Divided World: China’s Land Tenure System and Implication to Foreign Investment in China

Dong-A Journal of International Business Transaction Law, Spring 2010

Dong-A University School of Law and Institute for Legal Studies Research Series

46 Pages Posted: 25 Aug 2010

See all articles by Ruoying Chen

Ruoying Chen

Peking University Law School; University of Chicago - Law School

Date Written: March 25, 2010


This article reviews China’s land tenure system, which is featured with differential treatment of rural and urban citizens with respect to three types of land tenure: urban land tenure, arable land tenure and rural residential land tenure. With the urban residents fully participated in the market economy started in early 1980’s in China, rural residents in China are far left behind in terms of entitlement to property protection in land tenure. These differential treatments are analyzed along two dimensions that are central to any discussion of property in land: rules on possession and restrictions on alienability. Applying economic theories about property in land and collective decision making, each dimension of the three regimes were analyzed. While most current scholarship recognized such a difference, they did not distinguish legal rules for, arable land tenure, on one hand, and rural residential land, on the other. This article therefore fills a gap in providing an economic analysis of the legal regime for rural residential land as separate from arable land tenure. Going beyond the institutional details of the legal and regulatory land regime, this paper addressed the economic development in China that has shaped such divided legal regimes and caused tension between the current law and changed economic and social circumstances. Instead of treating the land regimes as a domestic issue, this paper concluded with two implications of such divided legal regimes over foreign investment in China. The first implication focuses on the function of land tenure as a critical, if not the single most important, input to foreign direct investment in China. The second implication meanwhile addresses how the legal regimes would affect the prospect of foreign banks in China’s rural economy.

Keywords: land tenure in China, property law in China, foreign direct

JEL Classification: Q15, P32, P21, D23, D78, F21, H20, H30, H72, H77, K00, K11, N35, N45, N55

Suggested Citation

Chen, Ruoying, Divided World: China’s Land Tenure System and Implication to Foreign Investment in China (March 25, 2010). Dong-A Journal of International Business Transaction Law, Spring 2010. Available at SSRN: https://ssrn.com/abstract=1665175

Ruoying Chen (Contact Author)

Peking University Law School ( email )

5 Yiheyuan Road
Haidian District
Beijing, Beijing 100871

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

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