot wait for a registrar to inspect the collateral to ascertain that it is as described in a highly detailed loan or security agreement. It is mostly and essentially a provider of notice of the perfection and priority of the filed security interest in goods generically described, not a grantor of title to the collateral. For much of the asset-based lending collateral can be subject to competing ownership and possessory rights, and as with raw materials, inventory, accounts and proceeds, that collateral is continuously changing. As I will discuss shortly, during my 2007 visit to the PRC I did not encounter one such a functional registry either in Beijing or Shanghai.
Article 2 of the PRL defines “property rights” as “the exclusive right enjoyed by the obligee to directly control specific properties including ownership, usufructuary and security right in property rights.”254 Conceptually, then, it locates a creditor’s “security right” within the family of “property rights.” Such a characterization would be workable provided that one need not be the owner of the property to be able to create a “security right,”
Article 40 however, makes it clear that: The owner shall have the right to establish usufructuary and security right in property rights with regard to its real or movable property. The obligee of the usufructuary and security right shall not do harm to the rights and interests of the owner while exercising their own rights.255
This provision is incompatible with contemporary security interests because, as just noted, they do not require that the obligor-debtor be the owner or even to hold title to the collateral to be able to create an enforceable security interest in it.256 For at the 740root, the security rights that the PRL wanted to define are not propriety but possessory in nature, as we discussed earlier with respect to “rights in the property of others” (the iura in re aliena of Roman law). The last sentence of Article 40 is similarly troubling. Assume, for example, that the obligor in a security right transaction is farmer “F” who relies on the crops he has grown in land he has rented but whose ownership belongs to the PRC or to a collective farm “CF”. If farmer F cannot repay the loan to Bank “A” this provision subordinates A’s repossession or foreclosure on F’s crops, unless the PRC or CF authorize it.
Professor Ronald C.C. Cuming of the University of Saskatchewan and one of the world’s experts on secured transactions law noted additional concerns in a recent communication to this writer.257 Of these concerns, I have selected a few to illustrate the magnitude of the law and practice reform task that awaits Chinese and foreign secured transactions experts: (1) The failure of the PRL security right to follow the principle of its “conceptual unity.” Under pre-existing as well as under the PRL, security rights can only be acquired on the basis of two statutory categories: The generic (real property and chattel) mortgage and the pledge. Other security agreements such as found in financial leases and title retention or conditional sale agreements are not included and are left to be governed by the Contract Law.258 (2) The secured rights of the PRL do not extend to proceeds or to those assets received by the debtor as a consequence of the sale or exchange of collateral.259 As should be readily apparent, the right to proceeds is crucial in both inventory and accounts receivable financing. (3) The PRL does not properly distinguish between the creation or “attachment” of the security interest (which takes place between the secured lender and his debtor and without the need of a filing) and the perfection and priority of the secured right, which requires filing or possession of the collateral by the secured creditor. As noted by Professor Cuming, the term “effectiveness” as applied to the generic mortgage was used in a manner interchangeable with the validity of the transaction between the lender and borrower.260 (4) The PRL had no rules that validate the very important Purchase Money Security Interest, a security interest which “gives a special first priority to a secured creditor who provides the money to buy tangible collateral”261
Article 208 of the PRL states in relevant part that:
The debtor or a third party transfers the possession of his movables to the creditor as a security for debt. If the debtor defaults, the creditor shall be 741entitled to enjoy priority of having his claim satisfied with the proceeds of auction or sale of the pledged property …”262
This traditional version of the pledge or “pledge with the debtor’s dispossession of the collateral” (also known as the “pawn shop pledge”) deprives the debtor of the ability to repay his loan by using the pledged property as a “self liquidating” tool or asset that will generate the proceeds with which to repay the loan. Self liquidation, then, makes it necessary for the borrower to remain in possession of the assets acquired through the secured loan until he or she can produce, transform, sell or exchange them and convert them into the accounts and proceeds with which to repay the lender.
In addition, Article 211 of the PRL prohibits clauses that are reminiscent of the Pactum Commissorium of Pre-Constantine Roman Law. This Pactum was a widely-used clause in Roman secured loans which enabled the secured creditor to repossess and appropriate or resell the goods in the possession of their debtor in an extrajudicial manner if the latter failed to repay the loan or otherwise breached is obligations under the pledge agreement. Article 211 prevents the use of this clause when it states: “A pledgor and a pledgee may not stipulate in the contract that ownership of the pledged property shall be transferred to the pledgee if the obligation is not discharged at its maturity.”263
As I have discussed elsewhere, this prohibition has done much harm to the modernization of the law of secured transactions in many a civil law jurisdiction.264 It renders the creditor powerless to bring about a quick, inexpensive and effective liquidation of the secured debt by forcing him to go to court and attempt to recover goods many of which may have lost their value by the time he finally recovers them.
It is true that Article 230 of the PRL provides that when a debtor defaults, the creditor shall be entitled “to retain the property under legal possession and to the priority of having the debt paid with the money converted from the property or proceeds from sale or auction of the property….”265 Yet, the remedy of creditor retention presupposes that the secured creditor is already in possession of the collateral as required by Articles 208 and 212. It is thus inconsistent with self liquidation. It is also true that Article 232 allows the parties to agree that the collateral “shall not be retained” by the creditor,266 but such a statement falls considerably short of allowing the secured debtor to transform, manufacture, sell or exchange the raw materials, inventory or other assets acquired with the secured creditors loan and then with the proceeds of the sale or exchange repay him.
As a result of the failure to enable the creditor’s quick liquidation of the assets whose acquisition, manufacture or transformation he enabled, the PRL renders a loan secured by personal property collateral, especially in corporeal or tangible goods, highly uncertain. Further, 0 one gets the impression that the legislator wanted to link the secured creditor’s priorities and remedies not to what was recorded in a secured transactions registry (including his recording of an earlier priority right) but upon the 742date of an unrecorded right of retention, even if that date was later than the date of the filing of a perfected security interest. Consider, for example, the following priority rule:
Article 239: Where the movable property that [had] … already been mortgaged or pledged are retained at a later time, the lien holder shall enjoy the priority of having the debt paid with the money converted from the property or proceeds from sale or auction of the property.267
In other words, secured creditor “One” obtained a generic mortgage without the debtor “D’s” dispossession of equipment “X” and filed his security interest in X in the appropriate secured transactions registry on April 1, 2013. On May 1, 20132, D, while in possession of X conveyed it to secured creditor “Two” who took possession of X and retained it as its pledgee until he sold it and paid himself the unpaid amount of his loan to D, even though his loan and security interest were created and perfected at a later time than that of secured creditor One. Creditor One’s registered rights were subordinated to the possession subsequently acquired by Two, thus rendering registration meaningless. Predictably, not much secured lending based upon the priority rules of generic mortgages and pledges in tangible goods can beexpected unless the system of priorities is worked out in a fair and cost effective manner.
