Monday, April 17, 2017
Saturday, April 15, 2017
Did that headline get your attention? If it’s an exaggeration, it’s not much of one.
Last week a student brought to my attention a statement Li Keqiang made last month that I and just about everyone else (I can’t be sure) seem to have missed. At a press conference at the end of the National People’s Congress session, Li announced that full private ownership of land has been restored in China’s cities. Of course, he didn’t use those exact words, but the effect of this statement was the same. Here’s why.
Since the mid-1990s, the state—the owner of all urban land—has sold long-term leaseholds in that land called “land-use rights” (LURs): a maximum of 70 years for residential use, 40 years for commercial use, and 50 years for everything else. These LURs are a lot like long-term leases in Western countries: you can sell them, and if the government takes them, it has to compensate you. There are restrictions on use, but they aren’t different in nature or degree from the zoning restrictions you see in market economies. (I’ve written in detail about the urban land regime here.)
Also like Western long-term leases, when they expire, they expire. If you want to keep using the land, you have to pay again. At least that used to be the rule. But everyone would like something for nothing, and after the new regime went into effect, LUR-holders began to complain that the rules about renewals were unclear or unfair or both. (They were neither.) But LUR-holders are a powerful group; by definition, the group consists exclusively of people rich enough to own urban LURs, and it certainly includes every powerful family in China. Thus, pressure mounted for free renewals at the end of the term, at least for residential LURs.
In 2007, the authorities granted a teaser: the Property Law was promulgated, and it stated that residential LURs would, at the end of their term, be renewed “automatically.” But it didn’t say what “automatically” meant. As Professor Wang Liming, a member of the drafting team, later admitted, this lack of clarity was no accident; the drafters had deliberately opted for ambiguity.
Why? Think about what automatic, no-fee renewal implies. It means that the 70-year term becomes meaningless; the LUR becomes perpetual. The fact that the land would ultimately revert to the state at the end of the term was what had allowed the government to maintain all along that the LUR regime was consistent with socialism and state ownership of land. If the LUR-holder has the right to the land in perpetuity, that story, already somewhat implausible, becomes impossible to maintain.
On the other hand, if the drafters had stated clearly that renewal required the payment of a fee, LUR-holders would have been outraged. Hence Prof. Wang’s almost comically self-contradictory assurance: “There will be no conditions on extension. As for the term of the extension and the cost, specific measures will be made clear through the promulgation of implementing rules.”
Ten years have since passed. The holders of the first batch of 70-year LURs granted in the mid-1990s are getting itchy. Everyone has been waiting for increased clarity—and by “clarity” they mean “clarity that favors LUR-holders.”
There’s an old saying in China: Economic security brings peace of mind. . . . [T]he term can be renewed, there is no need to apply for renewal, there will be no pre-conditions, and there will be no effect on the ability to buy and sell. Of course, some people may say, “That’s what you say, but is there any legal guarantee?” Let me stress this here: the State Council has already tasked the relevant departments with urgently studying the laws relating to the protection of real estate and coming up with a proposal.
中国有句古话：有恒产者有恒心。. . . 可以续期，不需申请，没有前置条件，也不影响交易。当然，也可能有人说，你们只是说，有法律保障吗？我在这里强调，国务院已经责成相关部门就不动产保护相关法律抓紧研究提出议案。
I don’t see how to read this other than as a promise of perpetual free renewals. This means that people who paid for a 70-year LUR now find themselves with a perpetual LUR: the equivalent of full fee simple ownership. That’s worth noticing.
Wednesday, March 29, 2017
Yesterday I posted about an article on the excellent Lawfare blog that discussed the significance of some Chinese regulations on digital evidence collection. I now think that the Lawfare blog post's interpretation, which seemed plausible to me when I read it, is not correct. This change of view is prompted by an excellent analysis by Jeremy Daum of the China Law Translate site. I recommend it highly.
Note that he is not saying that China does not hack into foreign servers without the host country's permission. (As I noted in my blog post, "[I]f I had given the matter any thought before this, I would have assumed that Chinese investigative authorities were already doing this whenever they wanted to.") He's just saying that this is not the rule whereby the authorities authorize themselves to do so. Instead, it's just a rule about evidence.
Tuesday, March 28, 2017
Check out this recent post from the Lawfare blog. I've read the regulations to which it refers, and the post describes them accurately. Frankly, if I had given the matter any thought before this, I would have assumed that Chinese investigative authorities were already doing this whenever they wanted to.
