CHINA - LEGAL

• Rebuilding Trust

Landmark China law protects private property
Special tax treatment for foreign firms ends

(BEIJING)  - After more than a quarter-century of market-oriented economic policies and record-setting growth, China yesterday enacted its first law explicitly protecting private property.

China's parliament passed the property rights Bill as its annual session closed after debates centred on Premier Wen Jiabao's drive to limit growth with energy saving and spending on the countryside.

Delegates also passed a corporate income tax Bill that ends preferential treatment for foreign-funded firms by unifying tax rates at 25 per cent.

The move reflects China's determination to wean its economy off exports and move away from cheap manufactured goods. The Enterprise Income Tax Law will force most foreign-invested companies to eventually pay 25 per cent of their income, compared with their current preferential tax rate of 15 per cent.

The property rights measure, which was delayed a year ago amid vocal opposition from resurgent socialist intellectuals and old-line, left-leaning members of the ruling Communist Party, is viewed by its supporters as building a new and more secure legal foundation for private entrepreneurs and the country's urban middle-classes.

But delays in pushing it through the Communist Party's generally pliant legislative arm, the National People's Congress, and a ban on news media discussion of the proposal, raise questions about the underlying intentions and the governing style of President Hu Jintao and Prime Minister Wen Jiabao, observers say.

Despite a high level of interest among intellectuals and businessmen and the unexpected decision last year to withdraw the measure from the legislative agenda at the last minute, neither leader has spoken about the matter publicly.

The measure could not pass the legislature, which acts under the party's authority, without the active support of the top leadership. Yet the conspicuous silence of Messrs Hu and Wen appears to be a form of tribute to the lingering influence of current and former officials and leading scholars who argue that China's economic policies have fuelled corruption and enriched the elite at the expense of the poor and the environment.

The leadership did not so much overcome opposition to the property law as forbid it.

Unlike in 2005, when leaders invited broad discussion about property rights, the latest drafts of the law were not widely circulated.

While the final wording of the law - and the nature of any compromises that were necessary to build a consensus within the party to pass it - remain unclear, many mainstream scholars and business people have welcomed it.

But the leadership's strategy did not resolve the underlying tensions. Hundreds of scholars and retired officials signed a petition in February against the law, which they said 'overturns the basic system of socialism'.

Supporters of the law dispute the assertion that it will protect the ill-gotten gains of corruption, arguing that it protects only legal property. In the past, Chinese have bought and sold property freely, but have done so in a legal vacuum. Supporters say they hope the law strengthens the rights of property holders, especially middle-class homeowners.

China's urban middle class has fuelled a real estate boom, even though all land is owned by the state and purchasers trade only the right to use property on the land for up to 70 years. The disposition of property after that term expires is one of many unsettled issues the property law is intended to address, but the details have yet to be made public.

As he closed the session with his annual news conference, Mr Wen built on the theme of promises to save energy and cut pollution while striving to keep the world's fourth- largest economy humming, saying the party needed to focus on groups left out of China's economic boom, particularly farmers.

He also stressed the need to improve the quality of listed companies and the administration of capital markets.

'I pay attention to the development of the stock market, but I pay even more attention to the health of the stock market,'' Mr Wen said.

He reaffirmed China's plans to set up a new agency to invest part of the country's more than US$1 trillion in foreign exchange reserves, adding that such an agency would have no impact on US dollar-denominated assets. -  2007 March 17     Reuters, NYT, AFP

China's great leap forward on property

BEIJING - Of all the steps that China has taken away from its Communist past since reforms began nearly 30 years ago, few have boasted the symbolic power of the law that parliament is due to pass next Friday.

The Property Law, for the first time since the 1949 Chinese revolution, offers comprehensive legal protection to private property. Quite a move from a ruling party whose name literally means "The China Collective Property Party."

It couches that protection, though, in language that often seems more solicitous of state property – a sign of the subject's sensitivity. "This is a very loaded text politically," says one Western diplomat. "It says a lot about the current balance and trends of the regime."

It has taken 14 years of controversy and seven readings to bring the draft law to Friday's vote in the National People's Congress (NPC). Those are measures of the caution that the government has felt obliged to show in the face of vocal opposition from critics who call the law a betrayal of China's socialist principles. "It is incompatible with the founding principles of the New China," complains Gong Xiantian, a law professor at Peking University who wrote an open letter of protest against the law. "We had eliminated exploitation and established collective ownership, and after 50 years now we are going back. This is an ideological struggle."

