Perspective | A Brief Analysis of the Market Entry of Collectively Operated Construction Land

The newly revised "Land Administration Law of the People's Republic of China" came into effect on January 1, 2020, elevating the decisions and successful pilot experiences of rural land system reform over the years to the level of law. It removed the legal obstacles for rural collective operating construction land to enter the market, allowing collective operating construction land to be used by individuals or enterprises under legal procedures and conditions. The "Implementation Regulations of the Land Administration Law of the People's Republic of China" were revised for the third time on July 2, 2021, adding a special chapter on "Management of Collective Operating Construction Land". In December 2021, the General Office of the State Council issued the "Overall Plan for Comprehensive Reform Pilot of Market-oriented Allocation of Factors", proposing to establish and improve a unified construction land market for urban and rural areas, allowing the existing collective construction land to be traded in the market based on planning changes in use under the premise of voluntary and compensated legal compliance. The "Guiding Opinions on Deepening the Pilot Work of Rural Collective Operating Construction Land Entering the Market", passed on September 6, 2022, emphasized the need to adhere to the principle of equal rights and responsibilities for the same land, promoting the equal entry of rural collective operating construction land and state-owned construction land into the market, applying the same rules, and accepting market supervision.

According to Article 39 of the "Implementation Regulations of the Land Administration Law of the People's Republic of China", if the landowner intends to transfer or lease collective operating construction land, they must meet the planning conditions proposed by the national land spatial planning, including land boundaries, area, use, and development intensity. At the same time, the natural resources authorities of the municipal and county governments will also propose requirements for industrial access and ecological environmental protection.

Collective operating construction land must comply with national industrial policies, land use standards, ecological environmental protection policies, and standard requirements, and must have necessary development conditions such as access roads, water supply, electricity, and land leveling.

Rural land mainly includes two categories: the first is agricultural land, and the second is collective construction land. Collective construction land is mainly divided into residential land, public utility land, and commercial land. The choice of market entry method is the premise and foundation for the transfer of collective land. In practice, there are three main ways for collective operating construction land to enter the market: leasing, equity participation, and transfer.

Collective operating construction land entering the market through leasing is a method clearly stipulated by the "Land Administration Law". Entering the market through leasing means establishing leasing rights on collective operating construction land, with the owner receiving rent. This model is flexible and efficient, requires less capital investment, and has low risk costs.
 

The so-called collective operating construction land entering the market through equity participation refers to rural collectives or rural collective economic organizations as one party contributing capital by determining the price of the usage rights of collective operating construction land for a certain period through evaluation, and jointly developing and utilizing the collective operating construction land with social capital. For enterprises or individuals using the land, entering the market through equity participation can reduce financial pressure, stimulate local enthusiasm, and achieve win-win cooperation based on the development and utilization of collective operating construction land.
 

The transfer of collective operating construction land means that the transferor receives a one-time payment from the transferee as consideration, while the collective grants land use rights to the transferee. The transfer model is suitable for large, contiguous land areas and is a more thorough way of land marketization reform, which meets the requirements of market entities for land rights and can effectively control transaction risks and overall costs while highlighting land value.
 

According to Article 40 of the "Implementation Regulations of the Land Administration Law of the People's Republic of China", landowners must prepare plans for the transfer or leasing of collective operating construction land based on planning conditions, industrial access, and ecological environmental protection requirements, and form written opinions, which must be submitted to the municipal or county government at least ten working days before the transfer or leasing. If the plan does not comply with relevant regulations, the government should propose modification opinions within five working days of receiving the plan. The plans for the transfer or leasing of collective operating construction land should clearly specify various information about the land parcel, including land boundaries, area, use, planning conditions, industrial access and ecological environmental protection requirements, duration of use, transaction methods, market entry prices, and collective revenue distribution arrangements.

1. Issue Policy Documents.Supporting policy documents are a prerequisite for market entry work and the basis for all work to be carried out. Before starting market entry work, it is necessary to improve relevant supporting policies such as market entry management methods, detailed rules for market entry, revenue distribution, benchmark land prices, market entry processes, and market entry channels.

2. Draft Market Entry Land Parcels.Based on relevant planning, preliminarily draft market entry land parcels, which must comply with planning, have clear ownership, and establish rural collective economic cooperative organizations, with high willingness of villagers to enter the market.

3. Determine Implementation Entities.The market entry entity is the village collective economic organization, or according to relevant policies, the village collective economic organization entrusts a relevant platform company as the market entry implementation entity, and the village collective economic organization signs a trust agreement with the platform company and agrees on relevant profit distribution.

4. Application.For land parcels that meet the market entry conditions, after being approved by more than two-thirds of the members of the villagers' meeting or more than two-thirds of the villagers' representatives, the landowner or the implementation entity authorized by the landowner can submit a market entry application to the local township government, along with voting documents from villagers or representatives and other relevant materials. The market entry application should specify the basic information of the intended market entry land parcel, including location, ownership, and attached structures.

