This dilemma, while sharp, has been no less predictable than the Y2K problem. Although the Party did not abolish private ownership of urban land when it took power in 1949, it gradually restricted the rights of owners over the years.
In 1982, the law finally caught up with reality when China formally nationalized all urban land. Since the early 1990s, however, urban land has been available for sale
in the form of long-term leaseholds, or “land use rights” (LURs), which last up to 70 years on residential land and for shorter periods for industrial and commercial land. This system allowed the state on the one hand to obtain the economy-wide benefits of market allocation of land as well as the revenues from leasehold sales, while on the other hand to maintain that the principle of state ownership of land had not been compromised: after all, buyers got “merely” leaseholds of several decades, not ultimate ownership. The original rule about what would happen when the leasehold expired was unambiguous: the land would go back to the landlord,
i.e., the state. If leaseholders wanted to extend the lease, they would have to pay for it.
The rule was clear enough as written, but leaseholders naturally didn’t like it. A widespread belief grew up that the rules around renewal were unclear and unfair. The picture was further muddied by China’s 2007 Property Law, which proclaimed that residential LURs would be renewed “automatically” — but without specifying whether that also meant “without charge.”
A prominent member of the drafting team later admitted that the team had simply punted on the issue because it was too nettlesome. To specify that a fee need be paid would have angered current LUR holders — a vast and politically important interest group (probably
80 to 90 percent of urban families). But to specify that no fee need be paid would have meant overturning a sacred tenet of Chinese socialism: that private land ownership is anathema. After all, a 70-year leasehold that continually renews itself automatically and without charge is no longer a leasehold; it is a permanent right to the land, indistinguishable in practice from the kind of outright ownership (called fee simple) that most homeowners in common-law countries like the United States take for granted.