It is a struggle Professor Gong and his sympathizers appear to have lost. Introducing the new law last Thursday, NPC Vice Chairman Wang Zhaoguo went so far as to describe "effective protection of private property" as "what the (Communist) Party stands for."

In doing so, he aligned his party squarely with the burgeoning ranks of urban, middle-class consumers who own their apartments, often a car, and perhaps a small business.

"This law means that an ordinary home buyer can be sure that his children and grandchildren will still be able to live in the apartment he buys," says Li Datong, an enthusiastically reformist political analyst. "Before, he could not be certain."

People's living standards have improved in general, and they urgently require effective protection of their own lawful property accumulated through hard work," argued Mr. Wang as he presented the Property Law to the NPC. Such protection, he added, is "the general aspiration and urgent demand of the people."

By casting the law in this light Wang was seeking to counter criticism from opponents that it benefits only China's super-rich by legalizing the dubious deals through which many of them got their start in business – buying state property at rock-bottom prices.

Pressured by that sort of argument, the legislation's drafters introduced several amendments "of tremendous practical significance," Wang insisted, to "strengthen protection of socialist public property" and defend it from questionable privatization.

But the law is clearly not limited to the houses and cars that Chinese city-dwellers regard as necessities, in the same light as their parents once viewed wristwatches, bicycles, and sewing machines. Protection of private property extends to the "means of production" – a recognition of reality in a country where private enterprise now accounts for nearly two-thirds of GDP.

It does not, however, extend to agricultural land, which remains collectively owned by peasant villages and not immune to seizures by developers, which have provoked thousands of sometimes violent protests in recent years.

Denying farmers the right to own their land, argues one European diplomat, "is a great missed opportunity and a demonstration of [President] Hu Jintao's lack of courage."

The law leaves the current system, whereby farmers rent their land for 30-year periods, untouched. Peasants can sublet their assigned land to neighbors, but may not sell it nor borrow against it on a mortgage so as to invest in machinery or other equipment.

Reforming that system was clearly too radical a prospect for a cautious government that had enough trouble with the law as it was.

In putting their free-market reformist right foot forward, the authorities had to dress their move up in a good deal of leftist language about "improving the Chinese-style socialist property system" and how "the State-owned economic sector is the leading force" so as to placate opponents of the Property Law.

In its careful shuffle along the reformist path, the government is also putting its left foot forward at this NPC, promising more spending on education and healthcare, and major legislation in the coming months to strengthen labor rights and social-security protection.

Brandishing his goal of a "harmonious society" beset by less of the envy and social conflict that scars today's China, President Hu seems guided more than anything else by the search for "the proper balance between the need for further and deeper economic reforms and at the same time the need to go much further in terms of social protection" says the Western diplomat.

Even though he does not agree with them, Mr. Li welcomes the law's opponents as "an important counterbalance to power in China.

"The result of their opposition could be seen as a warning to the government that in the future it should pay more attention to social fairness and less to economic efficiency," he says.

While the law's drafters say in private they were disappointed to have been obliged to amend their original proposals for political reasons, and critics say they regret not having been able to block the law, "improvements always come step by step," Li adds.

"It was a compromise" he says. "But history advances by compromise."  - 2007 March 15    CHRISTIAN SCIENCE MONITOR    By Peter Ford

New law to protect private property
China's first civil law code allows investments by citizens and foreigners the same protection enjoyed by the state

For the first time, private property in China will be given the same protection as state-owned property under a draft law being studied by parliament.

Legal protection for private property has never been clearly defined under Chinese law despite a 1999 amendment that upgraded the status of private property.

Personal rights: A tool for limiting state power BEIJING - The personal rights section of the draft code will not only protect citizens from official abuse but also encourage them to insist on their rights of free speech and association, say Chinese experts. 'The Constitution deals with state power, while civil law outlines the rights of individuals. The question is how civil rights can be used to limit state power. 'Once Chinese citizens understand their rights better they will use the civil code in their own defence,' said law professor Li Xiandong, of the China University of Political Science and Law. 'As the rule of law gets established, there will be rules for the organisation of independent political parties. No longer will officials be able to dictate whether one can or cannot. This process is inevitable.' --David Hsieh

The draft legislation proposes that the state protect personal deposits, investments and profits generated from these investments.

Once enacted, the law will pave the way for another crucial breakthrough: the sale and purchase of state-owned property by private and foreign investors without legal restrictions, according to legal experts.

The proposed legislation is contained in a draft of China's first civil law code.

