Evolving Property Rights in China: Patterns and Dynamics of Condominium Governance

The Chinese Journal of

Comparative LawVolume 2 Number1 March 2014

CONTENTS

ARTICLESLeon E. Trakman, China and Foreign Direct Investment: DoesDistance Lend Enchantment to theView? 1Lei Chen and Mark D. Kielsgard, Evolving Property Rights inChina: Patterns and Dynamics of Condominium Governance 21Ngoc Son Bui, Beyond Judicial Review: the Proposal of theConstitutional Academy 43Bryane Michael, Can the Hong Kong ICAC Help Reduce Corruptionon the Mainland? 78Jamil Ddamulira Mujuzi, The Transfer of Offenders from OtherCountries to Canada: Analysing the Theory and Practice 120

REPORTRoman Tomasic, Corporate Governance in Chinese-ListedCompanies Going Global 155

DOCUMENTQisheng He, Interpretation I of the Supreme People’s Court onCertain Issues Concerning the Application of the ‘Law of the People’sRepublic of China on Application of Law to Foreign-Related CivilRelations’ 175

BOOK REVIEWVincent R. Johnson, The CISG After a Generation 181

Evolving Property Rights inChina: Patterns and Dynamics ofCondominium GovernanceLei Chen* and Mark D. Kielsgardy

AbstractThis article investigates the development of private property law in the People’s Republicof China through the lens of condominium governance in urban China. It assesses thevitality of these trends, reviews the relevant historic legal and social background, anddemonstrates how the introduction of private property in China has fundamentallyaltered the fabric of its civil society. Drawing upon case studies and statutory analysisand evaluating them from the perspective of property relations, it analyses the trendsdriving greater democratic structures by reviewing the self-governance of condominiumowners associations and the grassroots democratic participation they have spawned.Moreover, this article tackles the future of these trends by reflecting upon conditionsopposing continued development such as local corruption, lack of enforcement, and inad-equate judicial review.

Keywords: China; condominium governance; property relations; property rights

IntroductionThis article explores the implications for, and development of, private propertyrights through the lens of condominium governance in China.Condominiums are the dominant mode of residential property in urbanChina. In the densely populated urban centres, condominiums are as familiar

* Lei Chen, assistant professor, School of Law, City University of Hong Kong, Hong Kong SAR.Tel: þ852 3442 7355 Email address: [email protected]. The financial assistance of theGeneral Research Fund (Project no 9041812) by the Hong Kong Research Grant Committee ishereby gratefully acknowledged. However, opinions expressed in this article should not beattributed to this institution. The editorial board of the Chinese Journal of Comparative Law, an-onymous reviewers, and our research assistants, Chok, Brian Man Ho, and Malisa Leung,have been instrumental in bringing this article to fruition.

y Mark D Kielsgard, assistant professor, School of Law, City University of Hong Kong, Hong KongSAR. Tel: þ852 34427624 Email: [email protected].

The Chinese Journal of Comparative Law (2014) Vol. 2 No. 1 pp. 21^42Advance Access publication 13 September 2013 doi:10.1093/cjcl/cxt016

! The Author (2013). Published by Oxford University Press. All rights reserved.For Permissions, please email: [email protected]

at City University of H

ong Kong Library on June 9, 2014

http://cjcl.oxfordjournals.org/D

ownloaded from

as they are practical. The percentage of residential properties individually heldin condominium form far exceeds other building types and designs.1 In add-ition to the conversion of a large number of formerly publicly owned unitsinto private hands, the market for new condominium development is boomingand recent trends indicate the number is rapidly growing. Thus, condomin-iums are highly significant to the economic fabric of the People’s Republic ofChina (PRC) and serve as the appropriate real estate vehicle for studying theinfluences of free market forces on the rights regime in Chinese society.

In a mosaic of recent law and development literature, scholars have soughtto prove that well-functioning legal institutions that enforce private propertyrights are indispensible to the promotion of the development of markets and,hence, economic growth.2 However, it has been argued that neither black-letter approaches to property rights nor economic efficiency theory adequatelycaptures the dynamics of the interrelationship among various factors (cultural,historical, social, or moral in public and private spheres).3 Many cultural andsociological studies have challenged the efficacy of formalization of propertyrights because it disregards the cultural and social variations of a place.4

Others even suggest, empirically, that there is a reverse causal link betweeneconomic development and enforced contractual and property rights.5

1 According to the Chinese Statistical Yearbook of 2009, by the end of 2008, the total construc-tion area in urban China was 16,451 billion square metres. The area of residential condomin-iums was 10,769 billion square metres, which is 65.46 per cent of the total construction area.Although there is no information available for industrial and commercial or mixed-use condo-miniums, the conclusion that the condominium is the principle housing feature of urbanChina is inescapable.

2 There is abundant literature on property right formalization and the causal relationship be-tween legal formalization and economic development. The following literature is referredfrom legal, economic, anthropological, and sociological perspectives. H Demsetz, ‘Toward aTheory of Property Rights’ (1967) 57 Am Econ Rev 347; D Diermeier and others, ‘CredibleCommitment and Property Rights: The Role of Strategic Interaction between Political andEconomic Actors’ in DL Weimer (ed), The Political Economy of Property Rights: InstitutionalChange and Credibility in the Reform of Centrally Planned Economics (Cambridge UniversityPress 1997) 20; CM Hann, ‘Introduction: The Embeddedness of Property’ in CM Hann (ed),Property Relations: Revewing the Anthropological Tradition (Cambridge University Press 1998)18; P Murrell, ‘Can Neoclassical Economics Underpin the Reform of Centrally PlannedEconomics’ (1991) 5 J Economic Perspectives 59; D North, Instiutional Change and EconmicPerformance (Cambridge University Press 1990) 35.

3 J Gillespie, ‘Commentary: Theorising Dialogical Property Rights in Socialist East Asia’ (2011) 48Urban Studies 595, 596; Frank Upham, ‘From Demsetz to Deng: Speculations on theImplications of Chinese Growth for Law and Development Theory’ (2009) 41 NYU Journal ofInternational Law and Politics 551; Michael Trebilcock and Paul-Erik Veel, ‘Property Rightsand Development: The Contingent Case for Formalization’ (2008) 30 U Penn J Int’l L 397.

4 C. Hann, Property Relations: Renewing the Anthropological Tradition (Cambridge University Press1998); D Fitzpatrick, ‘Evolution and Chaos in Property Rights Systems: The Third WorldTragedy of Contested Access’ (2006) 115 Yale L J 996; DC Clarke, P Murrell and S Whiting,‘The Role of Law in China’s Economic Development’ in T Rawski and L Brandt (eds) China’sGreat Economic Transformation (Cambridge University Press 2008) 375.

5 HE Xin, ‘A Tale of Two Chinese Courts: Economic Development and Contract Enforcement’(2012) 39(3) J L & Society 384.

22 The Chinese Journal of Comparative Law




ownloaded from

Condominium ownership is closely linked to the concepts of independenceof control and autonomy of unit owners and raises issues of collective action,mutual dependence, and democratic participation.6 Hence, a regular featureof condominium ownership is the necessity for the management of buildingsand the common elements such as swimming pools and elevators. Thus, adegree of self-governance is, as a matter of practicality, unavoidable. Withoutactive participation in collective action driven by an awareness of ‘my property,my destiny,’ the effects of condominium legislation are questionable.The success of condominium associations does not depend on a single control-ling factor but, rather, ‘on a complex mixture of individual agency group dy-namics, and trial and error, played out against a shifting backdrop ofpossibilities and constraints.’7 Although they could not be generalized to fitevery condominium association, Benjamin Read’s case studies capture thewide-ranging variations among homeowner organizations. This article isaimed at acquiring an in-depth understanding of the relationship dynamicsamong stakeholdersçthat is, developers, homeowners, homeowner associ-ations, and local governments in Chinese condominium governance. These dy-namics are critical because they directly impact reform measures asappropriate to specific contexts.