Accounts receivable are intangible goods even if embodied in bills or invoices. What is being used as collateral is the right to collect on records or documents that indicate that amounts they refer to have been earned by the contractual performances of those who assign or sell the accounts to third parties acting as lenders or purchasers and generically designated as assignees. In October of 2010, Chinese secured transactions registry officials reported that over 250,000 security interests involving accounts receivable as collateral had been filed since 2007 in the single national registry and 15,000 of these securities were filed during the preceding fifteen months.268 As appraised by a World Bank-IFC observer, while the number of filings was not very high in comparison to those of developed markets, their cumulative value was quite large. In Jinchang Lai’s words, this enactment “[f]undamentally changed the structure of China’s credit market: a new industry developed; and the share of moveables-based loans is now believed to be around 30%” of the total commercial loans.269
These are impressive accomplishments. The question remains, however, whether the PRL and the registry of secured transactions will be a sufficiently supportive legal platform for future financing by lenders other than official banks or whether uncertainties similar to those observed with the land use rights and generic mortgages will plague this promising normative and transactional turn in the commercial and consumer credit life of the PRC.
Article 228 of the PRL, one of its key provisions on account receivable lending, states in relevant part:
Where the right of collecting receivables is pledged, the pledgor and the pledgee shall conclude a contract in writing and the right of pledge shall become effective upon registration with the competent authority.
The right of receivables collection, once it is pledged, shall not be transferred unless otherwise agreed by the pledgee and the pledgor. The proceeds from the transfer of the right shall be used to pay in advance the pledgee’s claims secured or be deposited with a third party.270
The first paragraph of Article 228 contains a rule that is at odds with that of model secured transaction laws and their statutory progeny such as, for example, that of the Organization of American States Article 5: “A security interest is created by contract between the secured debtor and secured creditor.” In addition, Professor Cuming points out that there are no priority rules applicable to the pledge of accounts receivable that would replicate those in Article 189 for generic mortgages. He suggests that “the principles of applicable to mortgages of tangible property, with appropriate modifications” should also apply to pledges.271 This would require that: a) a pledge of accounts be valid between the creditor and debtor without registration; b) pledges of existing and future accounts of the debtor be also valid; c) the pledges could secure all the amounts of debt agreed to by the parties while the pledge agreement is valid; d) the priority of the security rights be based on the date of their registration; e) and, a security agreement providing for a mortgage on tangible property could also include a pledge of the debtor’s accounts.272 I would add that consistent with the absence of a right to proceeds in the PRL’s security rights, it would be necessary to clarify that the rights in the accounts also carry-over to the traceable proceeds; thus, a filing as to “accounts” automatically would extend to proceeds.
During my 2007 visits to movable security registries in Beijing and Shanghai, I did not find a unified or networked registry system. A considerable overlap of what was to be filed the three different registries I visited. When I inquired about the law that governed the registration of mortgages and pledges I was referred to the PRC Security Law of 1995.273 A not very reliable English translation of this law by a local firm indicated that, as also required by the PRL, that mortgages and pledges in real and tangible personal property required a filing for the security interests to be valid both inter partes and erga omnes. When I inquired whether this was the result of importing the German Grunbuch model of registry to China, one of the registrars who had been a graduate student in Germany said that this was the case.
Be that as it may. It also appeared from the private English translation that three different and overlapping registries existed: Supposedly, the main registry was housed with the “Administration of Industry and Commerce,” but the directive in the Security 744Law was vague enough to allow “other laws” to dictate registration with other registries.274 Another registry I visited was the office of a Notary Public, who explained that his registry was for security rights granted by private persons “and owners of the real or movable property mortgaged or pledged.” The third category was of registries of collateral based registries, such as for automobiles. Nonetheless during my visit it appeared that registry included all types of “vehicles” such as tractors and mining trucks (generally considered as equipment by registries in the United States and in Latin America). I was also told that security rights in the same “vehicles” were being registered in the Administration of Industry and Commerce as well as in notarial offices.
Needless to say, that such an unpredictable administrative jurisdiction only leads to conflicting claims to the perfection and priority of security rights. As if this overlapping were little, Professor Cuming also informed me of the creation of a Registry for Financial Leases with the “Credit Reference Centre of the People’s Bank of China”275
Article 3 of the PRC Constitution makes it clear that “All administrative, judicial, and procuratorial organs of the state are created by the people’s congresses to which they are responsible and under whose supervision they operate.”276 Consequently, the SPC is not an independent entity. It is supervised by the NPC and the NPC is, in turn, controlled by the Chinese Communist Party.277 Nonetheless the SPC has for some time been empowered to fill statutory gaps and harmonize the often competing statutory, administrative and judicial rules.
This gap filling role has been enhanced during the last decade by its issuance of quasi-statutory directives on land rights such as the “Interpretation of the Supreme People’s Court about the Issue Concerning the Laws Applicable to the Trial of Cases of Disputes Over Rural Land Contracting” in 2005 [hereinafter 2005 Directive] and the “Issues Regarding the Adjudication of Administrative Cases Involving Rural Collectively Owned Land” in 2011 [hereinafter 2011 Directive].278 These directives are published as “official judicial opinions” (Yi Jian), “explanations” (Jie Da), or commentaries (Jie Shi).279 When necessary, they widen the scope of existing provisions or clarify their reach and occasionally create a new rule. 280Article 12 of the 2011 Directive provides such a clarification. The Property Rights Law of 2007 (PRL) recognized the need for compensation for the taking of personal as well as real property by the state. However, since constitutionally land is owned by the state, the compensation for fixtures taken in conjunction with expropriated land was uncertain 745and in practice became discretionary. Article Twelve eliminated the administrative discretion and instructed governmental officials to compensate those who had lost personal property attached to the taken land.281
Other clarifications were needed by the multiplicity of possible jurisdictions and venues, and their different rules on, among other issues, standing to appear in court or before an administrative entity. Accordingly Article 1 of the 2005 Directive defines who has standing to sue the village or other governmental decision-makers on issues related to the terms and conditions of the contracts of land-use or management, or on the transfer and inheritance of rights under these contracts.282
Susan Finder, one of the most respected observers of the SPC during the last two decades, points out that these SPC directives can be considered as “one of the distinctive ways in which the Court makes law [in China].”283 To a distant observer, the above-mentioned directives appear to be distinctive, but are they a preferred way to make law in an invertebrate legal system?
