China: Property and Education

Hank Levin writes: The laws applying to private property in the PRC are often contradictory and ambiguous.  If WAISERS want a concrete case, they can examine the situation of higher education.  See the article in The China Review (April 2005) on this subject.  Private education at all levels is a rapidly expanding industry in China, mainly because of shortages of spaces at the upper levels of secondary school and in post-secondary education.  Most of these schools are inferior to their public counterparts, but they are alternatives for those who cannot secure places in government schools. However, the property rights of those who establish such institutions are unclear with the official ruling that the property belongs to the "people" based upon the 2002 law.  Even so, I have met Chinese who have got rich from establishing and operating these institutions as a highly lucrative business, despite the fact that they are not considered to be private property.  The real question is how they are able to exploit private property rights to these institutions when they are considered to be public property.  Perhaps a WAISER >from China will tell us the secret.

Cameron Sawyer writes: I was unable to find anything on the ruling Hank Levin refers to.  Perhaps he would post the China Review article, which is not available online.
 
What I was able to find is the following.  There are 60,000 private schools in China (source:  National Center for Policy Analysis).  The authorities routinely register private companies which operate schools, and grant licenses to these companies to operate as schools; there is no information about any dispute about the property rights of the shareholders in these companies.  In fact, there is a sizable Chinese corporation called "South Ocean Education Group" which as early as 2000 was earning a 30% profit on revenues of $36 million.
 
Private companies in China operating as schools lease land and own their buildings, and there does not seem to be any dispute about those property rights, although apparently school buildings cannot be mortgaged (South Ocean was raising capital by issuing "education debentures").  There is apparently some question about the extent to which private schools are allowed to earn profits, but the 2002 law on private education attempts to clarify this by guaranteeing the right to a "reasonable return on capital" to the owners of private schools.
 
So how can a registered private company with registered shareholders and a license to operate as a school be considered "public property"?  Perhaps some Chinese bureaucracy or court declared some kind of public interest in private education (such declarations have been made in the west as well), but this should not be confused with disputing the property rights to the school.  In order to do that, the Chinese would have to confiscate or nationalize those 60,000 schools (either the shares, or the buildings -- the particular subjects of property rights), which as far as I know has not happened.
 
We should keep in mind what property is -- property is a bundle of rights in relation to some thing or land plot which are never quite unconditional no matter what country we are talking about.  Property rights are only as good as the government which enforces them -- a beautiful gilt-edged certificate of property rights is no good to you, for example, if the government of the country in which the property is located has just confiscated that property, or refuses to enforce your rights as against a third party, or regulates away your right to do something useful with that property.  Property rights in land, for example, may be nominally unconditional but in every country are subject to regulations about how the land can be used.  And this is often the critical question -- what good are property rights in a land plot which is then declared a wetland, for example, upon which it is forbidden to build anything?  Only with great difficulty did we in the U.S. finally start to develop a legal doctrine of regulatory taking -- the idea that if regulations interfere with the full exercise of property rights, this can be construed as a "taking" of property by the state, requiring compensation according to the Constitution, and this is fairly unique in the world.  But the concept of regulatory taking does not nearly make property rights absolute even in the U.S.  The corollary to this is that a different bundle of rights which do give you what you need with regard to a plot of land may be just as good as property rights.  For example, in Russia, any Russian or foreign person or company can own land outright anywhere but in Moscow.  But Russian law provides that property rights in buildings are not derived >from or conditional upon rights in land (unlike most of the rest of the world, where buildings are considered mere appurtenances to land which have no independent legal existence).  So in Moscow, you may get a 49-year lease in land as part of the bundle of development rights you need to build a building.  But the building, after construction, becomes your property in fee simple.  So what do you care about the land?  And even in countries where buildings follow land and are subject to the interests of the underlying land owner, a land lease is a perfectly normal form of land tenure having all the features of ownership except for the limitation of time.
 