This article identifies and assesses the vitality of emerging property rightstrends, reviews the historic legal and social background, and reveals how theintroduction of private property in China has fundamentally altered the fabricof its civil society. Drawing upon case studies and statutory analysis, it ana-lyses the trends towards greater democratic governance by illustrating themanner in which legal rules can be translated into a dynamic social, political,and historical setting. These trends can be illustrated in the self-governanceof condominium owners associations and the property rights practices theyhave spawned. Moreover, this article addresses the future of these trends inlight of the current conditions opposing continued development such as localcorruption, lack of enforcement, and inadequate judicial review. Finally, itspeculates on the future outcomes of the Chinese private property schemegiven the relationship dynamics among the groups.

Legal and social backgroundThe rise of the Chinese Communist Party in 1949 resulted in the repeal of thelegal system of the Republican era, which was transplanted with a portion ofthe 1950s Soviet legal system.8 With Mao Zedong’s death in 1976, China began

6 N Yip and R Forest, ‘Property Owning Democracies? Homeowner Corporations in Hong Kong’(2002) 17 Housing Studies 703, 704.

7 BL Read, ‘Property Rights and Homeowner Activism in New Neighborhoods’ in Li Zhang andAihwa Ong (eds), Privatizing China: Socialism from Afar (Cornell University Press 2008) 53.

8 Lei Chen, ‘The Historical Development of the Civil Law Tradition in China: A Private LawPerspective’ (2010) 78 Legal Hist Rev 159.

Evolving property rights in China 23




ownloaded from

a program that opened the country to foreign investment and the pursuit oflegal reform to prevent a reoccurrence of policy-driven excesses. For thisreason, Deng Xiaoping focused the governmental agenda on economic develop-ment.9 However, attracting foreign investment hinged on improving the legalsystem and placing a greater reliance on law and security for investment.Until 1988, land law in China was posited in public or collective ownership.There were no individual land rights and no private land ownership.10 Theburden of the government to provide enough housing for its citizens was ser-iously challenged by urbanization and an exploding population.11 To ease thishousing burden, the country embarked on a new economic policy based oncreating wealth by marketing housing.12 In accordance with this policy,China amended its constitution in order to recognize privately owned transfer-able land use rights.13 This constitutional amendment was far-reaching sinceit allowed for the creation of a revolutionary new form of land-use rights.14

However, while commercial transference of state-owned land was in its in-fancy, free market economy per se was for a time eschewed and the predomin-ance of public housing was still officially characterized as a form of socialistwell-being. Hence, Chinese lawmakers initially paid little attention to adoptingsophisticated modern real property legislation.15

Subsequently, however, in 1994, the State Council adopted a comprehensivenational housing reform policy.16 The privatization and commercialization ofthe housing market helped to relieve the government of its responsibility formaintaining and managing buildings that were originally constructed toaccommodate state employees.17 The constitution was again amended to

9 Xiaoping Deng, Selected Works of Deng Xiaping, volume 1 (2nd edn, Renmin Press 1994)319^22.

10 SPS Ho and GCS Lin,‘Emerging Land Markets in Rural and Urban China: Policies and Practices’(2003) 175 China Quarterly 681, 681^2; Yaping Wang and A Murie, ‘The Process ofCommercialization of Urban Housing in China’ (1996) 33 Urban Studies 971; see also XiaoliWang, Land Law (Law Press 2003) 22.

11 MT Kremzner,‘Managing Urban Land in China: The Emerging Legal Framework and Its Role inDevelopment’ (1998) 7 Pacific Rim L & Pol’y J 611, 611^22.

12 In 1988, the State Council embarked on a staged housing reform by adopting a Scheme ofNational Housing Reform in Urban Areas. This scheme stimulated the government’s initial ef-forts and provided a10-year blueprint to expedite the commercialization of residential propertyand reduce state subsidies of housing. See J Lee, ‘FromWelfare Housing to Home Ownership:The Dilemma of China’s Housing Reform’ (2000) 15 Housing Studies 61, 66.

13 The commercialization of land-use rights was first tried in Shenzhen on 9 September 1987 andwas formally adopted when Article 10 of the Constitution was amended on 12 April 1988 topermit the assignment of the right to use land.

14 The amended Constitution of 1988 states: ‘[T]he right to use land may be transferred accordingto law.’ Soon thereafter, Article 2 of the Land Administration Law of the People’s Republic ofChina (1986) was revised stipulating that ‘the right to use State owned or collectively ownedland may be assigned pursuant to the law.’

15 Shansheng Xia, Property Management Law (Law Press 2003) 8.16 Decision of the State Council on Furthering Housing Reform in Urban Areas (1994) (

).17 Lee (n 12) 61.





ownloaded from

ensure private property within the Chinese legal system. It provided that ‘indi-vidual private and other non-public economies ::: are major components of thesocialist market.’18 More significantly, the amendment put private property onan equal legal footing with state-owned property,19 such that ‘citizens’ legallyobtained private property rights could not be violated. Furthermore, theamendment called for compensation whenever private property was expro-priated by the government. Thus, the Chinese constitution acknowledged theright to private property as a fundamental freedom.

Prior to the enactment of legislation permitting private property rights, allunits were government owned and all buildings were government managed.20

With the sale and release of government property to the private sector, govern-ment control of building management also came to an end.With the introduc-tion of private ownership, considerations of market value began to dominatemanagement decisions, resulting in more careful scrutiny of management andgreater emphasis on long-term results. Thus, management became the respon-sibility of those with the profit motive to act efficiently. The new property lawencouraged this phenomenon.21

Against this social background, democratic governance begantomake inroadsintothegovernmental structureat the local leveland/orat theneighborhood/con-dominium association level. These first steps were perhaps modest, but they wit-nessed the beginning of potentially substantial changes to come. Localgovernance accounted for transforming residents from tenants to propertyowners, thus making them stakeholders. However, despite these reforms, Chinastill lacked a comprehensive and consistently regulated land law scheme.Therewere divergent property law statutes in abundance,22 somewhat inconsist-ent administrative regulations,23 overloaded judicial pronouncements,24 and

18 Constitution (amended 15 March 1999) art 11.19 Ibid (amended 14 March 2004) art 13.20 Lei Chen and Hanri Mostert, ‘The Unavoidable Necessity of Formalizing Condominium

Ownership in China: A Pilot Study’ (2007) 2 Asian J Comp Law 64, 64^5.21 Property Law of People’s Republic of China (2007) art 70 [Property Law]; Huabin Chen, Study

on Modern Condominium Ownership (Law Press 1995) 91; Zhigang Hu, New Discourse on RealProperty Law (Xuelin Press 2006) 22^9.

22 See eg Land Administration Law of People’s Republic of China (2004).23 Examples include the Provisions Concerning the Administration of Private Houses Owned by

Foreigners (1984) ( ) and the InterimRegulations on Assignment and Transfer of Rights to Use State-Owned Land in Urban Areas(1990) ( ).