Said professor Li Xiandong, a specialist in civil and commercial law at the China University of Political Science and Law:

'This will be the biggest breakthrough of the code.

'As state ownership has been rendered as corporate ownership, corporations can sell their shares to any buyer.

'China's property law is now completely in line with that of the West, so foreign investors can feel at ease.'

Prof Li, who spent two years abroad examining foreign civil law codes, contends that the law will help to attract investments from both China's private sector and from foreigners.

Consisting of nine sections, the 216-page draft code is the most voluminous legislation ever considered in China.

It will replace the 1986 General Principles of Civil Law that has served as the basis for major civil legislation in the country over the past two decades.

As the General Principles contain only 156 clauses, judicial interpretations have been inconsistent, generating conflicting judgments.

Another notable section in the civil law code dwells on the protection of personal rights.

Here, the code has gone to unprecedented lengths to protect the privacy of citizens, banning infringements such as wiretapping, harassment, and unauthorised disclosure of private information by others.

More importantly, it protects individual citizens from wrongful prosecution by the state.

'The law is very important for every citizen and legal person in China,' law professor Xu Wusheng, who teaches at the China People's Public Security University, told The Straits Times.

'It spells out their rights and sets the rules by which they can exercise those rights.

'When passed, it will mark a major step forward for human rights in China.

'The new draft code has definitely made a number of breakthroughs.

'It symbolises the recognition on the part of the political elite and the ordinary people of the importance of protecting people's basic rights.'

These two pieces of legislation have undergone thorough debate and are expected to be passed by parliament in the next two years.

But legal scholars say it will take at least five years before the entire civil law code can be passed.       - By David Hsieh   Singapore Straits Times    2 January 2003

PRIVATE PROPERTY

The Wrangle Over A Right to Riches

Plans by the Communist Party to expand legal protections for private property are delayed--but not halted--as opponents argue that such measures will only protect tycoons who took over former state assets

Ask Kuan Xiannian why a 40-year-old university lecturer in early 20th century Chinese literature in Beijing should put so much effort into opposing China's plans to expand legal protections for private property, and he talks of his family.

WHY SAFEGUARD PRIVATE PROPERTY?

The Chinese Communist Party holds that private property needs more legal protection:

•  As a logical progression of its pro-market reforms

•  To encourage private-sector investment

•  To stem capital flight put at $50 billion in 2002

"I'm from the countryside," he says. His father, a rice and sweet-potato farmer in Hunan province, had five years of primary school education. His mother, also a farmer, is illiterate. His three younger siblings didn't study beyond junior middle school because the township high school he attended shut down not long after he graduated in 1980. "I really feel that the 900 million people in the countryside have been excluded from the overall modernization drive," he says. "Farmers don't have any private property that needs protecting."

Then there is Kuang's wife. She worked long hours for a Beijing bank for eight years before being unceremoniously laid off one day with no benefits. "She wasn't just an employee. She was a shareholder. But the president of the bank says: 'Tomorrow don't come to work.' And the very next day you can't go to work," Kuang says. "So I think we really have to protect the rights of people like my wife."

The relationship between his family's tribulations and his opposition to expanded private-property rights? He is convinced that private-property rights, particularly a proposed constitutional amendment to guarantee them, would do nothing to further the interests of his struggling relatives, and could in fact hurt them as it benefits China's new tycoons.

When Kuang heard last December about a move to have parliament, the National People's Congress, pass the constitutional amendment in March, he was angry. He sat down at his computer and composed several vitriolic essays arguing against it. His most widely circulated essay announced the launch of a "protect-the-constitution movement." Friends posted the essays on the Internet and Kuang became a minor celebrity in the small world of socially engaged Chinese intellectuals.

LEGAL PROTECTIONS ARE COMING

The National People's Congress' annual session is now over. And despite the promise that the party made at its 16th congress in November to expand legal protections for private property, China's constitution remains as it was. Article 12 still proclaims that "socialist public property is sacred and inviolable," and Article 13 protects the right of citizens to own only specific kinds of private property--"lawfully earned income, savings, houses and other lawful property." Private businesses and unearned income from investments are still not explicitly protected from seizure. A draft civil code withbprovisions to protect private property was presented to parliament this year, but only for an initial review.

However, no one--not even Kuang--doubts that in the coming years China will pass a civil code, revise other laws and even amend the constitution to offer explicit protections for all kinds of private property. The country has steadily embraced the market over the past two decades and the 16th party congress reinforced China's commitment to that trend. "We should improve the legal system for protecting private property," the congress declared. "All legitimate income, from work or not, should be protected."