Note to the "everybody does it" chorus: The blog post is also accurate in stating that this is not the normal practice of domestic police authorities, including in the United States; they seek permission from the foreign sovereign the same way they would seek permission for sending agents abroad to rifle through someone's file cabinet. Not that China necessarily has to follow the crowd in everything, but China would undoubtedly consider it the gravest violation of its sovereignty were foreign criminal investigators to hack into Chinese servers without permission in a search for evidence.
Here's the relevant language from Art. 9 of the regs:
Tuesday, March 21, 2017
Sunday, March 19, 2017
On March 15th, the National People’s Congress passed the long-awaited General Rules of Civil Law (中华人民共和国民法总则) (GRCL), a collection of general principles that will come into effect on October 1, 2017. Interestingly, the GRCL will not replace the 1986 General Principles of Civil Law (民法通则) (GPCL) when they come into effect; for various reasons, the decision was made to have the GPCL continue in effect to the extent that their provisions do not conflict with GRCL provisions.
The GRCL are accompanied by three documents explaining features of the text and certain amendments:
- NPC Law Committee's Report on the Results of the Deliberation of the Draft
- NPC Law Committee's Report on Suggestions for Revising the Revised Draft
What follows are some more or less random comments on particular features of the GRCL that struck me as I read through the text. They are not intended as a comprehensive evaluation.
- Liability of legal persons
Art. 62 states that legal persons (for example, corporations) shall be liable for damages caused to others by the acts of their legal representative in carrying out his responsibilities. Of course the legal person should be liable in such a case, but why apparently limit it to the acts of the legal representative? Surely it should state that the legal person is liable for the acts of any employee in the course of work (assuming such acts give rise to a claim for damages, of course).
- Characteristics of non-profit organizations
Art. 87 and Art. 95 state that non-profit organizations do not and may not distribute their profits to investors, founders, or members. One sees what they are getting at. But why stop there? It would be simpler just to say that non-profits may not distribute their profits to anyone. That’s what makes a non-profit a non-profit: not the fact that it has no profits (if its revenues exceed its costs, it has profits), but the fact that nobody is entitled to a distribution of those profits. They have to be plowed back into the work of the non-profit. Situations where the non-profit wants to donate to another organization or liquidate are dealt with in Art. 95; it makes more sense to specify the limited number of situations where profits may be distributed to someone than to specify a few types of people to whom profits may not be distributed.
- Standard of compensation for takings
Art. 117 sets the standard for compensation for takings as “fair and reasonable” (公平合理). The point to note here is that this is understand as meaning something other than (and probably less than) fair market value. The GRCL could have specified this but elected not to, so it’s significant.
- Conditions of validity for civil acts
Here’s where things get interesting. In Art. 143, one of the conditions for validity of a civil law act (民事法律行为) (for example, the making of a contract) is that it not “violate mandatory provisions of laws or administrative regulations” (不违反法律、行政法规的强制性规定) and that it not go against “public order or fine customs” (不违背公序良俗) (Art. 143).
Let me take the second condition first. What does “public order or fine customs” mean? Both the term and the rule seem to have been taken from Art. 90 of the Japanese Civil Code. The term only started appearing with any frequency in legal documents in the last few years, and has been used in an official enactment of the National People’s Congress or its Standing Committee only once before, in an interpretation of the GPCL and the Marriage Law issued in 2014. No doubt it is intended as a catch-all term, similar to the “public policy” on grounds of which a common-law court can declare a contract invalid.
Interestingly, the GRCL take a different approach to validity than the GPCL, which list a number of grounds on which civil acts were invalid instead of listing the grounds for validity. Those grounds do not include any language about “public order or fine customs.” They do, however, include language about acts in violation of law (i.e., statute) (法律) or public interest. Note that “statute” here has a technical meaning in Chinese law: something passed by the NPC or its Standing Committee. A rule passed by a lower-level body—even the State Council – is not a statute (法律).
The GPCL also invalidate acts that use a lawful form to cover up an unlawful goal (以合法形式掩盖非法目的的). In this part of the GPCL (and in Art. 52(5) of the Contract Law, which duplicates the language), however, the scope of “law” in “unlawful” has been debated. “Unlawful” (非法) can plausibly be read to cover much more than formal statutes passed by the NPC or its Standing Committee.
But this language has been dropped from the GRCL. Instead, all we are left with is the potentially very broad reach of “public order or fine customs” and the much narrower “mandatory provisions of laws or administrative regulations.”