24 For instance, the Judicial Pronouncement Regarding the Application of Some Provisions of theLaw of Security (2000) ( hh ii )( ). The legislative implementation of the property lawhas been controversial, disjointed, and time consuming. Fourteen years passed from the timeit was first on the parliamentary agenda. As early as 1994, the Chinese legislature devised aplan to enact the code, but it was not until 1998 that a drafting panel was even tasked withthe drafting. In October 1999, the drafting panel completed a model draft consisting of twelvechapters and containing 435 articles. See Huixing Liang, Commentary on Chinese PropertyLaw Draft (Law Press 2001) 1^88. In 2000, a model property law draft was also completed.Liming Wang, Annotated Draft of China’s Law of Things (Renmin University of China Press





ownloaded from

conflicting local norms.25 Thus, the Chinese property law was fragmented andsusceptible to structural weakness, inconsistent treatment, corruption, and anenvironment generally inconsistent with sustainable development. Furtherreformwas essential.

In response, in 2003, the State Council (the central government) providedthe Property Management Regulation and, in 2007, the Property Law of thePeople’s Republic of China (Property Law) came into effect.26 This legislationwas intended to act as a comprehensive mechanism to regulate property andsecure the protection of property rights by clearly defining different types ofproperty as well as safeguarding title security and thus providing greater eco-nomic stability in the (real property) marketplace.27 It was designed to unifyChinese land law under a single coherent model. The effectiveness of this legis-lation is still an open question as it is too recent to adequately assess itsimpact. However, Article 4 provides for the protection of the rights of individ-uals (or any other right holder) and elaborates that these rights shall not beinfringed by any entities or individuals, presumably including both the publicsector and private developers.

Recent developments in the control and management of condominiums inthe PRC have stimulated democratic governance at the local level.28 As amatter of practicality, once private ownership was allowed, self-governanceprovided a greater cost benefit than government control as the duties weretaken over by an unpaid association and/or an independent commercial man-agement company that contributed to the economy in an efficient way as aprofit-driven enterprise. Moreover, the nature of private ownership dictates, atleast to a certain degree, the need for autonomous property rights, includingthe maintenance and management of the property. The value and allure ofproperty ownership is dampened by unreasonable external control and limita-tions on the free and personal enjoyment of the right. Its value diminishes ifit is run in accordance with the ease of management rather than according tothe dictates of market forces.

2001) 1^67. Thereafter, in consultation with these two model drafts, the Standing Committee ofthe National People’s Congress deliberated and pruned its legislative draft seven times.Ultimately, eight parliamentary deliberations were held from December 2002 to March 2007.

25 Examples include Guiding Rules on the Management Corporation and Its Executive Council(2005) ( ) and Shen Fu no 11 (2005) (

) by the municipal government of Shenzhen City on 17 January 2005.26 Property Law (n 21). The enactment of Chinese property law immediately attracted interna-

tional media’s attention. See eg ‘China’s Clause Four: The Recognition of Property Rights Is anIdeological Landmark’ The Times (17 March 2007) 5http://www.martinfrost.ws/htmlfiles/mar2007/china_clause4.html4accessed 15 August 2013; see also ‘China’s Volkskongress billigtEigentumsgesetz’ FrankfurterAllgemeine Zeitung (16 March 2007).

27 Lei Chen, ‘The New Chinese Property Code: a Giant Step Forward?’ (2007) 11(2) J Comp L 1, 2.28 B Read, ‘Assessing Variations in Civil Society Organizations: China’s Homeowner Associations

in Comparative Perspective’ (2008) 41 Comp Pol Stud 1240.





ownloaded from

Addressing defects in the current legislationWhile trends favour greater legislative efficiencies, some defects in statutoryprovisions continue to create barriers to full democratic processes or otherwisereduce the efficiency of the owners’ associations. These issues serve to impedethe actualization of owners’ rights and cuts against the developing marketeconomy. Legislative defects can exacerbate the problems pointed out in theprevious section by feeding into judicial inefficiencies, local government inter-ference, developer overreaching, and corruption. Additionally, even if it isbereft of malevolent intent, poorly drafted legislation makes for poorly runowners’associations and ensures owner apathy and loss of essential credibilityneeded for growing stronger democratic structures.

Although condominium ownership has been institutionalized and unitowner’s autonomy of management is statutorily recognized under theProperty Law,29 it only includes a scant 14 articles dealing with condominiumproperty.30 Many important issues are left untouched that propel some furtherimplementation regulation or local rules to flesh out details, such as rules per-taining to majorities required for homeowner association (HOA) resolutions;two-tier management structures; and rules concerning the qualification andnumber of HOA executive council members.

Comparatively speaking, it is unusual for rules governing the functioning ofthe general meeting,31 the executive board,32 and the rules governingcommon property and facilities33 to be decided by a simple majority vote.Most jurisdictions include these rules in special statutes.34 These statutes tendto limit the adoption of organic changes in the initial stage35 or require a

29 Property Law (n 21) art 70^83.30 Lei Chen, ‘The Developer’s Role in the Surging Chinese Condominium Housing: Through the

Comparative Lens of the US System’ (2010) 18 Asia Pac L Rev 2, 223^4.31 These include, inter alia, the notice required for convening the general meeting, the kinds of

general meetings, minimum agendas of general meetings, voting at general meetings, thequorum required for a general meeting, the representation of owners by proxies, and the keep-ing of minutes.

32 These include, among others, the powers and functions of the executive board, whether it mustconsist only of owners, whether owners may attend its meetings, whether the members areentitled to remuneration, their fiduciary obligations, and their period of office.

33 This is normally done in the so-called conduct rules of the scheme and needs more than asimple majority for amendment.

34 The New SouthWales Strata Schemes Management Act 138 (1996) ss 16^25 and Schedule 3, forexample, regulates executive committees, and Schedule 2 regulates general meetings; theSingapore Building Maintenance and Strata Management Act 47 (2004) ss 53-61 andSchedules 2 and 3 regulates general meetings. The Queensland Body Corporate andCommunity Management Act 28 (1997) ss 90^101 regulates these matters, while the StrataTitle Law 5 (2007) ss 60^4 of the Dubai International Financial Centre also regulates them.The South African Sectional Titles Act 95 (1986) annex 30(4) regulates both of these matters.

35 See eg South African Sectional Titles (n 34) reg 30(1). Regulation 30(4) stipulates that theseregulations may only be altered after 50 per cent of the units have been transferred and thatthey may only be altered by unanimous resolution.





ownloaded from

super-majority.36 This process is to guarantee that general meetings runsmoothly in the beginning and there is efficient management and seamlesslytransition to owner control. Yet, the PRC has failed to adequately provide forthis transition. Indeed, the national legislation lacks a uniform obligation ondevelopers to organize the first meeting of the management body as soon aspossible after its establishment.37 In New South Wales, Australia, and inSouth Africa such provisions have proven indispensible.38 Failure to providefor the smooth transition of management will often hamper the association’sability to self-govern by unnecessarily binding the future organization to con-tractors (including developer-owned commercial management companies)that limit the owners’ available decision-making options and thus circumventthe democratic value of the owners’association.39

Second, the Property Law provides that the number of owners who areeligible to participate in building management shall be based on the numberof individual apartments or commercial units, with the qualification that allunsold units (units sold but not yet delivered by the developer or multipleunits owned by the same owner) should count only for one unit and that thetotal number of owners shall be the aggregate of the results of this computa-tion.40 Thus, the system is determined, as far as the number of votes is con-cerned, via the democratic principle of ‘one owner, one vote,’ as distinct from‘one unit, one vote’ (which would provide disproportionate voting power to de-velopers still owning multiple units or owners who own more than one unitin the scheme).41

Third, the Property Law also includes the provision for changes to the pur-pose/use of common property (or its use for business operations) with asimple majority vote. In other jurisdictions, dramatic changes of this nature

36 Ibid reg 30(4).37 See eg Singapore Building Maintenance and Strata Management Act 47 (2004) s 26, and the

South African Sectional Titles Act (n 34) s 36(7), which provide that the first meeting must beheld within 30 days after the management body has been established with the registration ofthe first unit in the name of a purchaser. The New South Wales Strata Schemes ManagementAct (n 34) Schedule 2, Part 1, clause 2 requires a general meeting within two months afterthe end of the initial period. One of the problems encountered in this regard in China is thatowners are widely defined in Article 76 of the Property Law (n 21) as persons who haveacquired ownership of units by registration or under section 11 of the Property Law. Underthe latter section, persons who have acquired possession of a unit in terms of a recognizedcommercial transaction are also considered to be owners. This concession was made due tothe fact that the registration of units in the names of purchasers in China is a drawn-outprocess.

