China's New Property Law -- Effective October 1, 2007

After 14 years of preparation and seven rounds of review, the long-awaited Property Law of the People's Republic of China (the "Property Law") was finally adopted by the National People's Congress on March 16, 2007, and will go into effect on October 1, 2007.

Composed of five parts, 19 chapters and 247 articles, the Property Law is a comprehensive law covering property rights such as ownership, usufructuary rights, security interest in property rights, and possession of property. The Property Law will be instrumental in solidifying China's basic economic system where state-owned property, collective property, and private property can co-exist in a socialist market economy allowing a legal framework for the creation, transfer, ownership, use, and protection of property rights .

The most prominent features of the Property Law are its extension of equal protection to state-owned, collective, and private property, and the prohibition of any infringement upon such property. These features allow property owners in each category (state-owned, collective, and private) to have equal status in the market. Each property owner will now enjoy the same rights, observe the same rules, and bear the same responsibilities. 

The Property Law clearly defines the scope, stipulates the exercise of rights, and expressly states protection of state-owned property which includes natural resources, infrastructures, and equity interest in companies and enterprises owned by the State. It also purports to establish a uniform recording system for real property, which will greatly facilitate the acquisition, transfer, and mortgage of real property.

Another important feature of the Property Law is the range of the types of property that may be used as collateral for security arrangements has been expanded to include production equipment, raw materials, semi-finished products and finished products, buildings, ships, aircraft under construction and accounts receivable. This will increase enterprises' ability to use its assets as collateral for financing operations and expansions.

The Property Law also puts property rights of foreign investors on the same plane as property rights of Chinese entities and individuals. It has set forth clear uniform rules to follow in the acquisition, possession, use, and disposal of property in China.

While the publication of the Property Law has reached a milestone in the civil legislation of China, more detailed laws and regulations will be forthcoming to provide the operational rules for the implementation of the Property Law. It can also be expected that the Supreme People's Court will issue interpretations on the provisions of the Property Law to provide clearer guidance on the construction of those provisions. For a comprehensive understanding of the Property Law, these legislative and judicial developments should be monitored closely.