China and Russia: Property

Cameron Sawyer writes:The fact that much land in China may still be held by the state in fee simple does not mean that no one has any property rights.  There are many species of property rights besides underlying fee interests -- long term land leases, long-term rights to use, and so forth.  Chinese farmers have since even before the 1988 reforms had the right to conclude long term "use contracts" with the local authorities (the "rural collectives") which are effectively long term land leases.  The basis for this was the "Household Responsibility System" which started to be implemented already in the late 1970's, and which was intended to decollectivize Chinese agriculture.  This was an excellent reform -- would that Russia had done the same thing in those days.  The HRS allowed the Chinese government to smoothly and gradually marketize agriculture -- reducing and eventually eliminating the production quotas in parallel with reduction and elimination of supply of equipment and materials through the central planning apparatus.
 
The initial 20-year term of these contracts was extended to 30 years in 1993.   With the Rural Land Contracting Law of 2002, these contracts gained more features of long term land leases so that they are now, for all practical purposes, that.  They can be bought and sold.  So Chinese farmers do not own total property rights, but they are legally secure long term tenants of land with the right to buy and sell their lease rights, so they are owners for all practical purposes.
 
Note that a 30-year lease represents at least 75% of the full economic value of fee simple ownership (depending on the "cap rate" applied).  Something like 80% of London is built on the basis of land leases, and it would be just as inappropriate to say that there is no land ownership in London as it is to say that there is no land ownership in China.
 
Urban land in China is given into commercial exploitation by long term land leases, which can be held by foreigners as well as Chinese, and which can be freely bought and sold and which have more or less all the features of long term land leases in the West.  This is a completely normal market economy system, which has allowed a booming commercial real estate market, as noted by Ronald.
 
The system of land tenure in Russia is somewhat more liberal and more straightforward than in China -- most rural land is private property, as is most urban land except in Moscow, where the city authorities prefer to sell 49-year leases.  Because of the time value of money -- the present value of rent accruing today is much greater than the present value of rent accruing 50 years from now -- there is practically no difference in the economic value of a 49-year lease compared to fee simple ownership.  One 2400 square meter site (a little more than half an acre) on Tverskaya Street in Moscow was sold for $45 million recently, a price rivalling Manhattan levels.  The fact that the land tenure was in the form of a 49-year lease, rather than fee simple ownership, did not seem to have much effect on the price. 
 
It is greatly misleading to represent the Chinese real estate market with one story about one tycoon's villa.  Property rights -- of various kinds, but no less legitimate than what we have in the U.S. -- are alive and well in China, evidenced by China's enormous and highly developed real estate markets.  Shanghai, in fact, has the highest rate of new housing construction of any city in the world.  Moscow, another post-Communist capital, has the second.  Tycoon's villas make up a tiny fraction of the tens of millions of square meters [hundreds of millions of square feet] of new housing development in Shanghai.  The vast majority of new housing development in both Shanghai and Moscow is for average people, which is greatly improving their standard of life.