38 Cornelius Van der Merwe, Sectional Titles (Lexisnexis 2007) 14^37.39 The risk to the property owner is particularly heightened because of the lack of conventional

constitutive documents and the developers role in the ‘participation quota’ that allows devel-opers to determine their own status early in the construction process and to ultimately dictateterms to the fledgling scheme. Chen (n 30) 234^41.

40 Judicial Interpretation on Property Law of the People’s Republic of China (2007) art 9, ss 1 and2 [Judicial Interpretation on Property Law].

41 On the weight attached to votes, see generally Cornelius Van der Merwe, Apartment Ownership(Mohr Siebecks 1994) 145, 154, 158, 194.





ownloaded from

usually require a super-majority.42 Disposal of, or changing the use of, parts ofthe common property has a radical impact on the value of every owner’s ab-stract share in the common property and is usually allowed in other jurisdic-tions only by a unanimous resolution or the written consent of all of theowners in the scheme.43 This policy perhaps reflects the immaturity of theChinese Property Law, but it is noteworthy that, in this case, it has arguablyerred on the side of majority rule. However, a peculiarity of the Chinese wayof determining whether a motion has been carried is that a majority both innumber and value is required for all decisions. This differs from other condo-minium statutes where this double majority is only required for certainresolutions.44 It also dilutes the democratic aspiration to a more capital centricapproach. Another potential defect in this approach is the creation of institu-tional instability resulting in negative market impact. Buyers crave suretythat the property they pay for will retain its essential character in the future.

Fourth, the Property Law provides that unit owners may elect to manage thescheme themselves (by a majority vote)45 or to choose a professional manage-ment company or another manager.46 Most local statutes make it optional forowners to employ outside managers to administer the scheme. Self-manage-ment usually only occurs in smaller projects where owners organizethemselves into groups according to their skills to undertake the work involvedin the management of the scheme. Many foreign condominium statutesentrust the management of larger schemes either to the owners’ executiveboard (which usually consists of owners assisted by a managing agent) or pro-vide for the appointment of a professional manager as the executive organ ofthe scheme with the assistance of an owners’ advisory board.47 The PropertyLaw has opted for the latter alternative, namely a professional manager as anexecutive organ conducting its functions under the supervision of theowners.48 It also allows the owners to replace a managing company or man-ager appointed by the developer.49 The rationale for this rule is to frustratedeveloper efforts to enter into ‘sweetheart’ contracts with affiliated or subsid-iary entities while being in control of the association and binding it on a

42 See eg of the South African Sectional Titles Act (n 34) s 17(1), which requires a unanimousresolution and of the Singapore Building Maintenance and Strata Management Act (n 37)s 34(1), which requires a 90 per cent resolution.

43 ibid.44 Another unfortunate consequence of this requirement is that it may not only slow down the

time for decisions to be adopted but would also have the effect that compromised resolutions(instead of sound resolutions would be adopted for instance, when the budget for the ensuingyear has to be approved).

45 Property Law (n 21) art 76, s 4.46 Ibid art 81, s 1; see generally Lei Chen and CG van der Merwe, ‘Reflections on the Role of the

Managing Agent in South African and Chinese Sectional Title (Condominium) Legislation’(2009) J S African L 22.

47 See the provisions of the French, German, and Dutch statutes referred to in Van der Merwe (n41) 149.

48 Property Law (n 21) art 82.49 Ibid art 81, s 2.





ownloaded from

long-term basis.50 Many foreign statutes either call for a review of all of thecontracts and appointments concluded by the developer at the initial meetingof the owners or grant the owners the power to terminate all such contractsunilaterally.51

Fifth, the Property Law fails to provide for, as appropriate, a two-tier condo-minium management scheme. A two-tier scheme calls for the implementationof an umbrella management body managing an entire project at a senior leveland subsidiary management bodies managing smaller residential units (for ex-ample, single buildings in a multi-building association) and appurtenantcommon areas at a junior level. In the United States, master or umbrella associ-ations are found in larger condominium complexes where the associationsare layered according to function.52 In China, such a two-tier managementstructure needs to be introduced because most of the condominiums on themarket consist of multi-building or mixed-use projects. A two-tier approachmakes owner management a less daunting enterprise, and failure to providefor this scheme practically ensures disproportionately high professional man-agement involvement and reduced owner participation. Thus, the inefficiencyin the national legislation creates barriers to the democratic governance by itsfailure to anticipate and provide for a less onerous scheme.

Moreover, in addition to distancing owners from management, the develop-ment of multi-building and/or mixed-use projects in the traditional ‘single con-dominium, single association’ structure creates other inefficiencies. Forexample, in larger condominium developments, it is financially burdensometo call meetings of all unit owners for issues related to only one building.Furthermore, unit owners in one building will often be unfamiliar with,and/or disinterested in, issues related to other buildings, making detailedreview of these issues by the umbrella organization unduly burdensome. Thisissue also fuels owner apathy and discourages otherwise qualified volunteersfrom participating in management because of the time commitment it requires.Additionally, the owners have less incentive to be concerned about manage-ment issues encountered in other buildings. A single building’s managementissue can usually be resolved more quickly and easily by its owners than byall of the owners in the project.

Sixth, problems can arise in the make-up of the HOA executive councilmembers. Since it is impractical for all owners to attend to the day-to-day man-agement of a condominium complex, Chinese law provides that the executivecouncil is usually elected to execute the general meeting’s resolutions and to

50 See Chen and van der Merwe (n 46) 29, which states that the drafters of the PropertyManagement Regulation amended the designation of professional managers to ‘service pro-viders’ in 2007 to put professional managers in their place.

51 See Uniform Common Interest Ownership Act (1994) ss 3^105. These statutes usually providefor termination without penalty (upon not less than 90 days’ notice to the developer) solong as they are cancelled within two years of the owners assumption of control of theassociation.

52 P Rohan and M Reskin, Condominium Law and Practice: Forms, volume 1, 1A, 1B, and 1C(Matthew Bender 1980) 43^184.





ownloaded from

administer the day-to-day affairs of the condominium complex.53 Although theexecutive council has less authority than general meeting mandates, its stand-ing committee’s role is evident in the management of the condominium. Thus,the identity and qualifications of executive council members are an importantissue for unit owners. In many jurisdictions, council members do not necessar-ily need to be unit owners, requiring only that at least a majority of the execu-tive board members must be unit owners.54 Under Chinese law, an executivecouncil member must be either a unit owner or a representative of a corporateowner.55 This policy may be counterproductive as some outside candidatescould bring necessary professional experience and skills to the executive coun-cil56 or an insufficient number of unit owners may be willing to serve as coun-cil members.57 It is also noteworthy that in China, where management byunit owners is still new, finding experienced and professional executive coun-cil members may be difficult. Alternatively, council members will ultimatelygain the requisite experience or may be able to contract for needed skills, andthis approach ensures that the majority of executive council members have agenuine economic stake and a personal interest in the efficient managementof the condominium.

