Property debate

China provides the first legal basis for the protection of private property since the Commnuist Party came to power in 1949.

PALLAVI AIYAR in Beijing

YEARS of galloping economic growth have given China's ruling Communist Party much to celebrate. However, the growth, rather than strengthening the party's hand to press ahead with further economic reforms, has come at a cost; growing inequalities, rampant corruption and vanishing provisions for health care and education have put the leadership in a tight spot.

Increasingly squeezed between the demands of the Right and the criticisms of the Left, the Chinese Communist Party (CCP) is engaged in an ever more delicate juggling act to balance the interests of the urban middle class, which has emerged as a key constituency of support, and a restive peasantry, once the party's mainstay but becoming progressively disaffected on being left out of the economic boom in the cities.

China's unique form of "socialism with Chinese characteristics" is rent with contradictions and many of these are now coming to the fore. The recently concluded annual session of China's parliament, the National People's Congress (NPC), usually a sedate piece of set political theatre, was thus the site of some unusually feisty debate. The main bone of contention was a Bill that would provide the legal basis for the protection of private property for the first time since the CCP came to power in 1949. The NPC has never voted against a Bill proposed by the government and - as expected - the close-to-3,000 delegates present approved the property rights Bill. However, its passage was atypically rocky and required the government to answer some fierce criticisms from an increasingly vocal group of new-Left thinkers.

The Bill took 14 years to draft and was subject to a record seven readings by legislators after being tabled in 2002 (most Bills in China are passed after three readings). It was scheduled to be passed a year ago at the 2006 NPC meet, but widespread objections amplified by heated Internet-circulated commentaries forced its last-minute withdrawal from parliament's agenda. One of the Bill's most vocal critics - a law professor at Peking University, Gong Xiantian - condemned it as "copying capitalist law like slaves" and offering equal protection to "a rich man's car and a beggar man's stick". For the Left, the Bill represented a final sell-out by the state to capitalist interests. China has already embraced several other free-market mechanisms such as stock markets. But the idea that socialist property is inviolable has long been an almost sacred legal principle. The debate about property rights thus goes to the core of China's modern identity.

"Socialism is based on public ownership. This won't be a glorious page in the history of Chinese legislation," Gong Xiantian said of the property Bill at the start of this year's parliamentary session.

The fact that the government threw its weight behind the Bill, despite the sharp and often public criticism the draft law provoked, reflects an awareness of the role that the private sector has come to play in the country's economy as well as the importance of the support of a property-owning urban middle class to the party's continuing rule. Up until 1998, state-owned firms were the mainstay of the economy but today private businesses account for more than 65 per cent of the gross domestic product (GDP) and over 80 per cent of the economic growth, according to a recent report by the All China Federation of Industry and Commerce (ACFIC). According to the ACFIC, almost a third of the entrepreneurs who registered their businesses after 2001 are currently party members. The buoyancy of the private sector followed policies instituted first by Deng Xiaoping, the architect of China's economic reforms, and carried on by Jiang Zemin, his successor. Both leaders were decided that real and rapid growth could only come about by unfettering the private sector.

Deng called economic development "hard truth" and under Jiang the restructuring was stepped up, leading to over 20 million workers being laid off in a huge wave of closures, mergers and privatisations.

For President Hu Jintao and Prime Minister Wen Jiabao, who inherited the country's leadership in late 2002, the contradictions in China's special brand of state-led capitalism are, however, becoming ever more apparent.

In 25 years, China has gone from being one of the world's most equal (albeit poor) societies to becoming the fourth largest economy in the world with one of the worst rich-poor imbalances. China's gini index - a commonly used statistical measure of inequality where 0 represents perfect equality and 100 perfect inequality - at 44.7 is worse even than that of India at 32.5, according to the United Nations Development Programme's Human Development Report for 2005.

Property that used to be taken away from the rich for redistribution among the poor is today routinely taken away from farmers and given to real estate developers. According to the Ministry of Public Security, in 2005 there were a total of 87,000 mass protests across the country expressing public anger against official corruption, unpaid wages and pensions, and, most commonly, illegal land grabs. The number of such protests has seen a more than 400 per cent increase over the last decade.

Given this situation, both the policies and the rhetoric of the Hu-Wen duo have taken a swing leftward. The leadership has made tackling income inequality between China's rich urban and poor rural areas the centrepiece of its new five-year plan, borrowing language from the past in promising to build a "new socialist countryside". In speeches at the NPC and elsewhere, Wen has repeatedly stressed that "social justice" is as important a goal for China as economic growth.

The government has raised spending on rural health care and education sharply for two successive years. At this year's NPC session, Wen Jiabao said in his opening address that tuition and other fees for all rural students would be eliminated, helping some 150 million families. He added that the government would step up spending on rural primary and middle schools by 21 per cent, to $29 billion. The Premier promised greater central government support for health care in rural areas where 90 per cent of the population has no health insurance. He said that a trial cooperative medical care system would be extended to cover 80 per cent of China's territory, with the government more than doubling subsidies for the project, to $1.31 billion.

