Washington International Law Journal


This Article reviews the developing Chinese law pertaining to real estate mortgage loans with a focus on the questions that an American practitioner might have about the Chinese system. It identifies those areas of difference between the American and Chinese systems that might raise concerns for an American practitioner. Attention is given to issues of concern both to parties functioning as lenders and to parties functioning as borrowers or investors in mortgaged property. Although Chinese lawmakers have made major steps in recent years to provide clarity and predictability in the laws pertaining to mortgages, some of these laws have minor internal conflicts. In addition, these laws establish protected interests for mortgagees or for lessees that would be viewed in the American legal system as impediments to open market operation. One area of acute concern is the uncertainty as to the parties' ability to alter through contract the operation of Chinese laws affecting the mortgage relationship. Despite the provisions of the new Contract Law promoting freedom of contract, other specific provisions in mortgage-related laws lead to uncertainty as to the flexibility of Chinese law for parties to a mortgage contract. Also examined is the tendency of Chinese mortgagees to rely less heavily on their security interest mortgages than Western lenders. This is due in part to uncertainty regarding the value of Chinese real estate in general, but also because of uncertainty regarding the enforcement of Chinese mortgage and foreclosure laws. Greater adherence to the rule of law will lead to greater reliability of mortgages, which in turn will make capital more available to Chinese real estate investors. The conclusion addresses the major areas of concern remaining in the Chinese legal framework. These include the mortgagee's rights to control transfer of the mortgaged property and to collect rents prior to default, an apparent inhibition on lending funds for construction purposes, the special protections against the mortgagee given to lessees, and the mortgageability of leaseholds in general.

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