"The party has already made its decision," says Yin Mingshan, a motorcycle tycoon and president of Chongqing Lifan Industry, who in January became the first private businessmen appointed to an official rank equivalent to a provincial vice-governor. "We just need some procedures to turn the party's decision into the state's will."

Influential economists, moreover, have argued that strengthening legal protections for private property is vital to encourage private-sector investment and help stem capital flight. One such economist, Dong Fureng, estimates $50 billion left China illegally last year, a sum equal to the entire foreign direct investment in China last year.

But for now, the authorities appear in no great hurry to push through the promised private-property protections. Popular anger of the sort expressed by Kuang combined with lingering misgivings in party ranks help to explain why.

Kuang's is a lonely voice in the public debate about private-property protections. Discussion in the state-controlled media revolves mainly around safer issues, such as whether a constitutional amendment should declare private property "sacred and inviolable," or use less provocative wording to protect all kinds of property equally.

But Kuang's outright opposition to a constitutional amendment taps into a broad popular unease about the emergence of a class of the newly rich in China, and the growing gap between them and the country's have-nots. That unease has been fed by the elevation of tycoons to positions of political prominence. In countless articles, the Chinese media has explored resentment of the rich as a possible factor in the murders of several tycoons this year, including Shanxi province steel magnate Li Haicang.  In a Renmin University study, just 5.3% of respondents thought the new rich got wealthy by legitimate means.

Kuang insists that, in the abstract at least, he isn't opposed to protecting private property. He and his peers "are all educated. We've all accepted a lot of Western values," he says. "I recognize that private property shouldn't be violated, that it should be protected. No problem."

What Kuang says he opposes is writing into the constitution something that he sees as being in the interest of China's moneyed class at the same time as the interests of the party's traditional base--workers and farmers--are being eroded.

One motive of supporters of the amendment, he claims, is to undermine the constitution's emphasis on China being "led by the working class and based on the alliance of workers and peasants."  Amendment backers, he says, want a China where the interests of "people with property, people with money" come first.

The other motive he ascribes to amendment backers is to legitimize private fortunes built through illegal or semi-legal means. Reflecting a popular perception, Kuang alleges that many fortunes were built through illegal appropriation of state assets. "State-owned enterprises are like a rice bowl," he says. "If you spit in it, no one else will want it, and you can take it away. That's how China's reforms have gone.  They [the new rich] first make state-owned enterprises collapse, then they take them over." Such actions amount to the theft of property that should belong to everyone, he charges.

From there, he warns of the dangers of going ahead with an amendment to protect private property.  "Right now, people may not know they have been robbed," Kuang says. "But once you bring it up"--with an amendment--"they will be indignant. Tensions will rise. They'll realize: 'I don't have anything. It has all been stolen from me.'" A recent official survey of 2.03 million private-business owners found that 26% of the businesses were previously state- or collectively owned.

The advantage to keeping private property rights murky is that it helps "maintain the pressure" on ethically challenged business people, he says. "I don't know how effective it will be, but you can't let them get too relaxed. You can't say, go ahead and take what you want" from the state.

Yin, the motorcycle maker, who is also chairman of the city's semi-official Federation of Industry and Commerce and vice-chairman of the city's People's Political Consultative Congress, doesn't deny that some private business people came by their wealth in less than completely upright ways. "There are definitely these kind of phenomena," he says, "but you can't say they are the mainstream." He likens such businessmen to a wayward child. "When he is growing up, he doesn't understand things. He doesn't have good manners or follow rules . . . But as he grows up, he learns manners."

In his early days, Yin confesses, even he evaded tax and sometimes skimped on quality. "We say first develop, then become regularized," he says, describing what he says is China's official policy. His prescription for handling rule-breakers: Deal with each case individually, but lean on the side of leniency.

That kind of double standard is just another in a long list of Kuang's grievances. He is outraged that after the January 22 murder of Li Haicang by another businessman, the local government lowered flags to half-mast. "China has a flag law. You can only lower the flag for national leaders and natural disasters. They shouldn't have lowered the flag for this kind of person," he says.

The tycoon was from Shanxi province, hit in recent years by a string of mine accidents. "So many people have died in Shanxi coal mines, but no one has ever lowered the flag for them," Kuang says.

His suspicion of Li centres on the fact that he once headed an enterprise in which the largest shareholders were state-owned. "How did he get so many private assets in so little time?" Kuang asks.  And what happened to the original shareholders?

