The Costs of Complex Land Titles: Two Examples from China
For thousands of years, Chinese customs and law typically have directed an owner of land, when transferring it, to retain a right to reclaim it in the future. Prior to the Communist Revolution of 1949, the pertinent rules were provided by the custom of dian, which emerged in ancient China and was formally recognized in legal codes as early as the Ming Dynasty (1368–1644). Dian provided the seller of a tract of land the option of buying the tract back many years later at the original sale price. When the seller died, this right of redemption descended to his heirs. Current Chinese policies also prohibit the outright sale of land. Since the 1980s, when China began to dismantle many of the collectivist policies characteristic of the Mao era, the government has authorized the conferral of land use rights on private individuals and entities. But Chinese law does not permit the national government, or a village collective, to transfer use-rights in perpetuity. Instead, a private land interest is limited to a fixed term, for example, forty years in the case of urban commercial land.
Someone who possesses land under either of these arrangements holds it subject to a future interest. In the case of dian, the future interest is the former seller’s right of redemption. In the case of a fixed-term contract, the future interest is the reversion that will return ownership to the transferor when the fixed term expires. Under both these land-tenure arrangements, a current possessor of land is aware that the owner of the future interest can, at some point in time, oust him from the land. Legal policies that complicate land titles in this way tend to result in both the misuse of land and too little investment in land improvements.
1 BRIGHAM-KANNER PROPERTY RIGHTS CONF. J. 281 (2012)