Under Chinese law, the number of council members remains largely unregu-lated. There is no provision for the required number of council members ineither the national 2003 Property Management Regulation or in many localregulations. In practice, this system may lead to problems as the number ofcouncil members has a bearing on quorums and decision making, even indetermining a simple majority vote. However, there are strict regulationsimposing the number of council members, which follow an inflexible, ‘one sizefits all’approach that could also lead to inefficiencies. In a recent local propertymanagement ruleçthe Property Management Regulation of ShenzhenSpecial Economic Zoneçthe number of executive council members in acondominium association was expressly stipulated as an odd number fromfive to seventeen.58 However, by capping the number of members at seventeen,condominium projects will often be unable to include representatives from allsubsidiary bodies or from each building in many of the medium to largemulti-building projects. This limitation impacts the democratic character ofthe association and the individual owners’access to their (council) representa-tives. To guard against this problem, other local ordinances such as theShanghai Property Management Regulation have provided for an odd number

53 Chinese Property Management Regulation (2003) art 15.54 See Uniform Common Interest Ownership Act (n 51) ss 3^103; see South Africa Sectional Title

Act (n 34) annex 8, reg 5.55 Chinese Property Management Regulation (n 53) art 16(2); Property Management Regulation

of Shenzhen Special Economic Zone (2007) art 23.56 UK Department for Constitutional Affairs, Analysis of Responses to an LCD Consultation Paper:

Proposal for Commonhold Regulations (Government Printing Office 2003) 65.57 Van der Merwe (n 38) 14^66.58 Property Management Regulation of Shenzhen Special Economic Zone (n 55) art 24.





ownloaded from

of representatives of no less than five but with an open-ended maximumnumber.59

Thus, the national legislation can be viewed in terms of factors directly im-pacting democratic governance and those that indirectly impact them. Directfactors include simple majorities for most association decisions, even thosethat constitute organic change to common property. Yet, this concession isoften illusory as it must be predicated on a so-called ‘double majority,’ includingmajorities of both unit numbers and value share. This policy may be advisablefor issues of organic change, where traditional democratic societies need to in-clude greater barriers (for example, unanimous decisions or super-majorities),but it is unjustified in less radical issues. This approach effectively provides aveto of association initiatives by those elite who collectively own more than50 per cent of the value of the project, although they may own fewer than 50per cent of the units.60 Thus, those purchasers (including corporate pur-chasers) who buy more expensive units are also receiving a disproportionatelylarger voice in the running of the condominium then other owners. Whilethese elite may be paying a proportionately higher assessment under this rule,they are not benefiting from an appropriate democratic structure as it moreclosely resembles an oligarchy. After all, in most democratic countries, citizenshave a single vote regardless of the actual amount they pay in tax. Improveddrafting complexity in the national legislature could assuage these inequitieswhile simultaneously providing for greater protection from organic changesand warranting greater market security.

Finally, legislation ensuring smooth transitions from developers to ownersand exempting future associations from contract obligations will provide forgreater democratic decision making. By binding future associations to long-term contracts, developer-controlled associations preclude the availablechoices to successor owner-controlled associations. While the Property Lawallows owners to replace the developer-installed property manager,61 the provi-sion for termination without penalty from other residual contracts is left tolocal regulation. China’s National People’s Congress is naturally deferential toprovincial authority in matters involving the regulation of real property. Suchdeference is also commonly practised by authorities in other nations, includingthe United States,62 but the failure of China to establish more precise and bind-ing national legislation allows for greater local corruption. This is evident inthe case study that follows where the local authority colluded with the profes-sional management company to subvert the democratic initiative of the

59 See Shanghai Property Management Regulation (2004, amended 2010) art 19.60 This would not allow the wealthier owners disproportionate authority to initiate changes as

they would still require a majority of unit owners to agree, but a minority of wealthy ownerscould veto initiatives favoured by a majority of unit owners.

61 Property Law (n 21) art 76, s 4.62 Under the Uniform Common Interest Ownership Act (n 51) ss 3^105, unit owners can termin-

ate long-term ‘self-dealing’contracts without court action before an executive board is elected.





ownloaded from

owners’ association. Lack of drafting complexity and failure to establish firmlegal responsibility in the national legislation on the issues of majorities andthe future binding power of initial contracts are legislative flaws that directlyand negatively impact the developing democratic governance currently takingroot in the PRC.

Factors that indirectly impact democratic governance include the omissionof the national legislation to implement provision for a two-tier managementsystem (where applicable). In this case, the national legislation, perhapsinadvertently, ties the hands of owners’ associations and creates inefficiencythat is costly and onerous and encourages owner apathy. Furthermore, whileit does mandate that executive committee members have an economic interestin the condominium, the national legislation fails to provide for guidance onthe permissible number of executive council members. This failure allows forcounter-productive local rules such as the inadequate regulation adopted inShenzhen referenced earlier. National legislation allowing for structuredflexibility could encourage efficiency and help to ensure that all condominiumowners have meaningful and localized democratic representationand re-enforce consumer confidence in their investment. However, by takinga conservative approach, the national legislation fails to nurture marketforces and tends to encourage corruption and/or inefficient drafting at thelocal level.

Case studies: property as negotiated/contestedrelationshipsThe impact of the emerging Chinese policy of self-governance can beglimpsed in two case studies that have received significant domestic notoriety.Before exploring these two case studies, it is necessary to illustrate the evol-ving social expectations and to expose the trending mood of the times asexpressed in the changing character of two public demonstrations staged byhomeowners associations. Based on this overview, the first case, which in-volves the Meiliyuan (Beauty Garden) Homeowners’ Association, disclosesmaturing legal developments that seem to be tracking swelling publicexpectations in the defence of homeowners’ rights to make and enforce deci-sions affecting their property. The second case, which involves the TimesManor Complex Homeowners’Association, reveals the opacity of corruption inlocal Chinese bureaucracy and how it can occasionally circumvent both thebest interests of the homeowners and the democratic structure of theassociation.

The evolution of changing public expectations can be seen in two public pro-tests in Beijing and in Guangzhou. The Beijing protest took place in 2002 atthe Fangya Garden development where the owners represented themselves as‘commoners’ to gain the sympathy of government officials. The Guangzhou pro-test took place in 2009 at the Lijiang Garden development where the owners





ownloaded from

forthrightly asserted their right of participation.63 After only seven years, theowners’ perspective changed from supplication to rights-based demands:‘Obviously, as the citizens of the society, the homeowners have stronger sub-stance to oppose arbitrary rulings and ask for participation in rule-making.’64

Thus, stakeholder status along with the passage of a relatively short period oftime created a stronger sense of entitlement and has fuelled more robust callsfor a voice in matters affecting their interests. Furthermore, this trend appearsto have garnered formidable momentum as some theorists contend that theadvent of homeowners’ protests has expanded the acceptance of a rights-based scheme beyond issues involving the use and enjoyment of real estate toother civil and social rights as citizens.65 Among these other areas are proteststhat have contributed to changes in the Labour Contract Law of the People’sRepublic of China,66 environmental rights,67 the repeal of the agriculturaltax,68 and the recent amendment to the Criminal Procedure Law of thePeople’s Republic of China.69

Meiliyuan (Beauty Garden) Homeowners’Association (MLYHOA)

In this case study, the Chinese legal community revealed noteworthy sensitiv-ity to public sentiment and the changing public perceptions of an emergingrights-based scheme. In March 2005, the MLYHOA formally resolved to bring

63 SeeYongshun Cai, ‘China’s Moderate Middle Class: The Case of Homeowners’ Resistance’ (2005)25(5) Asian Survey 777; see also J Zhu and C Wang, ‘Seniors Defending Their Rights:Strategies and Culture in Collective Action: The Homeowners Rights Movement in LijingGarden, Guangzhou’ (2007) 40(2) Chinese Soc & Anthropology 5; Benjamin L Read, ‘AssessingVariation in Civil Society Organizations: China’s Homeowner Associations in ComparativePerspective’ (2008) 41(9) Comp Pol Stud 1240.