Crucially, however, Wen made no reference at all in his address to the most controversial item on the NPC's agenda - the property law.

The property Bill was introduced in the NPC two days after the opening session. In his explanation of the party's support for the Bill, an NPC Vice-Chairman, Wang Zhaoguo, told the gathered parliamentarians that given China's current economic circumstances, the people "urgently require effective protection of their own lawful property accumulated through hard work".

The final shape of the draft law reflects the attempts to find a compromise between the Bill's detractors and supporters in order to strike a balance between state and private interests. It lays out clear definitions of both, and also defines private wealth, including income, houses, investments and other personal assets.

However, the Bill stops far short of moving towards privatising collectively owned rural land. Instead, it maintains the concept that property is owned by the state and that individuals are merely given a right to use it. It is that right of use that the law protects, not private ownership of land.

In a further accommodation to new-Left criticisms, the Bill affirms the state-owned sector as the "leading force". "The nation is in the first stage of socialism and should stick to the basic economic system in which public ownership predominates, coexisting with other kinds of ownership," it reads. But this watered-down version may have fallen short of satisfying either camp engaged in the debate.

"Private property is the foundation of civilization. It must be protected," said Dean Peng, a Beijing-based free market advocate and commentator. "Public ownership results in poverty, as China has already experienced," he added. He is sceptical, however, whether the new law will push the economic reform process forward. The actual impact of the law is likely to be minimal, he said, because it merely restates what is already the status quo. In rural areas, farmers have the right to lease collectively owned land for 30 years but cannot buy or sell it. In urban areas, residents have been able to buy and sell 70-year leases on property for more than a decade.

Peng pointed out that several laws governing the leasing of land in both rural and urban areas were already in place. The new law does not alter these; it only brings them together under a single overarching umbrella. "We already have enough laws on paper to protect property rights. What we need is the rule of law, so that these laws can really be implemented," he said.

Beyond the statement of general principles and reiteration of already existing regulations, there are some new clarifications in the law. These spell out the legal position on certain points of dispute between property owners and real-estate developers. For instance, one clause stipulates that the ownership of parking spaces around high-rise buildings belongs to the owners of the flats and not to property developers, previously a grey area that led to numerous disputes.

Wang Zhaoguo's explanation of the Bill before the NPC, however, made scant reference to the middle classes and their interests, but focussed instead on those parts of the draft law that addressed concerns regarding asset stripping of state-owned factories, illegal transfers of farmland to real-estate developers by local governments, and adequate compensation for those whose lands are expropriated legally.

The law contains provisions aimed at ameliorating all of these concerns. For instance, it states that if any person "causes loss of state-owned property by transferring it at a low price, illegally sharing it in conspiracy with another person, placing a charge over it without authorisation, or by other means in the course of restructuring the enterprise", they would bear legal liability. It also explicitly gives farmers the right to renew their land-use leases after they expire.

Professor Wen Tiejun, Dean of the School of Agriculture and Rural Development at Renmin University and a leading new-Left scholar, remained unconvinced by these claims. "The law is dressed up to show that it will protect rural people and public-owned property but in fact its main aim is to give more rights to China's new millionaires and urban middle-class," he said.

Putting private property on an equal legal footing with that of state-owned and collective property, Wen Teijun argued that it was a dangerous first step towards the eventual privatisation of all property. Such an outcome, he said, would be a disaster for the 700 million Chinese who continue to live in rural areas.

Rural residents have no state-provided social security; so their communally owned plot of land is often virtually all that remains between them and destitution. He said that should rural people sell their land, they would be exposed to exploitation and impoverishment on an altogether more alarming scale than at present.

His solution for the illegal sale of farmland is to slow down the rate of urbanisation. He also agreed that laws in China had only a limited impact, given the shortcomings of the legal system. "Merely formulating new laws will not change the situation on the ground," he concluded.

While the property Bill may have been passed into law, the tensions within Chinese society that its passage exposed continue to simmer.

China's current leadership has in fact come in for criticism for what some analysts see as its weakness and ensuing inability to take a firm stand. Unlike Jiang, it is indeed harder to classify Hu and Wen as either decidedly pro-Left or pro-reform. Their strategy has instead been to develop a more Left-oriented rhetoric while quietly pushing along the reform agenda.

On the other hand, their penchant for compromise could also be interpreted as the maturing of China's political system, in which the leadership must take into account and try to reconcile opposing interests and views. China's one-party system remains far from democratic in the Western liberal sense but it is showing some signs of greater internal debate.

If nothing else, the Bill demonstrates that the future course of China's development is contested and remains far from certain. But at least in the short term, the country looks set to continue its embrace of pragmatism over ideology.