Solid Land: Land-Use Rights
By Yan Fang
Phone: (61 2) 9223 7888
Posted to Web Site: 20
of these Sino-foreign joint ventures invest in some form of fixed assets,
such as buildings, machinery or equipment.
One of the main reasons why Chinese enterprises form joint ventures is
to obtain cash injection from the foreign partner in order to make this
investment. You will often find that
a large part of the Chinese party’s contribution is land value.
must keep in mind that the land component of a joint venture can be extremely
complex and open to dispute in China due to the variety of land-use rights,
which create controversy over existing regulations and uncertainty about
conflicting practices of different authorities.
You must be careful, not only because it
represents a large asset in the company’s books but also it can cause
owned land is of course mainly
farmland, and very strict rules for governmental approval must be adhered to
in order to acquire collectively owned land for industrial use. This rarely happens for joint ventures as
the Chinese government sees the increasing necessity to protect its already
land is mainly land for
industrial use, urban residences and infrastructure. Under the abstract concept of state-owned
land, the user of a specific piece of land holds either one of two kinds
land-use rights: an allocated land-use right or a granted land-use right.
of a land-use right itself was free, except for compensation to farmers if
the land comes from farmland. The
rate of compensation was virtually independent of the market value of the
land at a specific location. The
land-use right acquired in such way was called an allocated land-use right.
An allocated land-use right is not transferable, and cannot be leased
or mortgaged. Today, holders of
allocated land-use rights are required to pay a land-use fee each year.
way of extending land-use rights was created as result of the market
economy. This is a granted
land-use right. The holder of a
granted land-use right needs to pay a significant land-grant fee to the
government for acquiring it.
land-grant fee varies largely in respect to the market value at different
locations. For example, the
land-grant fee for land at a remote suburb is much cheaper than that for land
in the city centre.
Within the term of a land-use right, the holder of granted land-use
right has a “user right” similar to that of an owner. The land is transferable, and can be
leased and mortgaged.
the holder of allocated land-use right, normally the land user with a granted
land-use right is not required to pay a land-use fee each year. Where (exceptionally in some cities) both
the allocated land user and granted land user are required to pay a land-use
fee, the amount paid by granted land user is much less.
is no official database available for public search. As mentioned above, some local governments
require only allocated land users to pay a land-use fee annually, while some
local governments require both to pay the land-use fee.
some investors, the difference between land-use rights means a significant
difference in the book value of the company.
For real estate developers, it can be crucial. The properties developed are not saleable
unless they are under a granted land-use right.
where the situation is not crucial, it can cause chaos. I once observed a joint venture where the
major part of Chinese partner’s capital contribution was a factory building
and land. The land-use right was
valued at a large amount of money due to the size of factory, and, more
importantly, the market value of the land was a major factor in the valuer’s
the land-use right was an allocated land-use right, which was not
marketable. When the joint venture
was asked by local land bureau to pay a significant amount of annual land-use
fee, the foreign investor found out that the land-use right the joint venture
acquired was not what it presumed it would be.
think it just a matter of size and cost.
Spending time to clarify with your partner, and the relevant
authorities, will avoid problems later.