Please note that the drafting style of the above directives is similar to that of statutory rules in their generality and factual opaqueness.284 Also note that the legitimacy of the Directive’s rules is not based on their reasonableness and fairness but on the SPC’s exercise of a power vested upon it by the NPC and the Communist Party. Finally, note that the directives’ rules are not supported normatively or conceptually by earlier decisions of the SPC or of other influential courts which carefully weighed relevant facts and law and could qualify as precedents.
Mind you, the use of courts as political mouthpieces for political superiors is not a problem unique to the PRC, the same problem is found in many developing nations whose courts lack a tradition of independent judiciousness. This problem is exacerbated when courts are tasked with making a law, and especially a commercial law, that is responsive to the needs of their marketplace and in a manner that only good courts can, i.e., by filling the gaps between the generality of statutory rules and the specificity of the facts in the case or controversy before them.
As apparent in the proceedings of a 2010 Mexican “Commercial-Judicial Workshop,”285 the gap between the general and the specific, between a sound commercial law and policy and the facts of commercial case can only be filled by judges capable and willing to make “individual norms.” These are rules that stem from the facts and issues of the case before them and whose reasoning finds support in broader, universal principles of commercial reasonableness and fairness that make them 746applicable to analogous factual situations. As will be discussed in infra Chapters 23 and 243 infra, these principles are often found in standard and best commercial practices which interpret the parties’ intent in accordance with the parties’ courses of dealing and the usages of their respective trades.
Interestingly, at the same time the some of the SPC justices were drafting the land rights directives, in 1999 others started drafting a set of Letter of Credit “Judicial Interpretations.” The mission of these interpretations was to make the PRC law on suspensions of letter of credit payments (prompted by allegations of fraud made by Chinese importers of foreign goods) a reasonable, fair and predictable set of rules.
In his recent monograph, “The Law of Letters of Credit in China”286 Jin Saibo, the PRC’s most knowledgeable and respected letter of credit practitioner-scholar, chronicled the decade of research and drafting of these interpretations and described the main problem they faced as follows:
In the years between 1994 and 1997, Chinese courts ordered in many cases to suspend LC payments based on unjustified requests by the parties on the grounds unrelated to the LC transactions, which in turn materially affected the international reputation of Chinese issuing banks.287
He summarized the work of the PRC’s Judicial Interpretations, whose immediate audience is comprised by the PRC’s lower court judges as:
[T]he LC Judicial Interpretations include a number of provisions containing tests for LC fraud and fraud exceptions, as well as some procedural issues such as [the standing of] third parties … procedures of rulings and review, and the standard of proof and onus probandi. The LC Judicial Interpretations have made detailed rules on these matters, some of which can be regarded as breakthroughs…. [T]he requirements for suspension of payments under an LC are clearly defined, and the threshold for suspension of payment is also clearly defined, which will have the effect of curbing the abuses of discretion by Chinese courts as they did during 1994 and 1995.288
I believe that what was accomplished by the LC Judicial Interpretations, modest as it may appear at first sight (especially when compared with the erga omnes legislative powers given to the drafters of the Land Use directives) is precisely what is needed to provide a healthy start to the process of judicial vertebration. It does this by letting the SPC and the lower courts do what they are supposed to do best-establish the facts of the judicial problem facing them as lower court judges about to decide the individual case or the SPC in fashioning a decisional policy for the entire set of courts. And once the facts are established, it encourages them to engage in a comparative and sectoral analysis directed to choose the best law and the most widely observed standard and best practices. And once the drafters made their choice publish it and make the reasons for the new rules transparent and accessible to future litigants near and far, as Jin Saibo just did with his fine monograph.
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1 See infra § 19:3(B)(2)(c) (on studies by Professor Gregory Stein of the Univ. of Tennessee School of Law).
2 See supra § 12:2(B) (discussing the principles of a commercial society and especially in 19th and early twentieth century German Law); see also Kozolchyk, Roadmap, at 9–23.
3 Patrick E. Tyler, Deng Xiaoping: A Political Wizard Who Put China on the Capitalist Road, N.Y. Times (Feb. 20, 1997), http://www.nytimes.com/learning/general/onthisday/bday/0822.html.
4 Id.
5 Id.
6 Id.
7 Id.
8 Id.
9 John Gittings, The Changing Face of China: From Mao to Market 253 (2006).
10 Stanley B. Lubman, Bird in a Cage: Legal Reform in China After Mao 102–37 (1999).
11 Id. at 103.
12 Id.
13 Id.
14 Id. (emphasis added) (citation omitted).
15 Id. (citation omitted).
16 Id.
17 Id.
18 Susan H. Whiting, Presentation at the Fairbank Center, Harvard University Chinese Justice Workshop: Public Finance and Land Disputes in Rural China (Oct. 12–13, 2007) [hereinafter Whiting, Public Finance]; Susan H. Whiting, Presentation at the Yale University Rule of Law Workshop: How Fiscal Pressures Drive Land Disputes and Shape Dispute Resolution Mechanisms in Rural and Peri-Rural China (Apr. 24–25, 2009) (transcript available at http://www.yale.edu/macmillan/ruleoflaw/papers/Whiting_Yale_workshop_041609.pdf) [hereinafter Whiting, Fiscal Pressures]; Susan H. Whiting, World Bank, Growth, Governance, and Institutions: The Internal Institutions of the Party-State in China 12, 13, Produced for the World Bank Research Project on the Rise of China and India (Governance) (rev. draft July 28, 2006) [hereinafter Whiting, Growth, Governance].
19 Id. at 12–13.
20 Id. at 13.
21 Id. at 12.
22 Whiting, Fiscal Pressures, supra note 18, at 5.
23 Whiting, Public Finance, supra note 18, at 5.
24 Whiting, Growth, Governance, supra note 18, at 14.
25 Id.
26 Lubman, supra note 10, at 117 (citation omitted).
27 Id. at 117 (citation omitted).
28 Id. (citation omitted).
29 Mitzi Huang, Seeds of Legal Discontent, The Luoyang Seed Law Case: A Case Study of the Rule of Law in China, 3 Dartmouth C. Undergraduate J.L. 32 (2005).
