China: Understanding the Regulations on Expropriation and Compensation of Housing on State-owned Land

Last Updated: 26 November 2011
Article by Yan Jun and Chen Haiting King

With urbanization surging in China, conflicts triggered by urban housing demolition constitute a grave threat to social stability. In order to cope with the legislative demands posed by new situations, China's State Council ("CSC") made amendments to the Administrative Regulations on Urban Housing Demolition and Relocation1("2001 Regulations") and promulgated the Regulations on Expropriation and Compensation of Housing on State-owned Land on January 21, 2011 ("New Regulations").

Compared to the 2001 Regulations, the New Regulations set forth some principles in housing expropriation. The New Regulations stipulate that compensation standards should be set no lower than market prices, and require increased transparency during the expropriation process. The New Regulations specify circumstances under which compulsory expropriation can be conducted for the sake of the public interest. Though there are still some debatable points to be clarified, the New Regulations have made significant improvements in the regulation of public rights and the protection of private rights. The promulgation of the New Regulations caters to the economic and social development of China, which fully reflects China's legislative progress in building a more democratic society. This article will explore the major changes and highlights of the New Regulations.

I. The New Regulations Use the Term "Expropriation" Instead of "Demolition"

One significant change contained in the New Regulations is that the term "demolition" is replaced by "expropriation". In accordance with the PRC Property Law ("Property Law")2 and the PRC Land Administration Law ("Land Administration Law")3, "expropriation" refers to the act of acquisition of houses owned by individuals or entities, or other forms of real property interests. There is no legal basis for the term "demolition" in the 2001 Regulations to be applied in the above Laws as "demolition" implies different meaning in the Property Law and the Land Administration Law. Therefore, using the term "Expropriation" instead of "demolition" improves the legislative consistency among the above laws. In short, the New Regulations strengthen the legislative intent to conduct a legitimate, fair, reasonable and lawful expropriation and compensation process.

II. The Only Purpose for Housing Expropriation is Public Interest

A. Primary Consideration in Housing Expropriation – the Public Interest

Articles 1 and 2 of the New Regulations use the wording of "safeguarding the public interest" and "for the need of public interest",which signify that the public interest is the only proper policy reason that justifies the expropriation of houses. The New Regulations are intended to enhance the regulation of public rights and the protection of private rights.The New Regulations attempt to reconcile the interests of industrialization, urbanization and the legitimate interests of former owners of expropriated homes in order to balance public and private interests.

B. Defining Housing Expropriation in the "Public Interest"

The Constitution of the People's Republic of China4, the Property Law and the Land Administration Law all make use of the words "public interest", but do not define the scope of this term. Article 8 of the New Regulations for the first time defines expropriation for the "public interest". The primary "public interest" is to "safeguard national security and promote national economic and social development". Article 8 enumerates five circumstances of "public interest", including national defense and diplomatic need, and concludes that "public interest" can only be set forth by laws and administrative regulations. It is a legislative milestone that housing expropriation on state-owned land is now strictly outlined within the boundaries of this public interest definition. The construction of low-income housing projects and the rebuilding of old urban areas are also being driven by the "public interest". This provision represents another legislative breakthrough, demonstrating that the "public interest" is evolving towards "public use" in a broader sense. This wider definition of "public interest" is indispensable if China's cities are to modernize.

However, there are still loopholes in the enumerations of "public interest". For example, the circumstances of "rebuilding old urban areas with a cluster of houses in danger or with obsolete infrastructure organized and implemented by the government in accordance with relevant provisions of the PRC Urban and Rural Planning Law5 may be abused by local governments in demolition projects.

