Is it correct that China does not allow private ownership of real property?
Yes, that is correct. Because China is a socialist country, all land is either subject to government ownership or collective ownership. In principle, municipal land is subject to government ownership and land outside cities is subject to collective ownership. However, one can obtain the right to use the land. There are two types of land-use rights, the "granted land-use right" and the "allocated land-use right". The difference is that granted land use rights are limited in time against payment, whereas allocated land use rights are usually given for free and without allocation of time. It seems that allocation is the better deal, since it is free and unlimited, but there is a string attached. Allocated land can be used only for a specific purpose and cannot be assigned. When setting up a foreign invested enterprise, it is usually the Chinese partner that contributes land use rights. In such a situation it is of fundamental importance that FIEs ensure that the company acquires a granted land-use right, because the Chinese partner cannot dispose of allocated land.
It is also noteworthy that rights to buildings and rights to land are different. In principle, rights to buildings and land must be acquired together. Because land use rights are limited in time, it raises the interesting issue: what happens to the right to a building after the land use right has expired? This is a new issue that has yet to be resolved. The real property law will most likely be reformed in the next several years in order to clarify issues like this.