30 PRC, Const. § 1, art. 2 (1982). This is meant to support the concept that all power in the People’s Republic of China belongs to the people. The constitution states:
The National People’s Congress and the local people’s congresses at various levels are the organs through which the people exercise state power.
The people administer State affairs and manage economic and cultural undertakings and social affairs through various channels and in various ways in accordance with the provisions of law.
Id. The Chinese government reiterated this point by promoting: “[A]ll power in the People’s Republic of China belongs to the people, and the organs through which the people exercise state power are the National People’s Congress and the local people’s congresses at different levels …” National People’s Congress: Organizational System, China.org.cn, http://www.china.org.cn/english/27743.htm (last visited Sept. 16, 2013) [hereinafter NPC, Organizational System].
31 PRC, Const. § 1, ch. 3, art. 62 (1982), available at http://www.npc.gov.cn/englishnpc/Constitution/node_2830.htm.
32 NPC, Organizational System, supra note 30, at 3 (NPC Standing Committee (1–3)).
33 China’s Political System: II The System of People China, China.org.cn, http://www.china.org.cn/english/Political/26144.htm (last visited Sept. 16, 2013).
34 Id.
35 Huang, supra note 29, at 32 (citing art. 100 of the 1982 Constitution). Huang notes that the adoption of local regulation is by LPC’s that are “at and above the county level.” Id. at 33.
36 Id. at 32. To the conflicting sources in the principal text she adds:
[O]ther organs of the state also have the authority to legislate. [For example] The State Council, [a rough equivalent of a presidential cabinet of ministers, is considered] the highest executive body, has the power ‘to adopt administrative measures’ and to ‘enact administrative rules and regulations.’ [Similarly] [c]entral-level ministries, commissions, agencies and entities (such as … the People’s Bank of China) directly under the State Council also retain the authority to create legislation…. [At the local level, the] local people’s governments can issue administrative rules.
Id. (citations omitted).
37 PRC Const. ch. 3 § 7, art. 127 (1982).
38 See Huang, supra note 29, at 33.
39 Id.
40 Id.
41 See David Hechler, Lost in Translation, Colum. L. Sch. Mag. (2009), http://www.law.columbia.edu/magazine/162122/lost-in-translation (emphasis added).
42 Whiting, Public Finance, supra note 18, at 2.
43 See Huang, supra note 29, at 33–34 (for the facts and reasoning of this case).
44 Id. at 33.
45 Id.
46 See, e.g., U.S. Const. art. VI, available at http://www.archives.gov/exhibits/charters/constitution_transcript.html. In relevant part it states:
This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.
Id. See also Mex. Const. art. 133 (1917).
47 Huang, supra note 29, at 33.
48 Id.
49 Id.
50 PRC Const. (1982).
51 Lehman et al., Property Rights Law of the People’s Republic of China, National People’s Congress (2007), http://www.lehmanlaw.com/fileadmin/lehmanlaw_com/laws___regulations/Propoerty_Rights_Law_of_the_PRC__LLX__03162007.pdf. This is the translation of the PRL that I will primarily use unless otherwise indicated. I will often contrast this translation with: John Jiang, The Real Rights Law of the People’s Republic of China (Part I) (2007), (on file with author). I have also compared the preceding translations against doctrinal summaries of the PRL and practice commentaries, in Walter Lee, China Real Estate Law: Part 1: Land use right, Knol.Google.com, http://knol.google.com/k/china-real-estate-law-part-1-land-use-right (on file with author) [hereinafter Lee, Part 1]; and Walter Lee, China Real Estate Law: Part 2: Property development, Knol.Google.com, http://knol.google.com/k/china-real-estate-law-part-2-property-development (on file with author). See also Feng Wenli, China Land Surveying and Planning Institute, Presentation in Valencia, Spain: Systems of Land Survey and Registration in China (May 21, 2008) (slides on file with author). Mr. Wenli is employed by China Land Surveying and Planning Institute, Ministry of Land and Resources, which brings his version of the selected provisions to an official version of their meaning. Other doctrinal sources that I have used in an attempt to establish the most reliable meaning of the provisions selected for discussion are: Gregory Stein, Mortgage Law in China: Comparing Theory & Practice, 72 Mo. L. Rev. 1315 (2007); and Zhu Keliang & Roy Prosterman, Securing Land Rights for Chinese Farmers: A Leap Forward for Stability and Growth, CATO Development Policy Analysis (Series No. 3, Oct. 15, 2007), available at http://object.cato.org/sites/cato.org/files/pubs/pdf/DPA3.pdf. Among the many other shorter comments, I have found the comments posted by the law firm of Morrison and Foerster, useful. Morrison & Foerster, China Update, China’s New Property Rights Law (May 31, 2007), http://www.mofo.com/china-update-chinese-real-estate-05–31–2007/. See also Valerie Marechal et al., China’s new Property Rights Law—an important step towards improving access to credit for small and medium enterprises, http://www.doingbusiness.org/~/media/fpdkm/doing%20business/documents/reforms/case-studies/2009/db09-cs-china.pdf.
52 Stein, supra note 53, at 1315 n.2 (on the Land Administration Law [Tudi guanli fa]).
53 Id. at 1316 n.6.
54 Law of the People’s Republic of China on Land Contract in Rural Areas No. 73 (promulgated by order of the President, Aug. 29, 2002, effective Mar. 1, 2003), available at http://www.gov.cn/english/laws/2005–10/09/content_75300.htm.
55 See General Principles of the Civil Law of the People’s Republic of China, The Supreme People’s Court of the People’s Republic of China (June 3, 2003), http://en.chinacourt.org/public/detail.php?id=2696. See also Lee, Part 1, supra note 51, art. 2 (emphasis added). See also Contract Law of the People’s Republic of China (promulgated by the National People’s Congress, Mar. 15, 1999) (trans. by John Jiang & Henry Liu) (on file with author). See Land Administration Law of the People’s Republic of China Chinadaily.com.cn (May 8, 2006), http://www.chinadaily.com.cn/bizchina/2006–05/08/content_584128.htm.