III. The New Regulations Establish the Governments' Dominant Role in Housing Expropriation Compensation and Prohibit Profit Chasing Activities by the Implementing Entities

A. City and County Level Governments in Charge of Expropriation Compensation and the Administrative Nature of Housing Expropriation

Article 4 of the New Regulations address some detrimental factors in housing expropriation, such as non-performance or overlapping governance by the various levels of government. Article 4 affirms the government's dominant role in housing expropriation, clarifies the legal role of administrative sanctions, and specifies the government's responsibilities and obligations at different levels in housing expropriation. All these attempts exhibit the administrative nature of housing expropriation.

B. Prohibiting Profit-Seeking Activities by the Implementing Entities

Compared to the 2001 Regulations, the New Regulations set forth two forms of housing expropriation: (1) expropriation implemented by expropriation departments or (2) expropriation implemented by authorized implementing entities. The New Regulations prohibit implementing entities from conducting profit-seeking activities. This kind of administrative delegation is different from the civil delegation acts provided in the 2001 Regulations. Therefore, the New Regulations phase out commercial real estate builders (normally real estate developers) and demolition companies in housing expropriation and compensation, and such parties can no longer be involved.

IV. The New Regulations Provide that Democratic Decision-Making, Procedural Fairness and Transparency are the Principles Governments Shall Apply in the Expropriation Process. The New Regulations also Establish a Mechanism for Judicial Review of Government Decisions

A. The New Regulations establish that national and social development plans are of priority consideration when making expropriation decisions, in addition to extensive public opinion solicitation, risk evaluation and public hearing

According to the New Regulations, the prerequisites for making an expropriation decision are as follows:

  1. the expropriation decision is made in the public interest;
  2. the expropriation decision complies with applicable planning;
  3. the expropriation compensation plan is made after soliciting public opinion (public hearing);
  4. the housing expropriation departments shall work outa risk evaluation report; and
  5. expropriation fees shall be deposited in special accounts and used for special purposes and shall be evidenced to have been allocated in full.

Expropriation decisions can only be made after satisfying all of the prerequisites. An expropriation decision can be made (a) by the person in charge of the administrative authority or (b) through a conclusion reached as a result of collective discussions.

Therefore, the above requirements help to reduce government corruption in housing expropriation, prevent the abuse of administrative power, and avoid random and transitory expropriation decisions. These requirements will safeguard the interests of private homeowners and minimize disputes over expropriation compensation. However, the requirements also mean a more complicated and prolonged decision-making process. Since national economic and social development plans must first be discussed and approved by the local people's congress, the New Regulations strengthen the level of involvement and supervision of the expropriation process by the people's congress.

B. Those who refuse to accept an expropriation decision are entitled to apply for administrative reconsideration or to bring an administrative lawsuit. The New Regulations set forth judicial remedies for administrative expropriation and the legal principles that govern such administration.

V. The New Regulations Further Clarify the Principles, Standards and Scope of Compensation

A. The New Regulations Unify Compensation Items and Increase the Amount and Reward for Homeowners Who Co-operate with the Expropriation

The New Regulations have consolidated the provisions regarding compensation items contained in the 2001 Regulations and have adopted some local practices as well. The New Regulations add provisions regarding allowance and reward plans to compensate those whose homes have been expropriated, and further clarify that they have the right to choose the mode of compensation. In addition, the New Regulations set forth compensation for losses from the closure of business operations caused by expropriation.

B. Compensation Standards Should Be Set No Lower than Market Prices on the Date When the Expropriation Decision Is Announced

The New Regulations establish minimum compensation standards and provide judicial remedies for those who refuse to accept the price assessments assigned to their property. These provisions provide more explicit and practical evaluation methods for determining compensation amounts, thereby preventing random pricing assessments in the compensation process.

C. Before an Expropriation Decision is Made, the Government Investigates, Determines and Deals with Disputes over Unregistered Buildings within the Scope of House Expropriation

The New Regulations require an additional step in expropriation process: the investigation and determination of illegal housing and temporary buildings for which the approved period has expired. As a result, the New Regulations have reduced the level of uncertainty and potential for disputes by incorporating the determination and implementation of fines for such illegal structures into the expropriation process.

