On March 16 2007 the National People's Congress of China, by a majority of legislators, passed the Property Law. A legislative landmark, it has gone through a lengthy legislative process lasting more than 13 years and a record seven readings. The Property Law will come into effect on October 1 2007.
This is the first time equal protection to state and private property has been enshrined in Chinese law, and it marks a big step in the country's efforts towards economic reform and social harmony.
The Property Law, based on the existing legal system and rules, has systematically outlined property rights, including the creation, change, transfer and destruction of property rights, comprehensive protection of property rights, provisions on ownership rights, schemes on rights, security rights and provisions on possession. In particular, the Property Law stipulates the conditions for expropriation of properties and compensation, establishment of pre-registration system of real properties, the automatic extension of the land-use right for residential properties and other greatly welcomed rules and schemes.
The new Property Law is great news for banks, and is expected to play a big role in facilitating financing facilities. For example, it provides a floating charge over the overall existing and future moveable assets of an enterprise, and a pledge over fund units and account receivables. This already exists in market practice, but is now expressly allowed by the new Law.
Some critics say that the Property Law is the product of too much compromise and that many rules and systems worthy of being included in the Property Law have failed to be provided, such as the assignment by way of security.
The promulgation of the Property Law will raise issues regarding the new law's application. The interpretation of the specific jargon, terms and conditions awaits judicial interpretation from the Supreme Court. The change to the existing system and the creation of a new system will also require further specification of procedural rules (for example, unification of the registration system for real estate properties, and the registration of pledge over accounts receivables and equity shares).