56 PRC Const. ch. 1, art. 10 (1982).
57 Guoqiang Tian, Property Rights and the Nature of Chinese Collective Enterprises, 28 J. Comp.Econ. 247, 248 (2000).
58 Catherine Jiang, Supreme People’s Court Directives for Disputes over Land-use in Rural China 1–2 n.3 (2013) (unpublished substantial paper) (on file with author).
59 Tian, supra note 59, at 248.
60 PRC Const. ch. 1, art. 12 (1982).
61 See supra § 15:1(B).
62 PRC Const. ch. 1, art. 13 (1982).
63 PRC Const. ch. 1, art. 10 (amended 1988), available at http://www.npc.gov.cn/englishnpc/Constitution/node_2829.htm (emphasis added).
64 USSR Const. ch. 1, art. 5 (1936). It states: “Socialist property in the U.S.S.R. exists either in the form of state property (the possession of the whole people), or in the form of cooperative and collective-farm property (property of a collective farm or property of a cooperative association).” Id. See also id. ch. 1 art. 6. It states:
The land, its natural deposits, waters, forests, mills, factories, mines, rail, water and air transport, banks, post, telegraph and telephones, large state-organized agricultural enterprises (state farms, machine and tractor stations and the like) as well as municipal enterprises and the bulk of the dwelling houses in the cities and industrial localities, are state property, that is, belong to the whole people.
Id.
65 PRC Const. ch. 1 art. 13 (amended 2004), available at http://www.gov.cn/english/2005–08/05/content_20813.htm.
66 Li Wuzhou, People-Oriented Constitutional Amendments, 5 China Today 10, 12 (2004).
67 Id.
68 Id.
69 Keliang & Prosterman, supra note 51, at 1.
70 Id. They add:
Both Chinese and foreign observers have noted an increase in incidents of rural unrest, including violent confrontations between local governments and farmers. In the first nine months of 2006, China reported a total of 17,900 cases of “massive rural incidents” …. Approximately 80 percent of these incidents were related to illegal land-takings.
Id. at 3 (citation omitted).
71 Minxin Pei, China’s Trapped Transition: The Limits of Developmental Autocracy 60 (2006).
72 Jiang, supra note 51, at 5 (emphasis added).
73 Id. at 8 (emphasis added).
74 Id. art. 58 (emphasis added).
75 Typically, there are other statutes, regulations, ordinances, decrees and judicial interpretations that help decide what the words of high-level laws like those from the PRL mean. While they are sometimes also vague or too general, some are very detailed. See Memorandum from Chinese Attorney (Apr. 10, 2011) (on file with author).
76 PRC, Const. ch. 1, art. 10 (1982). See Lee, Part 1, supra note 51, arts. 45–65 (explaining the statutory implementation of this constitutional provision).
77 See China’s Constitutional Framework art. 2, Congressional-Executive Commission on China, http://www.cecc.gov/resources/legal-provisions/chinas-constitutional-framework (last visited Nov. 11, 2013) (on file with author).
78 Berger, Encyclopedic Dictionary, at 755. It states:
Ususfructus. [hereinafter usufruct] [entails] The right to use … another’s property and to take produce (fructus) there-from … without impairing (i.e., destroying, diminishing, or deteriorating) its substance … As a strictly personal right the ususfructus is neither transferable nor alienable.
Id.
79 Id.
80 Id.
81 Lee, Part 1, supra note 51, art. 2 (emphasis added).
82 Land Administration Law in English art. 8 (adopted on June 15, 1986, amended Dec. 29, 1988 & Aug. 29, 1998), available at sohu.com/2004/07/04/80/article220848071.shtml.
83 Id. art. 9.
84 Id. art. 11.
85 Id.
86 Id.
87 Id. art. 12
88 Id. art. 14.
89 Provisional Regulations of the People’s Republic of China Concerning the Grant and Assignment of the Right to Use State Land in Urban Areas, art. 12 (promulgated on May 24, 1990 by the State Council).
90 See Stein, supra note 51, at 1320 n.19 (discussing art. 2 of the Land Administration Law); Lee, Part 1, supra note 51, art. 73; and Wenli, supra note 51, at slide 37.
91 See Lee, Part 1, supra note 51, art. 54 & Walter Lee, China Real Estate Law: Part 4: Urban Real Property Administration Law art. 24 (Dec. 31, 2009), http://prclandlaw.wordpress.com/article/china-real-estate-law-part-4-urban-real-zheu88eb3a1l-9/[hereinafter Lee, Part 4].
92 Id. art. 76.
93 See Berger, Encyclopedic Dictionary, at 522.
94 See Jiang, supra note 51, art. 117.
95 See supra § 18:1(A).
96 See supra § 18:1(D).
97 See Glossary, “Doctrine of the Estates.”
98 Berger, Encyclopedic Dictionary, at 755 (on usufruct).
99 Lehman et al., supra note 51, ch. 1 art. 118.
100 Id. ch. 1 art. 42. It states in relevant part:
For the purpose of public interest, the collectively-owned land, houses and other real property owned by institutes or individuals may be expropriated in line with the procedure and within the authority provided by laws.
For expropriation of collectively-owned land, such fees shall be paid as compensations for the land expropriated, subsidies for resettlement, compensations for the fixtures and the young crops on land, and the premiums for social security of the farmers whose land is expropriated shall be allocated in full, in order to guarantee their normal lives and safeguard their lawful rights and interests.
Where houses and other real properties of institutes and individuals are expropriated, compensations for demolition and resettlement shall be paid according to law in order to maintain the legal rights and interests of the expropriated; where individual residential house is expropriated, the residential conditions of the expropriated shall be guaranteed.
Id.
101 See Whiting, Fiscal Pressures, supra note 18, at 5.
102 See supra § 17:5(H).
103 Lehman et al., supra note 51, ch. IX art. 116 (emphasis added). This author has made some syntactical corrections to the Lehman translation to facilitate its reading but has tried to preserve the meaning of the translation.
104 Gregory M. Stein, Acquiring Land Use Rights in Today’s China: A Snapshot from on the Ground, 24 UCLA Pac. Basin L.J. 1, 42–43 (2006). Although some of the real estate experts interviewed by Stein referred to practices that circumvent this full payment requirement.
105 Id. at n.114. Although, Professor Stein qualifies this statement by saying that he learned of a recent practice that allows periodic payments.
