China Offering Property Protection

By CHRISTOPHER BODEEN
Associated Press
March 16, 2007 posted 10:31 am EDT

BEIJING (AP) - The People's Republic of China's legislators on Friday passed a law providing the most sweeping protection for private businesses and property since the nation's move toward a more capitalist-style economy beginning in the late 1970s.

The law offers the same protection for private and public property, a recognition of the private sector's rise since the start of economic reforms. The private sector, including foreign investment, has grown to account for 65 percent of gross national product and up to 70 percent of tax revenues.

The measure was strongly opposed by a small but highly influential group of scholars and retired communist officials, who called it a threat to the state's guiding role and a vehicle for unrestrained privatization that will feed a growing income gap between rich and poor.

"The law basically ignores the constitution's upholding of socialist public property as sacred and not to be violated," said Gong Xiantian, a Peking University professor.

Such opposition and the communist leadership's ambivalence about reducing the primacy of state property caused the law to be kicked around for 14 years before a final version was submitted this year. It passed in a vote of 2,799 delegates in favor with 52 opposed and 37 abstaining on the final day of the annual two-week session of the National People's Congress.

Perhaps aiding the law's passage was the status of state industries, which have shed influence along with employees of late. China's labor minister said earlier this week that jobs need to be found this year for another 5 million laid-off state enterprise workers.

Along with private businesses, the law also aims to bolster the rights of house buyers who have pushed the urban home ownership rate to more than 80 percent, as well as farmers who have frequently lost their land to infrastructure and housing projects, with little or no compensation.

The legislature also passed a new tax law that unifies the tax rate for foreign-financed companies with those of Chinese enterprises at 25 percent, ending an era that saw China create special economic and technology zones with low taxes to attract nearly $700 billion in foreign investment that fueled this nation's rise to become the world's fourth-largest economy.

Under the old system, Chinese companies paid 33 percent of profits in tax, while new foreign investors were exempt from taxes for two years, get a 50 percent cut for three more and after that could receive breaks that kept rates as low as 10 percent.

That system had led to frequent complaints about unequal treatment.

Meanwhile, Premier Wen Jiabao said at a news conference at the end of the legislative session that the world should not fear China's military rise. He also repeated attacks on old foes Taiwan and the Dalai Lama.

During the two-hour appearance, Mr. Wen also sought to allay concerns by America and others about China's rising military power, saying sharply higher defense spending was still lower than most developed countries and that a recent test of an anti-satellite weapon test did not target any other nation or violate any international treaties. He also pledged to foster nascent detente with regional rival Japan.

Mr. Wen said China is opposed to the militarization of outer space despite the January test, which prompted wide international criticism.

" China always advocates for the peaceful utilization of outer space and we are always opposed to an arms race in outer space," Wen said, adding Beijing was repeating its calls for an international convention banning weapons in outer space.

Noting that despite four years of double-digit growth, the economy was overly dependent on investment and exports, not consumption, he said that imbalance has left China flush with money but also the potential for careless investing. Investing foreign exchange reserves that now total $1 trillion "is a major problem," Wen said.

An agency being set up to invest a portion of the reserves, mostly held in secure American dollar-denominated assets, will be looking to preserve and increase their value, Mr. Wen said.

"I can assure you that by instituting such a foreign exchange company, it will not have an adverse impact on U.S. dollar-denominated assets," Mr. Wen told reporters.

He acknowledged the political system needs an injection of public accountability, especially to deal with endemic corruption by officials that has fed public anger that he said was growing "more and more severe." He called for greater transparency in decision-making.

Regarding Taiwan, Wen said China had not changed its stance.

"We are strongly opposed to any secessionist activities aimed at achieving Taiwan independence," Wen said of the self-ruled island that Beijing considers part of its territory.

But he said China was willing to have a dialogue with the Dalai Lama as long as he gives up efforts for Tibetan independence.

"As long as the Dalai Lama recognizes that Tibet is an inalienable part of Chinese territory ... and as long as the Dalai Lama gives up his efforts to split the county, we will be in a position and we are willing to have consultations and dialogue," Mr. Wen said. "The door is always open."

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Associated Press writer Charles Hutzler contributed to this report.

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