This brings us to the first condition. Here, “laws” means (again) statutes: stuff passed by the NPC or its Standing Committee. It might well also include enactments of certain high-level sub-central people’s congresses. “Administrative regulations” means enactments of the State Council (not just, for example, a ministry or commission under the State Council). This condition, therefore, is quite narrow. If a civil act violates a mandatory provision of a regulation passed by, say, the Beijing municipal government or the Ministry of Commerce, it’s still valid. In fact, it might be even narrower than that: the identical provision in the Contract Law has been interpreted to mean that contracts are invalid where they violate mandatory provisions of laws or administrative regulations respecting the validity of contracts (for example, requirements of government approval for validity), but not otherwise.
In short, the GRCL seem to make it impossible to argue that a contract or other civil law act is invalid because it contravenes some low-level rule unless that contravention can be called a violation of public order or fine customs. Indeed, the GRCL add even more confusion to the subject when they revisit it in Art. 153, which embodies the logical corollary of Art. 143 by stating that civil law acts are invalid when they (a) go against public order or fine morals or (b) violate mandatory provisions of laws or administrative regulations (in each case understood in a restrictive, technical sense as explained above). But Art. 153 adds a kicker to part (b) of the previous sentence: “except when said mandatory provisions do not result in invalidity of the civil law act.” Result: violations of mandatory provisions of laws or administrative regulations will result in invalidity except when it doesn’t.
- Conditionality of civil law acts
Article 159 states that civil law acts may be made conditional on the occurrence of certain events. It adds that where a party, for its own benefit, improperly prevents a condition from occurring, it shall be deemed to have occurred, and where it improperly causes an event to occur, it shall be deemed not to have occurred.
One understands what they are getting at, of course, but as stated this rule is going to create problems. Consider, for example, a contract under which an employer promises to provide housing to the employee as long as the employee is employed. The employer is (subject to the provisions of employment law) able to cause the event of non-employment to occur; does this mean that it must continue to provide housing even after lawfully terminating the employee? Of course, one could respond that that’s why the addition term “improperly” has been put there. But that’s an awful lot of weight for a vague and non-technical term to bear, and I have no confidence that Chinese courts would pay any attention to it at all.
- Liability for damages inflicted in the course of lawful self-defense
Article 181 provides that a party shall not be liable for damages inflicted in the course of proper self-defense (正当防卫, which could perhaps include defense of others). If this means damages inflicted on the assailant, there is nothing to quarrel with here, although the premise that the self-defense was within appropriate bounds would seem to make liability a non-starter even without this provision. But as worded, it seems that if I am attacked and smash a shop window to grab a knife to defend myself, then as between me and the shopkeeper, the shopkeeper must bear the cost of the broken window.
- Good Samaritan provision
Article 184 provides, somewhat startlingly, that those who attempt to aid others in emergency situations shall never be liable under any circumstances. If I see you coughing, assume you are choking, and attempt a tracheotomy with a butter knife despite a complete lack of medical training, your next of kin cannot sue me. The legislative history makes it clear that this is in fact the desired result. The original version of this article presented to the NPC provided that the Good Samaritan could be liable for gross negligence, but some delegates objected that this would be too discouraging. (Bear in mind that this provision comes in the wake of a number of incidents widely reported in China over the last several years of egregious bystander indifference to suffering or of those who were aided suing those who aided them.) As a result, the provision was amended to state that where the aided party could prove that they had suffered serious damages as a result of the aider’s gross negligence, the aider should bear “appropriate” liability. (Note that the burden of proof would have been on the aided party even without this amendment.)
But even this not enough for some delegates, and so the language specifying liability for aiders was removed altogether. In other words, it is very clear that the NPC does not want aiders to be liable even for palpably gross negligence.
- Liability for defaming heroes and martyrs
Apparently discussions at the NPC actually resulted in the addition of a new article in the GRCL providing for liability for infringement on the name, image, reputation, or dignity of “heroes, martyrs, etc.” (英雄烈士等). This comes in the wake of two court decisions imposing liability (rather trivial, to be sure: an apology in one case and a fine of 1 yuan in another) on persons who questioned the truth of some stories about Communist Party heroes, and fits in well with growing official denunciations of “historical nihilism” (i.e., questioning the official version of history).
But the provision itself is an outlier relative to the rest of the GRCL in its vagueness and slipshod drafting – although the very vagueness may be deliberate message about its essentially political and therefore untouchable nature. Most obviously, how are “heroes,” “martyrs,” and especially “etc.” to be defined? Second, how will damages be measured? (We are talking about dead people here.) Third, who will have standing to sue?
In the two cases mentioned above, it was reported that “the family” sued, and in a previous case of defamation of the dead, the daughter of the allegedly defamed person was granted standing. Thus, it is possible that standing will be limited to those who would have standing in any ordinary defamation-of-the-dead case. But in that case, it is hard to see why this provision was necessary or how it changes existing law.