106 Id. at 43.
107 See Lehman et al., supra note 51, ch. IV arts. 42 & 44, & ch. X art. 121.
108 Id. ch. IV art. 42.
109 See Glossary, “Third Parties.”
110 See supra § 19:3(A)(4).
111 Alejandro Garro, Recordation of Interests in Land, in 6 Int’l Encyclopedia of Comp. L. § 8–165 (Athanassios N. Yiannopoulos, ed., 2004).
112 Jiang, supra note 51, at 13.
113 I am indebted to a practicing and experienced Chinese attorney who preferred to be nameless for many of the real estate practice materials discussed in this section. Memorandum, Chinese Attorney 2 (Mar. 11, 2011) (on file with author) [hereinafter Chinese Attorney 2].
114 Lehman et al., supra note 51, ch. XI art. 137. This section is part of the longer description of residential housing, taken from Chinese Attorney 2, supra note 113.
115 Id. at 2.
116 Lehman et al., supra note 51, ch. XI art. 149.
117 See Chinese Attorney 2, supra note 113, at 3. The list of required documents to be submitted is lengthy. Along with the Land Use Rights Certificate and Developer’s License, discussed above, developers must also submit an application form, a business license, a construction project planning license, a project construction license, evidence that the fund invested in the development of the project has exceeded twenty-five percent of the total estimated investment, copies of the project construction contact and specficiation of the construction timetable, and a presale plan, which should include information on location, size, delivery date and plan drawings of the houses involved in the presale.
118 Id. at 6.
119 Id. See also infra § 19:4(F).
120 See Lehman et al., supra note 51, ch. II art. 14.
121 See Supreme People’s Court, Several Issues Concerning the Application of Law to Trial of Disputes over Commodity Premises Sales and Purchase Contracts Interpretation, China Law and Practice art. 2 (June 2003), http://www.chinalawandpractice.com/Article/1693138/Channel/9930/Supreme-Peoples-Court-Several-Issues-Concerning-the-Application-of-Law-to-Trial-of-Disputes-over.html.
122 See infra § 19:3(C).
123 As with other administrative procedures, the completion of the recording of the transfer of title to the use of the house requires the submission of a number of documents.
124 But c.f., Mattias Burell, China’s Housing Provident Fund: Its Success and Limitations, Housing Fin. Int’l (Mar. 2006) (arguing that the main tool to enhance the affordability of housing in China continues to be the Housing Provident Fund. However, the author concluded that a serious gap exists between borrowers’ earnings and the money needed to buy a housing unit).
125 Xinhua, Beijing tightens restrictions on home purchase, China.org.cn (Feb. 17, 2011), http://www.china.org.cn/business/2011–02/17/content_21937249.htm.
126 Id.
127 Id.
128 Id.
129 Id.
130 Id.
131 See generally Kozolchyk & Furnish, A Comparative Analysis.
132 Dexter Roberts, China May Finally Let Its People Move More Freely, Bloomberg Businessweek (Mar. 15, 2012). I am indebted to my colleague Dr. Marek Dubovec for bringing this important report to my attention.
133 Id.
134 Id.
135 Id.
136 Id.
137 Id.
138 Id.
139 Lehman et al., supra note 51, ch. V art. 45.
140 Id. art. 59. See also Wenli, supra note 51, at slide 32.
141 Lehman et al., supra note 51, ch. V. art. 58(i)–(iii).
142 Id. art. 59 (i)–(v).
143 Whiting, Fiscal Pressures, supra note 18, at 6.
144 Id. at 7. Professor Whiting also notes that, “Article 60 indicates that the collective exercises ownership rights on behalf of the members and that the members may sue the collective if their rights are violated.” Id.
145 Id.
146 Id.
147 Id.
148 Patrick A. Randolph Jr. & Lou Jianbo, Chinese Real Estate Law (2000), cited in Gregory M. Stein, Mortgage Law in China: Comparing Theory and Practice 72 Mo. L. Rev. 1315, 1326 n.37 (2007).
149 Chinese Attorney 1, supra note 75.
150 Whiting, Fiscal Pressures, supra note 18, at 10 n.41.
151 Id. at 10.
152 Id. at 13.
153 This has been undergoing a change recently. The social security program theoretically covers all Chinese people. See Chinese Attorney 1, supra note 75.
154 See supra § 19:3(B)(2)(c).
155 Lehman et al., supra note 51, ch. IX art. 116. I have made some syntactical corrections to the Lehman translation to facilitate its reading but have tried to preserve the meaning of the translation.
156 This was an ongoing dispute in a parcel of land in the outskirts of Guilin a city in the authonomous region of Guangxi when we visited it in 2007. The facts were provided to me by one of the participants and they were translated by our tourist guide.
157 PRC, Const. ch. 1, art. 10 (1982), see also supra § 19:3(B)(3) (on rights to the use of the land).
158 Jinchang Lai, Sr. Operations Officer, Int’l Finance Corp., Presentation at the FinNet 2010 Practice Group Meeting: Secured Transactions Reform in China: Lessons and Experience (Oct. 19, 2010) (slides on file with author).
159 See Glossary, “Cadastral Survey.”
160 See Garro, supra note 114, at 24 § 8–32 (describing the German “cadastral” system of land registry, one of the most influential models of such registries. This is by far the clearest, concise and yet complete comparative treatment of the recordation of interests in land).
161 Morrison & Foerster LLP, China Update, May 2007: Chinese Real Estate 2 (May 31, 2007), http://www.mofo.com/china-update-chinese-real-estate-05–31–2007/.
162 Id. One Chinese attorney noted that, at least recently in Shanghai, a natural person could check the basic file of a real estate by simply showing his or her identification card. For more detailed information, one need to show his or her lawyer license or court order. See Chinese Attorney 1, supra note 75.
163 See generally Garro, supra note 114, §§ 8–29–34 at 21–26.
164 Wenli, supra note 51, at slide 45. The references to the Torrens system will be, except as otherwise noted to the one adopted in South Australia in 1858 and to the version of the BGB as adopted in Germany in 1900. See also Garro, supra note 111. I suggest this reading to those interested in an in depth comparison of contemporary land registration systems. Professor Garro’s scholarship is characterized, by unusual thoroughness, clarity and precision.
165 See Torrens Title System, Encyclopedia.com, http://www.encyclopedia.com/doc/1G2–3437704404.html (2005) (providing a summary description of this system). See Garro, supra note 114, at 42–48 (discussing this system thoroughly).