64 David Kelly, ‘Citizen Movements in China’s Public Intellectuals in the Hu-Wen Era’ (2006) 79(2)Pacific Affairs 183.

65 Yuan Shen, Towards Citizenship: Homeowners’ Right Protection as a Citizen Movenment, Market,Class and Society: Critical Issues on Sociology of Transformation (Social Sciences Academic Press(China) 2007).

66 Labour Contract Law of the People’s Republic of China (2007). Cynthia Estlund and SethGurgel, A New Deal for China’sWorkers? Labour Law Reform in theWake of Rising Labor Unrest,New York University Public Law and Legal Theory Working Papers no 297 (New YorkUniversity Press 2012) 19.

67 For example, there are two recent anti-pollution protests. The first consisted of a mass protestover the planned construction of a molybdenum-copper alloy plant in Shifanf, Sichuan. SeeJiang Li, ‘Protests Show Rising Green Concerns’ South China Morning Post (4 July 2012)5http://www.scmp.com/article/1005800/protests-show-rising-green-concerns4 accessed 15August 2013. The second protest occurred in the coastal city of Qidong in Jiangsu in responseto plans to build an industrial waste pipeline. See Tom Holland, ‘Anti-Pollution People Power IsGood for Growth’ South China Morning Post (30 July 2012) 5http://www.scmp.com/article/1008120/anti-pollution-people-power-good-growth4accessed 10 August 2013.

68 Mai Lu and CallaWeimer, ‘An End to China Agriculture Tax’ (2005) 3(2) China: An Int’l J 320.69 Criminal Procedure Law of the People’s Republic of China (2012). China Media, China Acts to

Give Defendants Greater Rights 5http://www.chinamedia.com/2012/03/08/china-acts-to-give-defendants-greater-rights/4accessed 12 August 2013.





ownloaded from

suit against its management company, Hong Ming (HM), alleging ‘dishonestfees charging.’A total of 13 claims were brought against the management com-pany at the District Court in Beijing.70 The case was dismissed at trial, but itwas reversed on the MLYHOA appeal.71 The appellate court ordered a 42.3 percent reduction of management fees (from RMB $2.72 (US $.42) per squaremetre to RMB $1.58 (US $.24)). The management company was furtherordered to return RMB $180,000 (US $27,692.31) for fraudulent advertisingexpenses and RMB $3533.76 (US $543.65) in excessive heating and propertyfees.72 Thereafter, the management company applied for a retrial based onthree subsequently provided reports. These reports consisted of conclusions ofthe Municipal Price Certification Center, five legal scholars, and the legaladvisors working for the property management companies.73 The reports con-cluded that the decision to uphold the MLYHOA’s claims would not only be aserious detriment to the property management industry and its growth butwould also disturb the stability and harmony of the community.74 The Courtgranted a retrial.

In response, a MLYHOA support group was formed by several HOAs inBeijing, the media, and various citizens. This initiative, in turn, sparked interestby other area HOAs to unite and campaign for their rights, and a petition pro-duced by the MLYHOA was endorsed by 33 Beijing HOAs.75 Additionally, asthe voices for the MLYHOA grew, the China Consumers’Association also pro-vided public support. It was no longer merely dispute between the original par-ties but, instead, a ubiquitous conflict impacting all Chinese HOAs andproperty management companies. In hindsight, it can also be viewed as a defacto contest between the legitimacy and enforceability of a rights-basedregime and social harmony paternalism. At trial, the Court had a full houseof onlookers including hundreds of reporters and homeowners with anoverflowing crowds spilling out onto the streets.With this backdrop, the Courtruled in favour of the MLYHOA. In retaliation, the property managementcompany abruptly suspended its services causing the resident’s water and elec-tricity to be cut off. However, these measures were short lived as the state

70 Menghua Cheng, ‘Hongsheng Yang Beijing yezhu wuyefei ‘‘tao jia huan jia’’ quanguo shoucishengsu’ [‘First Victory in China for Beijing Homeowners in Management Fee ‘‘Negotiation’’’]Zhongguo Shangbao [CHINA COM. NEWS] (29 August 2006) 5http://house.focus.cn/msgview/20/61/634006.html4 accessed 12 August 2013; see also Donald C Clarke, ‘ThePrivate Attorney-General in China: Potential and Pitfalls’ (2009) 8(2) Wash U Global StudL Rev 241, 247.

71 Lei Zhang, ‘Condominium Owner’s Movement of Maintaining Rights: Causes andMechanicsçCase Studies on Several Beijing Complexes’ (2005) 6 Sociological Studies 1.

72 Ibid.73 The ‘Meiliyuan (Beauty Garden) Homeowners’ Association (MLYHOA) Property Fees Report,’

the ‘Expert Opinions Report,’ and the Industry Experts’ ‘Reflections and Opinions on the MLYCase.’ All of these reports are contained on the online forum of the MLYHOA’s website5http://www.house.focus.cn/msglist/20/4accessed 15 August 2013.

74 Ibid.75 Ibid.





ownloaded from

agency intervened and ordered the property management company to returnand provide service until the new property management company assumedits duties.76

The MLYcase represents a landmark victory for HOAs on property manage-ment rights and protections. This case was one of the first to rule in favour ofHOAs, and it had significant impact. A case heavily covered by the media, thisdispute engaged the interest of homeowners and property management com-panies nationwide. Afterwards, many HOAs paid visits to MLYHOA for an ex-change of ideas and experiences in homeowners’ rights advocacy. The Court’sultimate decision not only helps to protect homeowners against questionablemanagement company practices, but it also buoys homeowners’ confidence incourts and the legislation affirming their rights. Moreover, it showcases the im-portance of democratically structured self-governing community associationsand how they, working through the judiciary, can sometimes influence localpractice and overcome local corruption. It also provides a glimpse of the chan-ging trends in China that support the rights of citizens to participate in govern-ment and the right to own property as well as exposing the societalsensitivity to constructively harnessed popular opinion.

In one respect, this decision affirmed the legitimacy of rights-based argu-ments over more common justifications reflected in ‘social harmony’ or othermacro-centric policy issues. The management company’s legal strategy reliedon a conservative, traditional Chinese approach, which asserted the superior-ity of the broad-based societal interests over the rights-based interests of theindividual owners. The management company’s reliance on the three reportseffectively sidestepped the issue of owners’ rights, neither repudiating nor dis-tinguishing them, by emphasizing collective interests. However, by followingthis course, they failed to sufficiently evaluate the weight of public opinionboth as a factor influencing the court and as a driving, albeit highly emotive,factor in free market economics.Without consumer confidence in the product,real estate, like any other commodity, will suffer market reversals, and the vig-orous public reaction to the MLYHOA case echoes the keen public interest inproperty rights.

On the other hand, the general popular appeal and vitality of the privateownership of real property is subject to varying opinions since traditional com-munal or collective practice is ingrained in Chinese society, and many unitowners may experience difficulty in overcoming this mental inertia.77 Somescholars suggest that if condominium associations provide a forum for discuss-ing the nature of property rights, consensus from a social constructionist’sview (that is, communal ownership as merely a non-obligatory social

76 This case study has been conducted by using Internet sources, including the MLYHOA forum,5http://house.focus.cn/msglist/20/4 accessed 13 August 2013; see also Peng Chen, ‘LegalActivism of Condominium Owners in Contemporary Urban China’ (2010) 1 Social Studies 16.