[UPDATE 3/20/2017: Existing law on this point is set forth in a Supreme People's Court interpretation of 2001, which states that "close relatives" (近亲属) of a deceased person have standing to bring suit for emotional damages where the defendant has, by means of insult, slander, disparagement, vilification, or other methods that go against social public benefit or social public virtue, infringed on the deceased's name, image, reputation, or dignity (以侮辱、诽谤、贬损、丑化或者违反社会公共利益、社会公德的其他方式，侵害死者姓名、肖像、名誉、荣誉). Thus, the new provision in the GRCL can be seen either as a codification of this rule, but with respect to heroes and martyrs only, or as simply a political statement with no legal consequences. Since the NPC does not seem to object to the wide scope of the 2001 interpretation, the codification options would seem to be to codify all of it or none of it. Thus, I opt for the political explanation.]
- Abolition of certain types of prescriptive acquisition
Article 196 says that if you have rights in real estate (registered or not) or registered title to movable property, it cannot be acquired by prescription – ever. The statute of limitations does not apply. Statutes of limitations are called rules of repose: if you fail for a sufficiently long period to vindicate your rights, the law won’t recognize them any more. This law was intended to help rural residents who leave the farm for the cities, find it difficult to keep tabs of their interests in land, and may end up losing them. That’s understandable. But surely after the passage of some period of time – twenty years, forty years? – it’s time to say that courts aren’t going to recognize ancient and hard-to-prove claims that nobody bothered about for decades. Otherwise you just generate a new set of injustices.
- Non-waivability of statute of limitations
Another interesting wrinkle in the rule on statute of limitations is that of Article 197, which says that the period, calculation, suspension, and re-starting of the limitations period is a matter of law and cannot be the subject of negotiations between the parties. Similarly, the parties may not consent in advance to waive the benefit of the limitations period.
This has some important practical implications. In more than one case of which I have personal knowledge, defendants sued in the United States on China-related matters have attempted to have the suit dismissed on forum non conveniens grounds, and as part of their motion have promised that if sued in China, they will not raise a statute of limitations defense. Article 197 suggests that such a promise may be worthless; that the limitations period is a matter of subject-matter jurisdiction for the courts, not personal jurisdiction, and as such something that the parties simply lack the power to give the court if it does not already have it.
 See 关于《中华人民共和国民法总则（草案）》的说明, March 8, 2017. This might also be the place to note that calling the GRCL the “General Rules” to distinguish them from the “General Principles” is a bit unsatisfactory as a matter of translation, since the word that is different in the Chinese is the term for “general”, not the term for “principles” and “rules”. But the name of each statute essentially means “general rules”, so the main point is just to use different words to distinguish them for the English-speaking reader.
 Article 8 also states that civil activities (民事活动) may not violate law (法律, i.e., statutes) or go against “public order or fine customs.”
 I will discuss this question more fully in an upcoming blog post on a recent interesting Supreme People’s Court case involving a Variable Interest Entity.
 The details are too complex to go into here.
 As I have discussed in an article on the Peter Humphrey/Yu Yingzeng prosecution on charges of unlawful acquisition of citizens’ personal information, neither the prosecution nor the court spent any time showing that the defendants’ acquisition of information was unlawful. The presence of the word in the statute appears to have been entirely superfluous.
Monday, March 13, 2017
I have received the following announcement:
The American Bar Association Rule of Law Initiative currently has three open positions with a China focus: a Program Director, a Program Manager, and a pro bono longterm legal specialist. If interested, please follow the links to apply.
Wednesday, February 22, 2017
A recent article on the ThinkProgress website has created something of a stir. The article asserts that China's recent grant to Donald Trump of a trademark in "Trump" is especially questionable under the Emoluments Clause because China violated its own law in granting the trademark, thereby making it clear that the trademark was a special favor to Trump: "The apparent preferential treatment for the U.S. president could land Trump in legal trouble back at home." Yesterday I received requests from people at two different Congressional committees asking for references to experts in Chinese trademark law who could clarify the issue, so people are definitely watching this closely.
The bottom line: It's implausible to say that China violated its own law here. Political factors may of course have played a role, but there's no violation of law that would constitute a smoking gun. Let me explain.
The claim that China violated its own law rests on a particular reading of China's Trademark Law and Trademark Review and Hearing Standards (TRHS). Article 10 of the Trademark Law says that a trademark may not be granted where it would harm social mores or have other bad influences (有害于社会主义道德风尚或者有其他不良影响的). Part 1, Sec. 9(2)(1) of the TRHS puts flesh on the bones of Art. 10 by defining trademarks having a "bad political influence" as, inter alia, those which are identical or similar to the names of leaders of states, regions, or political international organizations (与国家、地区或者政治性国际组织领导人姓名相同或近似的).
