Key Points:

  • Industrial land that has been allocated or leased may be granted by agreement
  • Local governments are authorized to make detailed measures and procedures for the pre-application for use rights to industrial land
  • The government may rearrange new industrial land for the original owner of the land use right (LUR) by agreement during the reconstruction of old urban areas
  • Industrial land for a project to be constructed by stages may be granted at one time

On August 10, 2009 the Ministry of Land and Resources (MLR) and the Ministry of Supervision (MOS) jointly issued the Notice on Further Implementation of the Mechanism of Granting Land Use Right (LUR) for Industry Use (the Notice) to solve outstanding issues regarding LURs for industrial use (Industrial Land). Following are the main issues addressed in the Notice.

Methods of Granting LURs for Industrial Use

According to the original Notice on Implementation of the Mechanism of Granting Land Use Right for Industry Use issued by the MLR and MOS on April 4, 2007, the government must grant Industrial Land by means of tender, auction or listing on a land exchange. The MLR indicates that in some areas, however, there is misunderstanding of the scope of tender, auction, listing on a land exchange and grant agreement, and there have been mistakes in LUR grants for industrial use because industrial projects are different from commercial, tourism, entertainment and commodity residential projects, which include various subcategories and vary on standards of environmental protection, industry structure and policies, and arrangement. Therefore, the Notice further specifies the scope of the granting methods for Industrial Land:

  • The government shall accept the methods of tender, auction and listing on a land exchange to confirm the price for Industrial Land that is converted and requisitioned from agricultural land through governmental approval and is purchased by the government for regranting.
  • The government may accept grants for Industrial Land that has been allocated or leased provided that the use of the Industrial Land is in compliance with the city plan and is approved according to relevant laws.

Pre-Application for Granting of LURs

The system for pre-application for granting of LURs was established by the Regulation on Granting State-Owned LURs Through Tender, Auction and Listing on a Land Exchange in 2006 to help local governments understand demand in the land market. The Notice intends to promote the pre-application system further, as there have been cases of failed Industrial Land auctions due to the current economic situation in some areas. Local governments are authorized to take detailed measures and procedures for the pre-application of Industrial Land.

Issues of LURs for Industrial Use Involved in the Reconstruction of Urban Areas

In the process of reconstruction of urban areas, one key issue is whether the original owner of the LUR may continue the development of the land or the government shall take the LUR back for a new grant. The Notice points out that this issue shall be tackled according to the different categories of Industrial Land. Regarding relocation of industrial projects due to reconstruction of urban areas, the government may take the LUR back and provide new Industrial Land to the original LUR owner by agreement grant or lease after the approval of relevant authorities at the county or city level. Needless to say, such rearrangement of industrial projects must be in compliance with the general land use plan and city plan.

Performance of LUR Grant Contracts

According to the MLR’s report, some industrial projects are not able to make LUR payments on time or start and complete construction on time in some areas. The Notice emphasizes the grant contract for Industrial Land shall provide the payment time and method, delivery date of the land, and start and completion time of the construction specifically. If the grantee fails to start construction on time, it shall apply with the grantor 30 days prior to the start date for an extension of the start time, which may not be longer than one year.

With respect to industrial projects to be constructed by stages, the local land administration may determine the winner of a tender, auction or listing on a land exchange through a bid on the price of each unit area (e.g., square meter or “mu”). The grant contract of state-owned LURs shall be executed at one time and the grantee shall make the payment by lump sum. Furthermore, the usage of the land shall not be changed during the construction stages. In the event that the Industrial Land is used for commercial, tourism, entertainment or commodity residential purpose, the government shall take the land back and regrant it by tender, auction or listing on a land exchange.

In conclusion, the Notice provides more specific provisions in order to further implement the granting mechanism for Industrial Land, which should be helpful in solving common issues.