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Monday, December 5, 2016, 12:30

A landmark in property rights protection

By Chi Fulin

The State Council, China's Cabinet, recently issued a guideline on how to further improve the property rights system and better protect property rights. The guideline is aimed at providing equal, comprehensive and law-based protection to all kinds of property rights.

Against the background of economic downturn, protection of property rights is critical to stabilizing China's economic and sustainable growth.

The deceleration of private investment in the first half of this year, which has raised widespread concerns, was partly due to the country's industrial restructuring and a not-so-bright market prospect. The drop in private investment is also directly related to insufficient investor confidence because of the lack of a standardized and law-based system for the protection of private property rights.

China has reached a critical juncture in its economic transformation and upgrading, which has raised the need for new legal protection for property rights in the country

Therefore, the guideline aimed at strengthening the protection of property ownership rights, improving the legal system in order to promote equal protection of property rights, deal judiciously with property rights cases that are yet to be solved due to historical reasons and strictly standardize legal procedures for the resolution of property disputes. It is a timely response to public concerns. The fact that the promised measures can be implemented without much difficulty should boost investors' confidence in the long-term prospects of the Chinese economy.

China has reached a critical juncture in its economic transformation and upgrading, which has raised the need for new legal protection for property rights in the country. Its ongoing campaign to transform and upgrade the manufacturing sector, which coincides with the new global industrial revolution (or "Digital Revolution"), also highlights the need to provide better protection for the knowledge-based economy and intellectual property rights, in order to boost public enthusiasm for entrepreneurship and innovation and propel the country's industrial development toward achieving its higher technological goal.

In this sense, the guideline's promise to better protect intellectual property rights, increase the cost of violating those rights and lower the cost for safeguarding them will play an important role in establishing an innovation- and entrepreneurship-driven economic development and accelerating the country's economic transformation and upgrading.

China's per capita GDP is about $8,000, and its middle-income population is about 300 million, less than one-fourth of its total population. And international experiences indicate the expansion of a country's middle-income population is dependent not just on its economic development, but more importantly on the establishment of an income distribution system based on the protection of property rights.

To expand its middle-income population, China needs to create conditions for people to increase their incomes via land ownership, technical knowledge and management expertise. However, because of the lack of a sound institutional arrangement for property rights protection - which block the channels for income generation - neither urban residents nor rural people can increase their earnings through such means.

So, to fulfill the requirements of its economic and social transformation, China has to improve its property rights system by advancing rule of law. And to better protect property rights, it should safeguard the fruits of innovation through legislation.

Economic ownership - which is different from legal ownership - should also be provided proper legal protection so as to inject new vitality into the market players and facilitate the country's economic transformation and upgrading.

However, extending equal protection to public ownership and non-public ownership of property means China has to address such new problems as removing the hidden barriers that non-public-sector players face in order to enter the service sector and helping entrepreneurs protect the gains they have made via innovation.

Fortunately, the State Council guideline has promised to abolish regulations that are unfair to non-public-sector players and lift the hidden barriers to ensure open and fair participation of all eligible enterprises and individuals in the market, as well as give them equal legal protection. To this end, the government should first prepare a list of services that cannot be offered by the private sector, and then grant both public and private capital free access to the rest of the service sector, and establish an incentive mechanism aimed at promoting innovation and increasing entrepreneurs' sense of security.

The document also points out the need to make legal arrangements for the protection of home-owners after the expiry of the 70-year period for land use rights. This will help assure businesses and investors of the permanent protection the government will provide them when it comes to their property rights.

The author is president of the China Institute of Reform and Development.

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