Seems pretty open and shut, right? Unfortunately, no -- and the authors of the article do not seem to have consulted a single expert on Chinese trademark law when they provided us with their interpretation of it. Talk about chutzpah. (They quote some language in a blog post by Mark Cohen, who is an expert, but all Cohen is doing is paraphrasing the legal standard, and in that blog post he specifically declines to opine on this particular case. They also consult and get some quotes from Matthew Dresden, a Chinese IP expert in Seattle, but Dresden never offers the opinion that the trademark grant violates China's own law.)
We had some discussion of this matter on the Chinalaw listserv the other day, and with the permission of Doug Clark, a barrister in Hong Kong specializing in Chinese trademark law, I reproduce his (lightly edited) view below. The main thing to note is that the intent of the prohibition is obviously to avoid offending foreign leaders and causing political problems by allowing others to trademark their names. Had the rulemakers contemplated that a foreign leader might be a celebrity wanting a trademark in their own name, surely they would have written that exception into the law. In addition, there are other obvious exceptions to what seems to be a rigid rule. The general point is that you should consult people who know what they are talking about before stating that some law requires some result.
I do not consider the decision to register Trump violates the standard. It is an application that has been pending for many years. It is not unknown for appellate bodies to disagree with lower-down decisions. Michael Jordan was also recently successful in some long drawn out trademark cases over the Chinese translation of his name. (https://www.nytimes.com/2016/12/07/business/international/china-michael-jordan-trademark-lawsuit.html)
The Trump application was also delayed because of a blocking registration.
The prohibition on registration of marks of political figures is to avoid disparaging trademarks being registered. It cannot be absolute. Some names are quite common (Ford, Bush, May) and you could not and should not block registration of all marks. (Should Ford Motors be stripped of its trade mark or not allowed to file new trademarks because Gerald Ford was president? No trademark for “Black Bush” Whiskey?) Trump falls in this category. It does have another meaning. In any event, in this case it is the Trump organisation (owned by Donald Trump) that is registering the mark and it is therefore not disparaging.
Having said all that, it is very likely that the decision was politicised on the Chinese side. There can be no doubt it would have been raised right up to the highest levels. Any unfavourable decision would possibly provoke Trump and given him a reason to attack China, so allowing the registration is certainly good diplomacy and politics.
Needless to say, I am not an expert on Chinese trademark law. If anyone reading this has well-founded reasons for disagreeing with Clark's analysis, please let me know by email (dclarke (at) law.gwu.edu) and I'll be glad to give you equal time.
Tuesday, February 7, 2017
Kudos to the China Guiding Cases Project at Stanford and to American University's Washington College of Law for putting on what looks to be a very interesting seminar on Chinese guiding cases. It's on February 22nd. Information and sign-up here: https://cgc.law.stanford.edu/event/guiding-cases-seminar-20170222/
Thursday, February 2, 2017
Here's a report on an interesting case in which a Chinese court (the Nanjing Intermediate-Level People's Court) enforced a Singapore court judgment.
Under China's civil procedure law, Chinese courts may enforce foreign judgments that are not fundamentally offensive in some way under two circumstances: (1) there is a treaty with the foreign country calling for mutual enforcement of judgments; or (2) on the basis of reciprocity, which has been interpreted to mean that the foreign country has a practice of enforcing Chinese judgments, or at least has done so before.
There is no Singapore-China treaty calling for mutual recognition and enforcement of judgments. The Nanjing court found, however, that in 2014 a Singapore court had enforced a Chinese judgment. On that basis, it decided to recognize and enforce the Singapore judgment (a default judgment against a Chinese corporate defendant).
The report does not claim, and I don't know for a fact, that this is the first foreign judgment Chinese courts have enforced on the basis of reciprocity. (It says it's the first enforcement of a Singapore judgment on that basis.) But I think it's fair to say that such cases are pretty thin on the ground.
The report lists cases where foreign courts have enforced Chinese judgments in the absence of a treaty, suggesting that a basis for reciprocity exists in those cases. The list includes the Robinson Helicopter case, one that I have always thought was a bad example, given that the defendant had already argued in previous US forum non conveniens proceedings that the Chinese legal system was just dandy, and so could hardly be heard to argue otherwise when it came time to enforce a Chinese judgment against it. But if I were trying to enforce a US judgment in a Chinese court, I'd certainly bring it up. To the best of my knowledge, Chinese courts have not yet enforced a contested US money judgment. (I'm attaching those qualifications because they may, for example, have recognized a US divorce decree for some purpose.)