D. Conducting Compensation Before Removal

The New Regulations reiterate the principle of "compensation before removal", which means that compensation is a prerequisite to the actual removal of the inhabitants of the expropriated property.

VI. The New Regulations Abolish the Government's Ability to Conduct Compulsory Demolition

The New Regulations have abolished the government's ability to conduct compulsory demolition as provided for in the 2001 Regulations, though compulsory expropriation through judicial procedures has been retained. The removal of the government's right to designate relevant departments to conduct demolition is great legislative progress and follows the legislative principle in China that administrative regulations cannot provide provisions regarding administrative enforcement. Compared with the 2001 Regulations, the New Regulations have made changes as follows:

First, the time frame governing applications for compulsory expropriation has been changed. According to the 2001 Regulations, applications for compulsory expropriation can be submitted if the inhabitants of the expropriated property fail to vacate the premises by the date indicated in the court order. However, the New Regulations stipulate that compulsory expropriation can be conducted only if the inhabitants of the expropriated property fail to vacate within the deadline provided in the compensation decision and also fail to apply for administrative reconsideration or bring an administrative lawsuit within the statutory time limit (normally three month after the effective date of compensation decision). If the homeowner applies for administrative reconsideration or brings an administrative lawsuit in response to the compensation decision, then the application for compulsory implementation can be submitted after the termination of the reconsideration or lawsuit procedure, normally half a year after the effective date of the compensation decision.

Second, the proper applicants for compulsory expropriations have been changed from housing demolition departments to city and county level governments.

Third, application materials for compulsory expropriation applications should include the amount of compensation, numbers of special deposit accounts, and locations and areas of houses used for ownership exchange and transition.

VII. Other Major Changes Brought by the New Regulations

The New Regulations have addressed issues regarding low-income housing and specify guidelines for the relocation of low-income homeowners. The second section (Article 18) of Chapter III of the New Regulations addresses low-income housing issues, evidencing the legislators' concerns about underprivileged groups and the legislative spirit in the Property Law that housing expropriation should ensure inhabitants' living conditions. Low-income housing is a required consideration before expropriation decisions are made by the government.

It is worth noting that certain new provisions and new principles found in the New Regulations have already undergone trial implementation on in some urban areas. Thus a basic foundation of practices has already been in place, which will make the transition into and interpretation of the New Regulations much more effortless.

(This article was originally written in Chinese, and the English version is a translation.)

Footnotes

1 The Administrative Regulations on Urban Housing Demolition and Relocation was adopted at the 40th Executive Meeting of the State Council on June 6, 2001, became effective as of November 1 2001, and replaced by the Regulations on Expropriation and Compensation of Housing on State-owned Land on January 21, 2011.

2 The PRC Property Law was adopted at the 5th Session of the 10th National People's Congress on March 16, 2007, and became effective as of October 1 2007.

3 The PRC Land Administration Law was adopted at the 10th Session of the Standing Committee of the 6th National People's Congress on June 25, 1986.

4 The Constitution of the People's Republic of China was adopted at the 5th Session of the 5th National People's Congress on December 4, 1982 and promulgated on that same date. Amended according to Proposed Amendments to the Constitution of the People's Republic of China adopted at the 1st Session of the 7th National People's Congress on April 12, 1988, the Proposed Amendments to the Constitution of the People's Republic of China adopted at the 1st Session of the Eighth National People's Congress on March 29, 1993, the Proposed Amendments to the Constitution of the People's Republic of China adopted at the 2nd Session of the 9th National People's Congress on March 15, 1999, and the Proposed Amendments to the Constitution of the People's Republic of China adopted at the 2nd Session of the 10th National People's Congress on March 14, 2004.

5 The PRC Urban and Rural Planning Law was adopted at the 30th Session of the Standing Committee of the 10th National People's Congress on October 28, 2007, and became effective as of January 1, 2008.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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