166 Torrens Title System, supra note 165.
167 Garro, supra note 160, §§ 8–48–53.
168 Torrens Title System, supra note 165. See supra § 19:3(B)(4) (on the uncertain recording of the rights of “other holders” in the PRL). See also Garro, supra note 114, § 8–49.
169 Torrens Title System, supra note 165.
170 Id.
171 Garro, supra note 114, § 8–49 n.213 (citation omitted).
172 See Garro, supra note 114, §§ 8–59–8–60; see also Kozolchyk, Mexican Land Registry, at 314–15.
173 See Jiang, supra note 51, at 5. Art. 6 states:
Publication of Real Rights
Creation, alteration, transfer or extinguishment of a real right in an immovable is subject to registration in accordance with the provisions of the relevant Law. Creation or transfer of a real right in a movable is subject to delivery in accordance with the provisions of the relevant Law.
Id.
174 Id. at 7. Art. 9 states:
Vesting of Real Rights in Immovables
Creation, alteration, transfer or extinguishment of a real right in an immovable takes effect upon registration in accordance with the law; and the above shall not take effect unless registration is undertaken, except as otherwise provided by the relevant Law.
Id.
175 See Garro, supra note 114, § 8–68 n.294 & accompanying text (referencing the Austrian Civil Code § 308 as having “an exhaustive catalog of rights in rem”).
176 See BGB §§ 873–1203.
177 See Winfried Hawerk, Grundbuch and Cadastral Systems in Germany, Austria and Switzerland (Sept. 1996), http://www.fig.net/commission7/reports/events/delft_seminar_95/paper3.html. Cadastral offices were set up in German and Prussian kingdoms at the beginning of the nineteenth century to facilitate the taxation of the owners of lands and buildings by carefully identifying their real property on the same bases set forth by Napoleon in the occupied areas left of the river Rhine. The first major cadastre in Prussia was completed in 1876. Although the main purpose for the establishing of a cadastre was taxation of land, the idea of using maps and records or graphic and textual data to further tax collection was implemented in the cadastral systems from the beginning. Id.
178 Id. at 2 (section titled “Historical Review”).
179 See Willkommen zur online Grundbuchabfrage (Osterreich)!, Jusline, http://www.jusline.at/grundbuch.html (last visited Nov. 13, 2013) (for an example of the application for a search in the Austrian Grundbuch by a member of the public).
180 Murray J. Raff, Private Property and Environmental Responsibility: a comparative study of German real property law 210–11 (2003). Professor Raff points out that German notaries have a private indemnity insurance against damages for half a million euros and the judicial officers of the Grundbuch also have private professional insurance whose annual premiums in 2003 fluctuated between 110 and 250 Euros per annum for risks between 100,000 to 250,0000, with higher risk coverages being subject to negotiation. Id.
181 Id. at 211. For example, the North Bremen registry administers 60,000 titles per year, and a city the size of Hamburg has five different registries.
182 See supra ch. 7.
183 Garro, supra note 114, § 8–162.
184 Id.
185 Id.
186 Id.
187 Kozolchyk, Mexican Land Registry, at 353–55 (discussing Eufrasia Rodriguez de Ibarra and Probatio Diabolica).
188 Id.
189 Garro, supra note 114, § 8–162 n.677.
190 Lehman et al., supra note 51, ch. II art. 10.
191 See Garro, supra note 111, § 8–98. Professor Garro describes the modern cadastre as follows:
A modern cadastre consists of a series of large-scale maps plotting to scale all parcels of land and building constructions, providing each plot with a parcel identifier number. This identification number allocates a distinct designation or cadastral nomenclature to each parcel, to which all the information provided by the documents filed at the land records regarding that specific parcel may be conveniently linked to facilitate its storage, indexing and retrieval.
Id.
192 Lehman et al., supra note 51, ch. II art. 11.
193 See supra § 19:3(C)(4) (discussing the German Grundbuch).
194 Wenli, supra note 51, at slide 8.
195 Id. at slide 20.
196 Id. at slide 21.
197 Lee, Part 1, supra note 51, art. 19.
198 Lehman et al., supra note 51, ch. II art. 12.
199 See Lee, Part 1, supra note 51, art. 22.
200 See Garro, supra note 114, §§ 8–140–8–143 (titled “Scope of Review”).
201 Id.
202 See Lee, Part 1, supra note 51, art.11.
203 Id.
204 Id. art. 20.
205 Id.
206 See supra § 19:3(B)(2). See also Lee, Part 1, supra note 51, art.73 (referencing the Provisional Measures for Allocation of Land Use Rights of March 8, 1992).
207 Wenli, supra note 51, at slide 37.
208 See Lee, Part 1, supra note 51, art. 20. See also id. art. 74 (on the “Criteria for allocation”). See Walter Lee, Chinese Real Estate Law: Part 3B: Land Administration Law art. 54, Knol.google.com, http://knol.google.com/k/walter-lee/china-real-estate-law-part-3b-land/zheu88eb3a1l/14 (last accessed Sept. 17, 2010) (on file with author) [hereinafter Lee, Part 3B]. See also Lee, Part 4, supra note 91, art. 24. This article lists:
1) land to be used by State organs and land for military use; 2) land to be used for urban infrastructure facilities and land to be used for public welfare undertakings; 3) land to be used for infrastructure projects of energy, transportation, water, etc. that have key support from the State; 4) land to be used for other purposes as prescribed by laws or administrative regulations.
Id.
209 Lee, Part 1, supra note 51, art. 20.
210 Id. art. 22 (emphasis added).
211 Lehman et al., supra note 51, ch. II art. 17. This article states:
The ownership certificate of real property is the evidentiary material showing the rightful ownership of the obligee in such real property. Items recorded in the ownership certificate of real property shall be in conformity with that registered in the registration certificate, otherwise, the real property registration certificate shall apply.
Id.
212 Jiang, supra note 51, at 9–10.
213 See Lee, Part 3B, supra note 208.
214 Id. art. 4.
215 Lehman et al., supra note 51, ch. I art. 1.
216 Compare Jiang, supra note 51, at 5(emphasis added), with Lehman et al., supra note 51, ch. I art. 4. I prefer John Jiang’s translation of this Article because it uses the term “right holders” for those who can claim in rem right instead of the Lehman, Lee and Xu translation which uses the contractual law and more imprecise term “obligee”. Yet, both translations refer to “other” holders, whether right holders or obliges.