The Communist Party rank and file--the party has some 66 million members--is probably less vehemently opposed to a constitutional amendment to protect private property than Kuang and his sympathizers. But many members have trouble with the notion. "When all is said and done, Marxism is about the elimination of private property," explains Fang Ning, deputy director of the Institute of Politics at China's largest government-funded think-tank, the Chinese Academy of Social Sciences.  "It's such a big circle. Today we are going to turn around and recognize private ownership and protect property . . . People feel very emotional about this. They hear this and ask, 'So what was our revolution about? All that loss of life and sacrifice was about what?'" he says. "That's why people find it hard to accept that we are protecting private property."

Fang explains that he has come around to the need for private-property protections. "We have so much private property now. If you don't protect it, is that possible? Can anyone go take it?" he says.

Plus, today, as China faces the challenge of global economic competition, "without using private property, it would be very hard for us to stand firm. Surviving would be a problem," he adds. But in the long term, maybe after his lifetime, Fang says, "my understanding is that we are definitely going to eliminate private property." What about the constitutional amendment, the civil code and other legislation on the agenda for the coming years? "Law can change," Fang says with a laugh. "You can revise it this way, and you can revise it that way."  - By Susan V. Lawrence/BEIJING    Far East Economic Review   March 27, 2003

In 1961, because of his friendship with a classmate who had relatives in the United States, Yin Mingshan was deemed guilty of being a member of foreign spy ring, labelled a "counter-revolutionary" and sent to prison for nine-and-a-half months.

Of that time behind prison walls and the 20 years in total that he spent assigned to a chemical factory to be "reformed through labour" for the same crime, Yin says: "I didn't feel the Chinese Communist Party was wrong. I felt I was wrong. I felt I needed to apologize to Chairman Mao and the party. I dreamed of the day when they would forgive me."

The first stage of Yin's forgiveness came in 1979, when the party rehabilitated him and hundreds of thousands of others accused of political crimes during the Mao Zedong years. The second stage was in January, when the party chose him to be vice-chairman of a political consultative body in the western city of Chongqing, making him the first private businessman in the country elevated to an official rank equivalent to that of a provincial vice-governor. Another tycoon won the same post in east China's Zhejiang province later that same month.

Yin's appointment is part of a controversial Communist Party initiative, launched by former General Secretary Jiang Zemin in 2001, to allow private business people to play an open role in Chinese political life. The idea is for them to invigorate politics, and for the party to head off the danger of politically frustrated private business people setting up alternative organizations that might challenge party power.

Inevitably, the prospect of those with the greatest wealth in China also wielding political power worries many of those without either. It is particularly sensitive given that the constitution still holds China is "a socialist state under the people's democratic dictatorship led by the working class and based on the alliance of workers and peasants." Many party members still believe in the elimination of private property as the party's ultimate goal.

Yin, 65, who made a fortune with his Lifan brand motorcycles and owns a stable of other businesses including a soccer team, is attuned to the tensions. He plans to use his position to lobby for the interests of what he euphemistically calls the "nonstate economy." His priorities, he says, are to work to get big private companies more access to parts of the economy so far closed to them--he wants to break into car making--and to get small and medium-sized businesses easier access to capital.

But hand-in-hand with that agenda goes another: to work to improve the image of private businesses in China, and win over cynics and the resentful, in and out of the party. At the national meeting of the political consultative congress in Beijing in March, Yin gave a report to one of the party's top officials, Jia Qinglin, emphasizing the role the private sector has played in job creation. From 1992 to 2002, he noted, state-owned businesses cut 53.61 million jobs, while private businesses expanded by 118 million jobs. He talked about his own decision not to fully automate packaging workshops, saving 400 jobs. "We who have got rich first should return something to society," Yin says he told Jia.

Such talk goes over well. So does Yin's promise that "I will never set myself against the party as a critic." And so does his record of donating money to build and outfit rural schools. He has built 40, and aims for 100 by 2010. But even for someone clearly trusted by the party, some level of official scepticism apparently still lingers. Yin says he applied to join the party after Jiang's July 2001 speech. Although he has official rank at a vice-governor level, he is still waiting for an answer.  

He is far from alone. A recent official survey of 2 million private-business owners found that 11% expressed a desire to join the party. But out of the 30% who were already party members, just half a percentage point had been accepted into the party after Jiang's speech.  - By Susan V. Lawrence    Far East Economic Review   March 27, 2003  

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