I recently read (and highly recommend) HE Xin's "‘No Malicious Incidents’: The Concern for Stability in China’s Divorce Law Practice," Social & Legal Studies, 2017, pp. 1-23. In it, he argues that (at least in the court he observed) the "law" of divorce is completely overridden by the perceived need to maintain stability, which in practice means never to give a verdict that will upset anyone who is credibly threatening violence. (Obviously, this gives grey hairs to judges in cases where both sides credibly threaten violence if the ruling doesn't go their way.)
As always, people will debate whether this phenomenon is marginal and trivial or instead says something fundamental about what the institutions of what is conventionally called the Chinese legal system are really all about. But this post is not about that. Instead, I want to use it to introduce an interesting source I just ran across: some big data analyses of Chinese divorce cases from Jan. 1, 2014 to Sept. 30, 2016.
First, the data confirms what He has told us elsewhere: it's much harder to get a contested divorce in China than you might think, given the surface permissiveness of the law. (After all, if one party insists that mutual affection has indeed broken down and no longer exists, on what basis could a court say that that's not true?) In fully 63% of cases, the court did not grant the petition for divorce. To that 63% of adjudicated cases, we should also add those cases where the court talked the petitioner into withdrawing the request for divorce.
To me the most interesting data - and the one that made me think of He's article - was on the educational level of couples involved in divorce disputes.
The graphic shows the educational level of one party on the Y axis and the other party on the X axis. The six categories from bottom to top and left to right are (1) illiterate/semi-illiterate, (2) primary school, (3) middle school, (4) high school, (5) technical/vocational/junior college, and (6) undergraduate and above.
Note that the data aren't normalized to reflect the fact that there simply aren't a lot of people with a high educational level relative to those with a lower level, so this tells us nothing about whether people of a given educational level are more or less likely to get divorced. But the absolute numbers do tell us something interesting: that the practice of courts (after reading He's articles, I'm hesitant to call it "law") in contested divorces is driven heavily by people at the low end of the educational spectrum. Look at the size of the dots in the lower left section. This is a subject that might merit further study.
Monday, January 23, 2017
Just about everyone in the PRC law field knows about the contributions of Stanley Lubman (and if you don't, you should). Columbia Law School's Center for Chinese Legal Studies has now posted his entire oeuvre on its website. The collection includes articles, book chapter, op-eds, blog posts, and selected talks. Here's the link:
Thursday, January 19, 2017
[FURTHER NOTE: I have replaced the original blog post with this one, which incorporates some important points that were in the Foreign Policy piece but (I realized after posting) not in this one. My thanks to David Wertime at Foreign Policy for his very helpful editorial suggestions.]
China’s Land Counterrevolution? Not Yet.
Both Chinese and western press reports over the last week (Caixin; New York Times; Financial Times) announced startling news about China’s land regime: holders of 20-year residential leaseholds in the city of Wenzhou in Zhejiang province would see their leases renewed automatically and without charge.
If true, this news would be momentous: it would mean nothing less than the return of private land ownership in China. But in fact it looks like the leaseholders got nothing more than temporary squatters’ rights. What’s going on?
Since the early 1990s, urban land in China (all state-owned) has been available for sale in the form of long-term leaseholds called “land use rights” (LURs)—up to 70 years in the case of land designated for residential use. The original rule about what would happen when the leasehold expired was very clear: the land would go back to the landlord (in the case of China, the state). If leaseholders wanted to extend the lease, they would have to pay for it.
Although this rule was absolutely clear in legislation, leaseholders of course didn’t like it. Proving the truth of Upton Sinclair’s dictum that “it is difficult to get a man to understand something, when his salary depends upon his not understanding it,” a widespread belief grew up that the rules about renewal were either unclear or unfair. The picture was further muddied by the 2007 Property Law, which proclaimed that residential LURs would be renewed “automatically”—but without specifying what that meant, and particularly whether it meant “without charge.” A prominent member of the drafting team later admitted that they had simply punted on the issue because it was too controversial. And the reason it was controversial is simple: to specify that a fee would have to be paid would have angered current LUR-holders—a vast and politically important vested interest group (probably 80 to 90 percent of urban families). But to specify that no fee need be paid would have meant overturning a sacred tenet of Chinese socialism: that private land ownership is anathema.
Why? Because a 70-year LUR that renews itself automatically and without charge is no longer a 70-year LUR. It is a permanent right to the land, indistinguishable in practice from the title known in American law as “fee simple”—the kind of title homeowners expect to get when they buy a house. Of course, the Chinese government can take the land (for a public purpose, and upon payment of compensation), it can regulate its use, and it can tax it. But governments in capitalist societies can do the same thing, and nobody has ever supposed that this means capitalist societies can’t have private land ownership.