217 See Lee, Part 1, at supra note 197 & accompanying text.
218 See Lee, Part 1, supra note 51, art. 19 (emphasis added).
219 See Wenli, supra note 51, at slide 39.
220 See Lee, Part 1, supra note 51, art. 19. As described by Walter Lee, “People’s governments at or above the county level are responsible for issuing State-owned Land Use Certificates, Collective Land Ownership Certificates, and Collectively-owned Land Use Certificates.” Id.
221 See Garro, supra note 114, § 8–69.
222 See Glossary, “Scholastic Logic.”
223 Mortgage Loan Volume Declines: BoCom, Chinadaily.com (Apr. 22, 2010), http://www.chinadaily. com.cn/bizchina/2010–04/22/content_9762770.htm.
224 Id.
225 Id.
226 Stein, supra note 51, at 1329.
227 Id. at 1328.
228 Id. at 1317 (citation omitted). See also Keliang & Prosterman supra note 51, at 14; and Whiting, Public Finance, supra note 18, at 11–20 (discussing similar conclusions on the overall legal uncertainty).
229 Stein, supra note 51, at 1328 n.40.
230 See supra § 19:3(C)(3).
231 See Glossary, “Cadastral Survey.”
232 See supra § 19:3(B)(4).
233 See Whiting, Public Finance, supra note 18, at 12–14.
234 See supra § 19:3(E)(4).
235 See generally Valerie Hansen, Negotiating Daily Life in Traditional China: How Ordinary People Used Contracts, 600–1400 (1995). This source explains: “Officials have government law, and common people follow private contracts.” Id. at 46. It also states: “Instead of the phrase which occurs so often … ‘Officials have government law and commoners have private contracts,’ this contract reads, ‘Officials have government law (zhengfa) and do not accept private agreements as conclusive.” Id. at 81.
236 See generally Stein, supra note 51, at 1336–41 (discussing lending standards).
237 Id. at 1336–37.
238 See supra § 15:4(H)(2).
239 Stein, supra note 51, at 1338–39.
240 Id. at 1339–41.
241 Id. at 1343.
242 Id. at 1341.
243 Id. at 1341–42.
244 Id. at 1343.
245 Id. at 1344–45.
246 Id. at 1345.
247 See Kozolchyk, Reduction of Poverty, at 744–49.
248 See Xinyan Xu, Manager, Assistant General Manager of Security Registration Dept., People’s Bank of China, Presentation at the FinNet 2010 Practice Group Meeting: China Secured Transactions Reform and Security Interest Registry slide 4 (October 19, 2010) (slides on file with author).
249 See infra § 24:3(B).
250 See Mark Williams, Haitian Lu & Chin Aun Ong, Secured Finance Law in China and Hong Kong 69–71 (2010) (discussing the DiYa or generic Chinese mortgage).
251 Id. at 69.
252 Id. (emphasis added).
253 Lehman et al., supra note 51, ch. XVI arts. 180–81.
254 Id. ch. 1 art. 2.
255 Id. ch. VI art. 40 (emphasis added).
256 See, e.g., U.C.C. § 9–202 (2013) (whose heading reads: “Title to Collateral Immaterial”); See also NLCIFT 12 Principles, Principle 2. It states:
A security interest is a preferential right to possession or control of personal property. As such it does not require that the debtor who grants the interest have title to the personal collateral, his right to possession, even though co-existent with other possessory rights in the same property by other creditors and debtors, will allow the creation of the security interest.
Id.
257 E-mail from Ronald C.C. Cuming, Professor, University of Saskatchewan, to author (Oct. 8, 2013 12:30 pm MST) (on file with author).
258 Ronald C.C. Cuming, Professor, University of Saskatchewan, Presentation Notes: People’s Supreme Court Meeting Security Transactions Law 3 (Sept. 2013) (on file with author).
259 Id. at 6.
260 Id. at 8.
261 Id.at 10.
262 Lehman et al., supra note 51, ch. XVII art. 208 ¶ 1.
263 Id. ch. XVII art. 211.
264 Kozolchyk & Furnish, A Comparative Analysis, at 256.
265 Lehman et al., supra note 53, ch. XIX art. 230.
266 Id. art. 232.
267 Id. art. 239.
268 See Lai, supra note 158, at slide 2.
269 Id.
270 Lehman et al, supra note 53, ch. XVII art. 228.
271 Cuming, supra note 258, at 11.
272 Id. at 12.
273 PRC Security Law (1995). See Lu & Ong, supra note 250, at 36–37. See generally Valerie Marechal et al., China’s new Property Rights Law, supra note 51. (One of the employees of the visited registries had done his own English translation of the law (which he offered for sale) but the English was frequently not understandable. For this reason, its use in this section must be guarded and “impressionistic.”)
274 PRC Security Law, art. 42, cited in Lu & Chin Aung Ong, Secured Financing Law, supra note 273, at 21–22. Per the above private translation, this registry operated under the aegis of article 42 of the Security Law.
275 Cuming, supra note 258, at 2.
276 PRC Const. ch. 1, art. 3 (1982).
277 Id. at 2.
278 Jiang, supra note 58, at 15–16.
279 Id. at 14.
280 Susan Finder, The Supreme People’s Court of the People’s Republic of China, 7 J. Chinese L. 145, 168 (1993).
281 Jiang, supra note 58, at 23.
282 Id. at 17.
283 Finder, supra note 280, at 171.
284 Consider, for example, the following typical language an SPC land right directive in Article 8 of the 2005 Directive:
[I]f the contractor violates Article 17 of the Rural Land Contracting Law due to using the contracted land for a non-rural construction purpose or causing unrecoverable losses to the contracted land, and if the contract-issuing party requires the contractor to stop the infringement, resume the original status or compensate for the losses, the contract-issuing party shall be supported.
Jiang, supra note 58, at 20.
285 See Boris Kozolchyk, Enhancement of Mexican Commercial Law Adjudication by Improved Transactional Fact-Finding, Application of Equitable Principles, and Drafting of Standard Contracts and Best Contractual Practices, 27 Ariz. J. Int’l & Comp. L. 441 (2010).
286 Jin Saibo, The Law of Letters of Credit in China: Commentary and Materials on the Chinese Supreme People’s Court’s Judicial Interpretations of Letters of Credit (2013).
287 Id. at 39.
288 Id. at 37.