It is extremely important not to confuse a regime of property rights which is different, from a regime of property rights which does not exist.   Blanket statements like "private property is forbidden in China" are not useful, even, deceptive.  It may be that rights of private persons and companies in agricultural land in China are not called "property".  But a bundle of rights not called property may be exactly the same as property or close enough -- for a time in the 1990's in Russia there was a form of land tenure called "bezsrochnoe polzonanie" -- "eternal use" -- which other than some limitations on marketability was exactly the same as property (and which was later converted to property under the new Land Code).  In China, the regime of land tenure with regard to agricultural land is not called property, but is practically the same as long-term land lease rights.  The regime of land tenure with regard to urban land is long term land lease rights which are identical to those which one might have in a western country. 
 
The main question is not of form, but of substance -- can you buy (and sell) rights to a piece of land which give you the right to build a building?  And keep all the profits (subject to paying taxes) from selling or leasing that building?  In a real Communist country the answer is no.  But in China today, the answer is yes.  It may be that some legislation concerning some types of property rights in China is "ambiguous or contradictory".  One example of an important detail which needs to be worked out: in China, as in Russia, building have separate a separate legal existence, and therefore, separate title, from land.  But unlike in Russia, the legislation does not establish which rights are superior -- land, or building?  This is causing problems in the many condemnation cases in Chinese cities where single family houses are condemned so that the land can be redevelopment for office buildings or multifamily residences.  But look at the substance of the situation, not the form.  Are the Chinese secure in their property?  Secure enough to invest billions and billions of dollars into the development of office buildings, shopping malls, and private housing developments.  Secure enough to invest billions into the development of 60,000 private schools.
 

ank Levin writes: In response to Cameron Sawyer, any university library of a reasonable size receives The China Review , one of the mainstream journals on China published in English and available from the Chinese University Press of the Chinese University of Hong Kong.  It is available online via ProQuest Reference Asia.  The article in the Spring 2005 number is: “Trust Ownership, and Autonomy: Challenges Facing Private Higher Education in China” by Jing Lin, Yu Zhang, Lan Gao, and Yan Liu.  The ambiguity seems to arise when founders retire and try to sell their interests.  Governments have refused to let them do this and have succeeded in having the institutions declared to belong to the state.  The authors point out that as more and more of the original founders retire, this issue will emerge more fully.  Beyond that these institutions are heavily controlled in terms of degrees, fields of study, and admissions.  For example, they must wait until the public institutions make their admissions choices before being able to choose >from the remainder of the student pool.
 
For those WAIS members who read Chinese, the latest Peking University Education Review, Vol. 3, No. 2 is devoted to “For-profit Nature and For-profit Behavior of Higher Education: Comparisons and Lessons” with many articles  As these articles suggest, the issues are much less settled than your recent correspondents seem to assert.  As a member of the Faculty of the Institute of Economics of Education at Peking University, I have been involved considerably in the work on private education in China.  Those who are interested in the overall issues surrounding privatization in education should peruse the research papers of the National Center for the Study of Privatization in Education (NCSPE) at Columbia.  www.ncspe.org. 

As a follow-up to Harry Papasotiriou's report on this teaching in Shanghai, Siegfried Ramler writes:  Having done some research on private education in China, including making presentations at recent conferences organized by the Beijing Normal University, I may just add that the Ministry of Education, representing government policy,  encourages the development and growth of private initiative in acquiring land and setting up schools.  The official position is that private education, offering special and innovative opportunities in curriculum, learning environment, and facilities, serves a need and benefits the nation, very much consistent with China's market economy.  With growing prosperity, especially in the large cities, substantial numbers of families can now afford the tuition and boarding costs which could range from the equivalent of $5000 to $10000 per year, very high when considered from a Chinese perspective.  In a family's budget, the Confucian key role of education still applies.  And keep in mind that the one-child policy means that the incomes of six individuals - two parents and two sets of grandparents - can be pooled to benefit the one child.  The case of the South Ocean Schools, which has established private schools in many parts of China, is of note.  The founder and president of this company is a real estate developer, who realized that an attractive school plant in the suburbs of a city becomes a magnet to induce families to purchase homes in the school's vicinity.

Though many private schools offer good educational value, they do not rank among the top secondary or middle schools in China.  The elite or "key" secondary schools, with highly competitive admission standards,  are public and function as feeder schools to good universities.  Such schools receive generous government subsidies and can afford good facilities.

Private education, termed in Chinese "min ban" schooling, has a long tradition going back centuries.
Today, it is estimated that close to 10 million students, ranging from pre-school to university attendance, are enrolled in private institutions.