77 Liemi Chen, Management of Sold Public Housing in Urban China: A Case Study of Railway NewEstate, Shanghai (2006) 5http://citeseerx.ist.psu.edu/viewdoc/download?doi¼10.1.1.135.5625&rep¼rep1&type¼pdf4accessed 13 August 2013.





ownloaded from

construct) is required as a starting point for the growth of individual propertyrights.78 Otherwise, the practical impact of Chinese reforms will yield barrenresults.

Times Manor Complex Homeowners’Association (TMCHOA)

In this case, a grassroots HOA mounted a legal challenge against the local gov-ernment in the city of Shenzhen and tried unsuccessfully to rely on the judi-ciary to fend off illegitimate local government intervention in theestablishment of their HOA committee. In November 2006, the TMCHOA heldits election for the executive committee with the incumbents running for asecond term. Despite numerous attempts, the Sub-District Office (local govern-ment agency) refused to participate or organize the election.79 Instead, theycoerced homeowners in an effort to sabotage the process.80 In spite of theseefforts, the TMCHOA executive committee was re-elected. However, the Sub-District Office refused to approve or recognize the election, and without theirapproval the executive committee could not be registered with the DistrictHousing Administrative Department. Nonetheless, the executive committeesubsequently held a general meeting where it proposed and received approvalfor a tender for a new property management company. Allegedly, there was col-lusion between the local government and the pre-existing management com-pany, and they refused to approve the election results because they knew theexecutive committee would seek to replace the old management company.

Prior to the completion of the tendering process, the local office of theDistrict Housing Administrative Department, along with the local governmentagency, sent out a notice denying the authority of the executive committeeand calling for a new election. The notice further stated that the electionwould be held at the local Housing Administrative Office and demanded home-owner participation. Moreover, the Beijing Municipality ConstructionCommittee also issued Circular no. 666 affirming the Housing AdministrationOffice demands and requiring the HOA to surrender all official documents(including the organization seal) to the Sub-District Office.81 Thereafter, a new

78 AM Kim,‘Talking Back:The Role of Narrative inVietnam’s Recent Land Compensation Changes’(2011) 48 Urban Studies 493, 505.

79 In accordance with Article 111 of the Chinese Constitution and the Organic Law on the UrbanResidents’ Committees, resident committees (RC) in China are grassroots organizations oflocal residents in urban areas that perform minor self-governing functions. RCs are not stateorgans but, rather, populous organizations voluntarily formed by the residents to handle theirown affairs under the guidance of the the Sub-District Office and serve as a facilitator of gov-ernment-community communications. The Sub-District Office is the lowest government organin the Chinese administrative structure.

80 The Sub-District Office denied the validity of the voting result by refusing to stamp and endorsethe decision.

81 See the online forum by Times Manor Complex Homeowners’ Association (TMCHOA)5http://www.timesmanor.org4accessed 17 March 2013.





ownloaded from

election was held where the prior executive committee was replaced by amargin of one vote.

In retaliation, the former executive committee organized a seminar con-ducted by experts in district administrative matters, legal scholars, and lawyersto investigate whether the local authority had the right to re-elect the execu-tive committee and especially the legal status and propriety of Circular no.666. This seminar resulted in the filing of a suit against the BeijingMunicipality Construction Committee for issuing the circular. The DistrictCourt dismissed the case and pointed out that Circular no. 666 was only aninstructional opinion with no administrative binding force.82 Although thecase was dismissed, many industry experts hailed the decision as a victory forHOAs chiefly for two reasons.83 First, in not questioning the locus standi of theHOA committee, the Court acquiesced to the legitimacy of the action, includingthe concession of judicial review of the administrative function and the HOAas an appropriate applicant.84 Second, it demonstrated that Circular no. 666had no precedential value since the Court considered it only as an opinion,thus local agencies cannot rely on it as a basis to intervene in the future.85

This case is significant for two reasons. First, it illustrates the means andopacity of corruption in local Chinese politics and how it can occasionally cir-cumvent both the best interests of the homeowners and the democratic struc-ture of the association. In this case, the democratically elected executivecommittee was removed, and a new committee was put in place (ostensiblyvia coercion). Additionally, the management company was not replaced, and,presumably the owners are still suffering the consequences. Second, it revealsthe reluctant collusion of the judiciary in local corruption. In a country thathas only recently made provision for judicial administrative review with argu-able reticence,86 the court could have dismissed the case on the grounds ofstanding.87 By reaching its decision on the grounds it chose, the court

82 Ibid.83 Ibid.84 Ibid.85 Ibid.86 Administrative law in the PRC was virtually non-existent before the end of the Cultural

Revolution. The Administrative Procedure Law of the People’s Republic of China (1990) waspassed in 1989 and went into effect on 1 October 1990. This law made it possible for individualsto bring a case against the administration and also laid down the relevant criteria and proced-ures for administrative law litigation. See Feng Lin, Administrative Law: Procedures andRemedies in China (Sweet and Maxwell 1996).

87 Although condominium litigation continues to increase in China, most courts initially were re-luctant to grant a homeowner’s association (HOA) the power to sue or be sued in the absenceof statutory authority. However, quite recently, some provincial courts have issued judicialopinions allowing the executive council of a HOA to appear in court as either a plaintiff or a de-fendant on behalf of the owners. This has been well received and may provide funding forHOAs to exclusively pursue claims in common property disputes. First, multiple-party litigationwith every unit owner individually involved is cumbersome and a procedural nightmare forthe courts. Second, with HOA standing, the common interest of all members are protected in-stead of limiting litigation to individual interests. Third, when the HOA has exclusive standing,





ownloaded from

preserved the actions of other associations to bring future, presumably more ef-fective, actions.

Alternatively, although industry experts exhorted the positive ramificationsof the decision, it seems faint praise in light of the result. The original associ-ation executive committee is no longer in power, the election was disrupted,and the original for-profit management company is still in place (and appar-ently still in collusion with the local government). It is also easy to jump tothe conclusion that the original suit should have centred on the actions of thelocal government (for its failure to recognize the first election) and for corrup-tion, instead of the declarations in Circular no. 666. However, some margin ofappreciation must be afforded the local legal experts with regard to the mostpromising legal stratagem. Indeed, when considering the success of theMLYHOA (discussed earlier), public opinion and political support would havelikely better served the claimants then a different legal plan. Moreover, thisscenario could have just as easily included developer overreaching if, for ex-ample, the developer were acting in concert with the local government as aparent company of the for-profit management company. In the development ofgreater democratic practices in the PRC, the battle lines include, in large meas-ure, the otherwise overlooked struggle of HOAs against local government in-trusion, corruption, and lack of effective judicial remedy.

Summary

Nonetheless, the significance of these two case studies in Chinese socio-cultural economic life is significant as they demonstrate how opening thedoor to local democratic governance as a matter of right, and government sen-sitivity to public opinion (especially among the Chinese judiciary), may poten-tially lead to regional democratic structures and ultimately impact thenational governing organs themselves. The transitional process of democratiza-tion is driven by several conditioning factors: (1) the mood of the communityas it perceives the efficiency and benefits of self-rule and becomes more accli-matized to an empowering democratic process;88 (2) the fruits of China’s grow-ing economy as increased wealth creates a larger middle class that willdemand greater input into government policy, consistent with a theory of eco-nomic determinism; and (3) the market forces themselves as they drive greaterdemocratic processes by encouraging market efficiencies in a free marketenvironment as fundamentally consistent with greater democratic processes.In the case of the TMCHOA, local government corruption, developer or man-agement company overreaching, and lack of reliable judicial enforceability are

defendants are protected from multiple and repeated suits of the same claim.With these advan-tages, the HOA’s exclusive standing is an efficient way to resolve common property disputes.

