Eminent Domain in China: Private property rights law opens the door to capitalism

by Priya Prakash Royal

'The revision of the property law delivers an important political message that China will stick to the direction of [economic] reform and opening up." - Yin Tian, legal expert Beijing University

The National’s People’s Congress passed its new property law on March 16 this year. This new property law takes effect on October 1 and is intended to address the conflicts of a changing society, to protect the interests of farmers and of urban residents, when their homes are subject to eminent domain according to Yin Tian, a legal expert at Beijing University. Gone are the days of Mao, and now the socialist reform in China initiated by Xiaoping Deng in the 1980s is at the forefront again: this time by giving the people at least some individual property ownership rights. The government can still take land for public use, but the land will be owned by the individual and not the collective, at least, for some duration.

China began discussing the first drafts of a property law in 2002. But in 2005, “leftists” objected to the law because they felt that the gap between the rich and poor would widen. The leftists had been opposed to any laws that moved China from a communist to a socialist or capitalist regime. They have debated over the direction of China’s economic and political development since the 1980s, when Xiaoping Deng launched the first economic reforms.

Deng’s successors, retired leader Jiang Zemin and current state president and party leader Hu Jintao, continued Xiaoping’s policies of leading the country towards socialism but added “Chinese characteristics.” Essentially, China’s move towards socialism from communism can be more aptly described as “relaxing” communism. Although the changes resulted in rapid economic growth, it created increasing income gaps and regional imbalances due to the current leadership's regression toward a “people-centered” government.

In the 1950s, China collectivized private ownership of property. In the mid-1990s, China’s reformed these laws which gave its citizens private ownership rights in their homes but not the land underneath it. The new property law still doesn’t give the people rights over the land underneath their homes, but at least grants them a longer term of control over the land and may allow the transfer of property from one generation to the next and even allow the combining of property. Combining property would result in more efficient scales of production and increased output.

China is a classic example of Karl Marx’s political model in reverse: it moved from communism  to socialism and now is seemingly headed towards capitalism. The result of this political development has resulted in making China the fastest-growing economy. But it has created a tiered society  in which a growing middle class benefits from the move toward capitalism while the largely rural poor suffer.

Does this mean that the progressive new property law that protects individual rights will improve the economy overall and take the nation towards a free market economy? This law could unlock enormous asset wealth and increase China’s efficiency of its distribution. However, the era of Adam Smith’s economics hasn’t rung in just yet. Millions of Chinese citizens, the largely rural population, strongly oppose capitalism in China; they see the widening gap between the socio-economic classes as a detriment, after all.

The government, most likely for non-altruistic reasons,  ignored the dissent from the masses and passed the seemingly capitalist property law. The Chinese government needs to keep its living standards rising, which means they have to smooth the way for capitalism and foreign investment. For now, China retains its authoritarian control but the new property law is certainly a step in the right direction.