Conditions limiting the mortgaging of reserve land to secure financing

At present, the financing channels available to local governments are relatively limited, while the pressures on them to construct infrastructure are only increasing. Therefore reserve land, as a proprietary resource of local governments, is being used as a major means of providing security for the financing of local governments. However, the laws of China place strict restrictions on such usage.

Although the Security Law specifies that land use rights may be mortgaged, this is conditioned on the mortgagee having lawfully secured the land use rights, and having the land use rights certificate.

However, the above-mentioned method does not comply with such relevant laws and regulations of China as the Law on the Administration of Land, i.e. allocation or grant, making the question of whether they can be mortgaged difficult to justify in law.

Recognising this issue, the relevant authorities issued the Administrative Measures for Reserve Land, which specify that a land use rights certificate can be obtained for reserve land. However, mortgage registration is unavailable to mortgagees that are not financial institutions so that their lawful rights and interests are not protected.