Whatever the ambiguity, it has not noticeably stifled China’s residential real estate market, and real estate now accounts for more than 70 percent of overall household wealth – 80 percent in large cities such as Beijing or Shanghai. At the time of purchase, 70 years is a long way off – likely beyond the typical purchaser’s lifetime, and almost certainly beyond the lifetime of the building in which the residence is located, given construction standards and the pace of urban change. So far rising prices have meant that even resales – which necessarily involve a shorter term than 70 years, since the term is not renewed at transfer – are often for more, sometimes much more, than the purchase price.
But although most Chinese residential leaseholds won’t expire for a few more decades, dark clouds of uncertainty are already visible on the horizon. With the clock ticking ever downward, Chinese homebuyers are already starting to think about whether they will ultimately have anything left to pass on. They fear that as the end of their leaseholds approaches, they will find it more and more difficult to get a good price if they try to sell. Uncertainty about whether a homebuyer has a 70-year leasehold or a permanent fee simple doesn’t much matter in year one, because the difference in value is tiny under any realistic set of economic assumptions. But if a Chinese leaseholder is trying to sell in year 40, the price buyers will pay for the 30 remaining years is a lot less than what they will pay if they are confident they are getting a permanent property interest. Even if buyers are foolish enough to be willing to pay a price that assumes they can keep the property permanently, they will have trouble getting mortgage lenders to be equally foolish – and that’s bad for sellers as well. Once these problems start cropping up in earnest, leaseholders will start clamoring for certainty (in their favor, of course) decades before the leases are scheduled to expire.
Now let’s go back to the Wenzhou LURs. Back in the mid-1990s, Wenzhou offered residential LURs on a number of land parcels for sale for varying terms—some for as many as seventy years, which has become the standard term, but some (about 600 parcels) for as few as twenty. These 20-year LURs, apparently the only ones in China sold in that era, are now coming due, and the leaseholders have been clamoring for a solution to their dilemma (their dilemma being the need to pay, and a solution being a free renewal of their lease).
On December 23rd, the Chinese government offered its response in the form of remarks by a Wang Guanghua, a vice minister of the Ministry of Land and Resources (MLR), at a press conference dedicated to an entirely different matter. If, as widely reported, Wang had said that the Wenzhou leaseholders would be allowed to renew their LURs indefinitely and at no charge, that would have been momentous news indeed, since it would have set an important precedent. After all, the Wenzhou leaseholders had the opportunity to pay for 70-year LURs and opted to buy only 20-year LURs at a lower cost. If they were to be given the windfall of perpetual free renewals, having paid for only twenty years, the case for giving perpetual free renewals to those who paid for seventy years would be much stronger. And perpetual free renewals are indistinguishable from full private ownership as understood around the world. Truly, one could have said that the urban land regime of the People’s Republic of China had come full circle. (Rural land ownership in China is a subject to a completely different set of rules.)
But that is not exactly what Wang said. Instead, he referred to an official document issued by the MLR on December 8th in response to an inquiry from the Zhejiang provincial government about how to handle the Wenzhou LURs. Critically, that document does not grant a renewal of the LURs. A renewal or extension, to be meaningful, must specify either (a) a future date on which the new term ends, or (b) that the term continues indefinitely. The MLR document does not do this. Instead, it says: (a) that leaseholders need not apply for a renewal upon expiration of the LUR; (b) that local land administration bureaus shall not collect a fee, and (c) that when the LUR is transferred, normal procedures for titling and registration should be followed. This means that the transfer will not be disallowed, as it otherwise would have been, on the grounds that the LUR to be transferred no longer exists.
Most importantly, the document states that the specified term for the transferred LUR should be the original starting and ending dates, with a note added saying that “relevant procedures have been undertaken in accordance with” the MLR document.
In other words, what the current leaseholders have received is an assurance that for the time being they can stay in their homes without having to pay anything. What they did not get, however, is significant. They did not get a renewal: new LUR with a new expiration date twenty years or more from now. They had something saleable before, but do not have something saleable—something that a transferee would confidently pay money for—now. All they have to offer a transferee is an LUR with an expired term and a vague and cryptic annotation. Will anyone pay good money for that?
