Global Economics

Beijing Looks Set to Protect Private Property


Amid controversy over the growing inequities of reform, a new law would further enshrine private ownership, while also protecting public assets

Pushing property rights in the People's Republic? That's what's on the agenda these days in the People's Republic of China as its legislature, the National People's Congress, has decided to take up a draft property law at its upcoming confab to be held in March in Beijing. "It will be the first law to protect both public and private ownership," pronounced the China Daily on Dec. 26.

The law hasn't had an easy birth process. What would become China's first property law since the founding of modern China in 1949 has gone through a record seven readings since it was first introduced four years ago—more than any previous law on the mainland. And attempts to pass it at last March's Congress were blocked by conservative legislators loath to see private property be granted more power "amid worries that the draft might undermine the legal foundation of the socialist system," says the China Daily.

This time analysts are predicting passage. That's because China's top leaders have made it clear that they recognize the importance of private property to meeting their goals of building a modern economy and raising overall living standards, including those of the 700 million still living in rural China (the easy part will be the planned quadrupling of gross domestic product to $4 trillion in the period from 2000 to 2020). Indeed, China's constitution was amended in 2004 to enshrine the role of private property.

Protecting Public Assets

And President Hu Jintao has in particular and repeatedly stressed the need for a rules-based economy since he took office in 2003. "Rule of law is a fundamental ruling method of the party under the current situation," Hu said earlier this year according to Xinhua, the state news agency. "The party should govern and construct the country according to law," he said on July 3.

At the same time, the latest draft of the law has been altered to better protect public assets, amid fears that state property is being stolen in the process of rapid reform, say analysts. New clauses in this version "prohibit illegal possession, looting, private partition or withholding of state assets," reports the China Daily. "The draft was further revised to install state ownership at the heart of the economic system," reported Xinhua on Dec. 27.

Despite almost certain passage, there is no denying that the property law is being considered amid an unprecedented rise in public concern about the side effects of overly rapid economic reform. Surging environmental problems, rising corruption and above all growing economic inequality have sparked a nationwide debate being played out in the media and on the Web, questioning whether China's reform process has come at too high a cost. "Income inequality is becoming larger and larger and this is a serious problem," says Beijing University economist Song Guoqing.

Blaming the Bosses

That is reflected in a survey jointly carried out by Beijing's broadsheet China Youth Daily and the popular Internet portal Sina.com. According their just-released findings (based on 10,520 respondents between the ages of 20 and 30, all with a salary of between $120 and $360), 90% of Chinese think the income gap is "serious," while 80% think that something must be done to deal with it. A mere 14.1% thought that no action was necessary.

Also interesting was what people see as the cause of the inequalities. Seventy percent blamed "special interest groups" for China's unequal society, while 68% cited "people in power." And in what is perhaps a reflection of the mixed feelings Chinese today hold for those from the business community, one half of respondents held "bosses" responsible for the unequal nature of society today.

And five years after China entered the World Trade Organization there is also growing concern that foreign companies are dominating too much of China's economy. So Beijing has instituted a raft of new rules dictating that industries such as energy and telecoms remain in majority state hands, as well as requiring foreign investors to get special permission to acquire Chinese companies in other sectors.

A Unified Tax Rate

But there is also growing recognition that all Chinese companies, public and private, need a more level playing field in order to compete with foreign companies at home and abroad. So along with the property law, Beijing's Congress is also likely to unify corporate tax rates to a common 25% during its upcoming March session, and end preferential tax rates that have long been used to lure foreign investment.

That move will mean lowering taxes on Chinese companies that now pay 33%, while raising the average 15% rate now paid by foreign companies. "A unified tax code will create a taxation environment that favors fair competition among all ventures registered in China," Finance Minister Jin Renqing said recently, according to Xinhua.

Adds Beijing University economist Song, "Most people think that foreign companies pay too little. The unified tax rate is something that seems very fair. I don't think there is anyone in China who would say that this is a bad idea."

Raising taxes on foreign companies may well be a popular move among most Chinese. But as last year's March Congress showed, when it comes to a property law, there is still far from unanimity on the mainland. "There are some people who still think about communism and socialism. And the basic argument of communism is that there should be no private property," says Song. As China's legislators prepare once more to debate the property law, Beijing's top officials are hoping that those conservative attitudes are finally fading.

Roberts is BusinessWeek's Asia News Editor and China bureau chief.

Later, Baby
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