5. Review.The township government conducts a preliminary review of the current use status, ownership status, and attached structures of the intended market entry land parcel, and issues preliminary opinions on whether to agree to market entry. The natural resources and planning departments of the city and county will review whether the intended market entry land parcel meets the market entry conditions based on the preliminary opinions, and if it meets the conditions, the natural resources and planning departments will issue review opinions and clarify the land use conditions of the intended market entry land parcel based on relevant planning.

6. Land price assessment and market entry plan formulation.For the land parcels approved for market entry, the market entry entity shall entrust a qualified unit to conduct a land price assessment and formulate a market entry plan. The market entry plan should include, but is not limited to, the following content: location of the land parcel, area, ownership, land use, land use conditions, duration of use, land assessment price, configuration method (transfer, lease, or capital contribution), market entry transaction method (bidding, auction, listing, or agreement), soil pollution status investigation, etc. The natural resources and planning authorities at the municipal and county levels shall collectively decide on the base price based on the land parcel assessment price, industrial policies, and other factors. The base price must not be lower than the market entry cost and must not be lower than the minimum transfer price standard for state-owned construction land as stipulated by the state.

7. Voting on the market entry plan.The market entry plan must be voted on and approved by more than two-thirds of the members of the villagers' meeting or more than two-thirds of the villagers' representatives, and voting materials must be formed. For collective operational construction land belonging to township collective economic organizations, the market entry plan must be collectively studied and decided by the township party and government joint meeting or the township mayor's office meeting.

8. Approval of the market entry plan.After the market entry plan is approved by vote, it shall be submitted by the market entry entity to the natural resources and planning authorities at the municipal and county levels. After the relevant departments organized by the natural resources and planning authorities at the municipal and county levels review it, it shall be submitted to the municipal and county people's government for approval.

9. Land consolidation before market entry.Relevant entities shall carry out land consolidation before market entry to meet the conditions for land transfer, and the relevant conditions can refer to the conditions before the transfer of state-owned land.

10. Announcement and transaction.After the land consolidation meets the market entry conditions, the natural resources and planning authorities at the municipal and county levels shall publish the market entry transaction announcement on the public resource trading service center website and major media. Transactions conducted through bidding, auction, or listing should enter the municipal and county land trading market.

11. Signing of transaction confirmation and public announcement.After the land transaction, the transferee and lessee shall sign the land transaction confirmation at the transaction site. The transaction results shall be announced to accept social and public supervision.

12. Signing of transfer contract.Within 20 working days from the date of the land transaction, both parties to the transaction shall sign the land market entry agreement in accordance with the provisions of the transaction confirmation or capital contribution (equity) confirmation.

The distribution of income from land market entry involves the rights and interests of multiple parties, including the state, collectives, and farmers, and relates to the enthusiasm of participants. Establishing a distribution method for the appreciation of transfer value that takes into account the interests of the state, collectives, and farmers is key to coordinating the interests of all parties and steadily promoting the smooth market entry of collective operational construction land. The appreciation distribution mentioned in this article occurs during the stage when the use rights of collective operational construction land are transferred between collective owners and other users. Farmers can directly participate in the distribution of appreciation income based on ownership and contracted management rights; the government can indirectly participate in the distribution of appreciation income based on its role as a public product investor and market economic regulator.

On November 4, 2023, the People's Court of Pinggu District, Beijing, held a legal parallel forum themed "Market Entry and Utilization of Rural Collective Operational Construction Land" during the 2023 World Agricultural Science and Technology Innovation Conference. The transaction of rural collective land market entry is a civil legal act, and if disputes arise leading to litigation, the court should actively review the validity of the civil act. Regarding the legality of the transferor's subject qualification and whether the collective land transfer or lease plan prepared by the rural collective land owner meets planning conditions, industrial access, and ecological environmental protection requirements, as well as the situations where administrative agencies are required to adopt an approval system as stipulated by laws and regulations, judicial review should primarily focus on formal review, supplemented by substantive review. Formal review refers to the judge verifying the authenticity, completeness, and relevance of the proof materials. Substantive review refers to the judge checking whether the proof materials can substantiate the claims of substantive law provisions. Formal review is a mandatory norm for judges, while substantive review is a discretionary norm.

Li Zhiguo, Vice Dean and Professor of the Institute of Engineering Law at Beijing University of Civil Engineering and Architecture, believes that substantial review must be conducted according to Article 63 of the Land Management Law, as the market entry of collective land use rights involves significant disposal of farmers' collective property rights. The convening of the villagers' meeting or the villagers' representative meeting must comply with legal procedures, and the number of attendees and votes must be more than two-thirds. Contracts for the transfer of collective construction land without collective democratic procedures should generally be deemed invalid due to violation of mandatory provisions. Judges should focus on whether the process of forming the resolution is reasonable and legal, including but not limited to reviewing whether villagers were notified to hold a meeting within a reasonable time, whether relevant issues were timely disclosed to villagers, whether the meeting met the legal quorum requirements, and whether the voting method complied with the principle of secret ballot.