If you are a foreign invested enterprise (FIE) that needs to secure land use rights in China for your business operations there are many legal obstacles under Chinese law that you will have to navigate a path through before you may reach your goal. How do you begin and what steps do you need to follow? Those questions and more are addressed in an article on the “China Briefing” website, posted on February 19, 2014. This article provides you with a good basic understanding of how to secure land use rights. Sections of this article are posted below for your information. The article is entitled, “Obtaining Land Use Rights for FIE’s in China”.
“SHANGHAI – Order No. 55, disseminated by China’s State Council in 1990 (“Order 55”), allows foreign investors to acquire land-use rights for business operations. However, China employs highly rigid rules and administrative control over the grant or transfer of land-use rights, and any change of the title or purpose of the land-use rights requires legal procedures to be carried out with government authorities. The Ministry of Land and Resources (MLR) and its local Land and Resource Bureaus (LRB) oversees land use registration and alterations. Nevertheless, all individuals or entities must utilize the land strictly in compliance with the general plan of land usage formulated by the state and local government.
Individuals and non-governmental entities in China cannot obtain land ownership, but instead must exercise land-use rights for a specified term through an up-front payment of land-use premiums. The Land Administration Law of China explicitly stipulates that all urban land in China is owned by the state (“state-owned land”), and the suburban and country areas are either owned by the state or rural collectives (“collective land”). For construction purpose, such as building manufacturing plants, warehouses, or infrastructures, individuals or entities must apply for state-owned land.
Land Registration
In China, the establishment or alteration of land-use rights requires registration with the government. According to the Property Law of China, land-use rights may only be established upon successful registration with the land administration authority, which is usually the local LRB. After the registration, the LRB will issue a land-use rights certificate to the land user as a token of title.
For a start-up FIE, the general procedure for acquiring the land-use rights certificate is to first apply for a Certificate of Approval at the Ministry of Commerce (MOFCOM) or local MOFCOM office, depending on the size and industry of the potential company. Within 30 days after obtaining the Certificate of Approval, the foreign company will need to complete the business registration process at the Administration of Industry and Commerce (AIC) to obtain a business license.
If the FIE already has a contract for obtaining the land-use rights at the moment, they should apply for the land-use rights certificate at the local LRB within 30 days following the issuance of the business license by the AIC. The Certificate of Approval and the business license will be reviewed by the local LRB before they issue the land-use rights certificate.
Acquiring Land-Use Rights
Generally, there are two ways for foreign investors to acquire land-use rights in China – directly from the government or from existing land users in the market. According to Order 55, land-use rights can be granted or allocated by the government. The rights can also be transferred, leased, or pledged by a land user who legally obtained the land-use rights from the government.
Grant of Land-Use Rights
Foreign investors can access government-granted land-use rights through agreement arrangements with the government or through a bidding and auction process. By signing a contract with the government (usually with the LRB at the municipal level), foreign investors will be granted land-use rights over a specified plot of state-owned land for a fixed period.
There are maximum terms defined for granted land-use rights based on the proposed usage of the land. For residential estates, the maximum term is 70 years. For land of industrial, educational, scientific and technological, cultural, health, sports, comprehensive or other uses, the maximum grant should be no longer than 50 years. For land of commercial, tourist and recreational uses, the maximum term is 40 years.
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The land-use rights premium should be paid as a lump sum within 60 days following the conclusion of the signing of the contract. The land-use rights certificate should be obtained upon land registration within 30 days after the premium has been fully paid.
Land-use rights granted by the government are allowed to be transferred, leased, or pledged. However, these activities are still bound by the grant contract signed with the government, and government approvals should be obtained for any proposed changes in the land’s purpose, the grant period, or the land development plans. In these cases, a new government grant contract might be necessary.
Allocation of Land-Use Rights
Order 55 allows the gratuitous allocation of land-use rights by the government for the purpose of:
Government agencies and military bases;
Urban infrastructure and public interest;
Energy, transportation and water irrigation infrastructures particularly supported by the state; or
Other uses legally allowed.
Despite this free lunch, the downside of such an arrangement is that the government can retrieve the land-use rights anytime without giving any compensation. The other downside is that land-use rights allocated by the government are generally not allowed to be transferred, leased, or pledged unless permission has been granted by both the local LRB and property administration authority with the following conditions being fulfilled:
The land user is a company, enterprise, other economic organization, or individual;
The land user has obtained a land-use rights certificate;
The land user owns the property ownership certificate for the buildings and other; attachments established on the land;
A contract for granting the land-use rights has been signed between the land user; and the government and the land use premium has been paid in full.
Furthermore, although there is no fee for acquiring the allocated land-use rights, foreign investors still need to pay a yearly site use fee based on the acreage, usage, and location of the land. The rate for the site use fee varies from region to region, usually ranging from RMB5 to RMB300 per square meter.”
Acquiring land use rights is not easy but it can be done if you let experts guide you, and if you follow their advice.
The entire article referred to above may be found at:
http://www.china-briefing.com/news/2014/02/19/obtaining-land-use-right-for-fies-in-china.html
Hawkeye in China
Lex Smith