88 See generally Kevin J O’Brien, ‘Rightful Resistance’ (1996) 49 World Politics 31; see also Kevin JO’Brien, ‘Neither Transgressive nor Contained: Boundary-Spanning Contention in China’(2003) 8(1) Mobilization 51.





ownloaded from

the negative factors being controlled, and the synergies of individual owner-ship (for example, cost sharing, volunteer owner management associations,owner maintenance and upkeep of facilities, and so on) enhance the decisionmaking of the democratic collective. Indeed, as the common law of contract,land law, and tort developed in the international economic environment ofnineteenth-century free market economies so too has the recent statutory lawof China developed in an arguably proximate international (neoliberal) eco-nomic milieu.

Potential risksDespite changing trends and indicators, there are risks associated with thefledging democratic direction taken in the Property Law. Among them is therisk of fiat exercised by local government overriding the condominiumowner’s decisions, the lack of a fully authorized judicial branch for effectiveenforcement of remedies, propensity for corruption, and undue influence of de-velopers throughout the process (including the handover to the owners associ-ation and the initial appointment of management companies or other outsidecontractors).

While the Property Law provides for free elections, it also allows for the im-position of the local government to provide ‘help and instructions.’89 The issueof interference by local government is tied to judicial review and especially tothe inefficient enforcement of judgments as executive mandate can tend to cir-cumvent judicial decisions. Some of the influence of local government ispurely ministerial such as providing for basic government services includingthe provision of electricity and water and sewer. It also assists owners’ associ-ations with their initial set-up and the transfer from developers in newly con-structed condominiums. However, in some cases, there is a struggle betweenthe local government and the owners’ associations. Originally, local govern-ment served as the landlord for all residential property within its jurisdiction.With the appearance of private property statutes, this relationship has chan-ged, but local government has often retained control over the common elem-ents and charged a fee to the owners for their use. This system transitionedinto the so-called ‘Shenzhen mode’ or the privatization of the services previ-ously supplied by the public sector. Thereafter, as the owners eventuallygained control and ownership over these elements, the local governmentcontinued to retain control over the service personnel, often in the form of afor-profit management company.90

89 Property Law (n 21) art 75.90 ZW Du, ‘Marketization of Property Management in Shenzhen (Part I)’ (2003) 111 Housing and

Real Estate 51.





ownloaded from

This transition can also be observed in newly constructed condominiumprojects with developers reluctantly relinquishing control of (for-profit-based)common elements and professional management companies, usually onlyafter a struggle with the owners. The developers are frequently aligned withthe local government in this process or acting with their support. Moreover, re-course to judicial remedies sometimes proves vain as the lack of adequatejudicial review or enforceability of judgments is often thwarted by the localauthorities.91 This scenario provides a rich medium for local corruption.

Therefore, the issue of local interference with the effective democraticgovernance in owners’ associations and the issue of judicial review andenforcement are intertwined. The continued control by local authority (or de-velopers acting in concert with local authority) outside the judiciary is atodds with democratization and market forces. The failure to provide anadequate remedy has occasionally resulted in owners taking a political stanceinstead of a purely legal one as sit-down protests have sometimes been initiatedin order to gain the attention of even higher ranking officials.92 Since they areactual stakeholders, these protesters are more highly motivated then theywould be as mere tenants. Though sometimes effective, such methods aloneare perhaps not a reliable engine to bring about change and protect therights of the owners (though they do serve as a barometer of changing societalperceptions and expectations, as seen in the Lijang Garden protests of 2009).

However, while the circumvention of some judicial remedies takes place, thegreater weight of the trends seem to favour the homeowners and marketforces. Indeed, the solution to this dilemma resides in both legal and non-legalarenas including political, economic, and social. As owners obtain greaterstakes, their rights to the property become more established and socially or cul-turally presumed. The trending from public sector, to private sector, to‘Shenzhen mode’ is poised to ultimately transition to a free market economywith ever-greater owners’ rights and, thus, more profound and reliable demo-cratic governance, including complete control over the service personnel andmanagement of the development.

91 Though perhaps not strictly applicable to local government, the Property Law does allow forthe protection of the individual owner from overreaching by the owners association, as it pro-vides that the decisions of the general meeting and the executive committee are binding onthe owners unless an owner can prove that the decision adversely affects his or her legitimaterights and interests. See Property Law (n 21) art 78(2). In the latter instance, or indeed if itcan be proved that prescribed procedures have been contravened, he or she can approach thecourt for invalidation of the decision within a year after he has become aware, or should havebecome aware, of the decision. See Judicial Interpretation on Property Law (n 40) art 12. Thisprovision reflects the protection of minority rights.

92 One example occurred in 1998 when the owners of the Kai Li Garden in Shenzhen staged asit-down strike in front of the district and municipal government buildings over a dispute con-cerning unit ownership certificates.





ownloaded from

ConclusionPrivate ownership of all real estate seems to be the next hurdle for Chineselawmakers and is, symbolically at least, one of the last residues of socialism inthe Chinese land scheme.93 Growing claims for privatization and free marketeconomics, the sanctity of market value, and market forces are not only drivingChina’s economic aspirations but also blossoming into an emerging rightsregime. These trends are driven by economic determinism, the mood of thetimes, the encouragement of efficiencies, and the reduction of transactioncosts and seem not to be gainsaid by minor corruption and other temporarystructural defects. Moreover, these trends serve as the most reliable engine ofprediction for future development and override other considerations. Whilethe existence of local government interference with owners’ property rights,poorly drafted legislation, and lack of judicial enforcement cut against themarket, these defects can more properly be characterized as ‘growing pains’that will eventually relent in the face of market forces.

Moreover, as developing property rights emerge, so too will the protection ofother rights grow in the PRC. The economic trends and developing middleclass will become less tolerant of corruption and demand greater accountabil-ity in the spirit of the protections of individual rights. These factors are likelyto drive greater synergies of all rights. In view of the relationship dynamicsamong developers, homeowners, and local governments, two policy recom-mendations are suggested. First, the PRC should create more binding lawsoverriding developer conflicts of interest in order to allow owner committeesto take control of the management of their properties sooner and make thetransition smoother. This process has begun to evolve with substantial changesto the national statutes in 2003 and 2007. However, additional legislative chal-lenges remain, and national and local legislators should continue to perfectthe system to alleviate corruption and developer overreaching as well ascreate an equitable condominium structure that works efficiently. Second,enhancing homeowner’s awareness of their ability to stand up for their owninterests is warranted. Through the dissemination of knowledge/propertyrights, Chinese homeowners can transform the concept of condominium own-ership from home ownership into their participation in community life.

93 It should be noted that although there is no private landownership in China so far, the land useright holding can be transferred and commercialized, thus making urban land in China mar-ketable and therefore a capitalized asset. China does not accept the rule that what is attachedto the land becomes part of it. In consequence, the legal status of the land and that of the build-ings on the land are separate and distinct. See an extensive description of the Chinese landuse right in PA Randolph and Jianbou Lou, Chinese Real Estate Law (Kluwer Law International2000).





ownloaded from

Evolving Property Rights in China: Patterns and Dynamics of Condominium Governance

Documents

Transcript of Evolving Property Rights in China: Patterns and Dynamics of Condominium Governance