Positive signal to entrepreneurs

Sun Dawu, a billionaire and a private entrepreneur based in Hebei Province, became well-known nationwide in 2003 because of his arrest. Owning a company once ranked 344th among the top 500 private corporations in China, Sun made a name for himself because of his harsh criticism of government policies that he said were prejudiced against the private sector. In one article on his website he described how he was repeatedly blackmailed by local government agencies and banks for being rich and how he refused to give in to their pressure.

In July 2003, Sun was arrested by local police charged with illegally taking over private deposits, a financing practice outlawed in China. Support for Sun from entrepreneurs and scholars, as well as tens of thousands of online petitions, helped to get him a relatively light punishment-three years in prison with four years on probation.

According to Hu Xingdou, Professor of Economics at Beijing Institute of Technology, actually China has thousands of private enterprise owners facing a similar fate to Sun-inviting trouble for themselves with their riches-and the prospective Property Law will be a positive signal to them.

Hu, who has conducted several surveys of China's private companies, claimed that a large group of private entrepreneurs operate companies only for short-term interests for fear that too much wealth will bring them fame and, as a result, trouble. Instead of investing their money into expanding their scale of production, Hu said, these entrepreneurs choose to deposit their money in overseas banks. In some cases private companies are forced to give local officials a stake when going public, which creates blurred property rights and sabotages the efficiency of these firms, he added.

In recent years a group of renowned Chinese economists has supported a notion of "original sin" which backs penalizing the country's entrepreneurial class. This theory suggests that most, if not all, private entrepreneurs started their businesses through illegal activities during China's "gold rush" period in the 1980s, and now it is time for them to pay their fines.

The introduction of the Property Law could put an end to this kind of entrepreneur bashing, according to Hu, providing a boost of confidence to the private sector and propelling China's economic development forward even faster. According to official statistics, the private sector now accounts for more than 57 percent of all enterprises in China and employs 64 million people.

Backfire

The marathon legislative process for China's prospective property laws has been strongly influenced by Gong Xiantian, a professor of jurisprudence at Peking University Law School.

One month after the Standing Committee of the NPC published the full text of the draft Property Law in July 2005, Gong posted a letter online entitled, "A Law That Goes Against the Principles of Socialism and the Constitution." In this letter, he said that although the law set out to protect ordinary people's property rights, its effect would in fact be to protect the rights of an extremely rich minority. "It equally protects a rich guy's limousine and a beggar's rod," he said sarcastically in the letter. He also indicated that the embezzlement of state-owned assets during the reform of state-owned enterprises could worsen should the draft be made into law without major revisions.

Gong said that his primary concern with the proposed law and the Constitution's section on property rights was that they failed to include a clause stating that state property is sacred and inviolable, "which is the foundation of socialist legislative work." Gong's requirement challenged the foundation of the emerging law reforms, which said that private property, state property and collective property should receive equal rights and protection.

Gong's letter proved highly controversial, provoking widespread debate about the natures of socialism and capitalism, which had been unheard since Deng Xiaoping's 1992 tour of southern China to renew his call for a push towards a market economy.

While Gong was attacked by legal experts, especially the drafters of the new property law, for delaying an essential part of a prospective civil code, he was also widely supported by tens of thousands of Internet users, who were worried about the country's widening income gap and about a growing level of fraud and corruption, which they saw as linked to the headlong pursuit of private wealth.

The war of words that Gong prompted between two camps of Chinese scholars and citizens attracted the attention of China's legislature, and led to compromises in the draft proposal.

At a seminar to debate the new Property Law, China's top legislator Wu Bangguo asked the law's drafting team to bear in mind that the basis of China's socialist economy is public ownership, which is essentially different from Western capitalist private ownership.

As a result, the last version of the law added a series of provisions on the protection of state-owned assets, including prohibiting the illegal possession, looting, secret partition and demolition of state assets by any entity or individual. Another newly added article said, "Those working for state assets management and supervision agencies should bear legal liability for causing the loss of state-owned assets due to mismanagement and abuse of power."

Certain hotly debated issues, such as whether affluent urbanites can purchase residential land from farmers to build holiday homes, and how people can renew a lease on land or property when the 70-year term expires, were not included in the final draft because they were deemed too sensitive.

According to Hu of the Beijing Institute of Technology, concerns that approval of the new Property Law could accelerate the privatization of state-own assets are unfounded. He believes that, on the contrary, the law could help to protect state assets. "If who owns what becomes clear, state assets will not be easily invaded," said Hu. "In the longer run, the law of ensuring the exercise of citizens' rights over their property will offer the basic rules for a market economy and a civil society."