What happened in Wenzhou will, in time, become a full-blown national issue. In some 50 years, the first batch of 70-year residential leaseholds will start coming due. Well before that, however, leaseholders will start having problems with buyers who are unwilling to pay large amounts of money for a leasehold with only a few years left on it and no guarantee of renewal. The state will have to choose: enrage about 90 percent of China’s urban population or admit that the 70-year residential leasehold is a mirage, an admission that would violate a core tenet of socialist rule.
Incredibly, 68 years after the founding of the People’s Republic of China and 38 years into the era of post-Mao economic reform, the Chinese government is still unable to state clearly what kind of residential real estate ownership system it wants to have. The system remains shrouded in uncertainty, and buyers cannot know for certain what they are getting. It’s likely that when the time comes, the government will blink – if there are any arch-conservative defenders of old-school socialism left, they will almost certainly be LUR holders themselves. But it has not blinked yet; for the time being, uncertainty still reigns.
Tuesday, December 6, 2016
Wednesday, November 2, 2016
Here’s a list of approved (which I assume means, “received state funding”) legal research projects from the MOJ that just came out: http://epaper.legaldaily.com.cn/fzrb/content/20161102/Articel03002GN.htm
My impression (possibly wrong) is that in past years, a number (still a minority) of such projects have been pretty non-academic, with topics such as “The Significance of Xi Jinping’s Speeches on National Rejuvenation for the Legal System”. This year, in a quick review I didn’t spot a single such project. This is not to say that none have political implications – there’s one, for example, on legal responses to radical separatists in Hong Kong – but they all seem to be the type of thing about which one could do serious research and thinking. They’ve even included some legal history projects – even on one Roman legal history.
Monday, October 17, 2016
Here's the job announcement: https://shanghai-nyu.icims.com/jobs/2423/assistant-associate-general-counsel/job
Sunday, October 9, 2016
Wednesday, September 28, 2016
Friday, September 23, 2016
The big story from China in the last week has been a massive vote-buying scandal in Liaoning, resulting in the expulsion from the National People's Congress of 45 Liaoning deputies. An interesting twist on this story is that the whole expulsion process seems to have been done in brazen violation of established legal procedures.
The Organic Law of the National People’s Congress (OLNPC) provides for two ways for delegates to be unseated. First, they can be disqualified by the NPCSC’s Credentials Committee after their election but before the first NPC session following their election (Art. 3; see below). That didn’t happen here; the delegates were elected in 2013, so we are way past the deadline for disqualification by the credentials committee. The second way is for them to be unseated by the body that elected them, i.e., the relevant provincial people’s congress or its standing committee (Art. 45; see below). Obviously, that didn’t happen here, either.
The news reports say that the NPCSC’s action also disqualified the delegates from serving in the Liaoning provincial people’s congress and its standing committee. That’s very weird; there is no law giving the NPCSC the power to do this. (At least not that I know of.)
Now of course this is said to be an unusual situation. (Whether it’s actually unusual for so many members of a provincial people’s congress to be involved in corruption is an issue for another day.) And given that the OLNPC didn’t contemplate so many members of a provincial PC being corrupt, it of course did not contemplate that a provincial PC would be incapable of throwing out a few bad apples and would require external intervention. Thus, perhaps it was necessary to take this legally invalid action. (There is no place the delegates can go to challenge it, anyway.)
But this argument doesn’t really wash. The NPCSC can legislate about anything it wants. It can amend existing legislation. Thus, if it could get its act together sufficiently to pass a resolution expelling these delegates, it could have gotten its act together sufficiently to amend the relevant legislation to make its expulsion resolution legally valid. The failure to do so can’t be chalked up to urgency or the difficulty of getting legislation through a grid-locked and unfriendly legislature. I think it’s more likely attributable to a sense that getting your legal ducks in a row (even when it would be easy to do so) is just not important; people are not putting a lot of thought into that angle. There’s bad stuff going on and we have to put a stop to it.
The Chinese government would not be the first to side-step legal procedures when it wanted something done, of course. Here in the United States, Republicans and Democrats both have plausible complaints about stuff done when the other held the White House. I think there is an important difference, however. The executive branch takes these shortcuts (if we concede them to be shortcuts) because it can't get the legislature to go along, and it argues vehemently that the shortcuts are lawful anyway. The leadership of the Chinese party/state controls the NPC and its Standing Committee, and can get any law passed that it wants. And it is just not thinking about whether what it wants is lawful or not. There is no cadre of lawyers charged with writing memos that will provide the legal justification for what the leadership wants to do. Within the Chinese system, it just doesn't matter. No person or institution of consequence cares.
This is not to say that the American way of doing things is the only way or the best way. It is to say that there is a lot of evidence suggesting that caring about what the statutory law says is not the Chinese way (at least for the top leadership), and we shouldn't pretend otherwise.