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Property Rights to Plantations / Timber in China

Property rights are relatively new in China and the system for recording them continues to evolve, in the IC's experience, at different rates in different parts of the country.

There are four separate types of rights associated with plantations in China, being (i) plantation land ownership, (ii) plantation land use rights, (iii) timber ownership and (iv) timber use rights. Private enterprises cannot legally hold plantation land ownership but may hold plantation land use rights for a specified duration of up to 70 years, although in certain provinces foreign enterprises cannot acquire land use rights. Private enterprises also may hold timber ownership and timber use rights. This is important to clarify, because Sino-Forest has never claimed to 'own the land' on which it has standing timber.

A plantation rights certificate ("PRC") reflects plantation land ownership and plantation land use rights as registered in the registration system and is the ultimate proof of ownership. There is a nationally mandated registration system for PRCs, although there are some locations where PRCs are not yet issued. There is no system in place to record the sale and purchase of standing timber when that transaction does not also accompany the sale and purchase of land ownership or land use rights. As described above, in China, the right to own or use land is different from the right to own or use the timber on that land.

In circumstances where a PRC was not available, the Company's general practice was (and is) to require suppliers to seek and obtain "confirmation letters" or "approvals" from local forestry bureaus relating to the standing timber purchase contracts entered into by its BVIs. These confirmation letters, although not title documents in the Western sense of that term, provide significant support as to the Company's contractual rights. The Company views these confirmations as letters of comfort which indicate that the relevant forestry bureaus do not dispute the Company's claims to the standing timber to which they relate. These confirmations are not publicly available for review at relevant forestry bureaus and, as a result, the entirety of the Company's plantation assets in China cannot be verified from publicly available sources. However, forestry bureau confirmations have been reviewed in the course of the IC work.

While confirmations provide significant comfort as to the Company's contractual rights, the purchase contracts should be regarded as the primary evidence of the Company's interest in timber assets.

I have heard about this from my dad. China's rights to land use vs timber use is a very complicated law/regulations. I wouldn't be surprised that SINO owned the land use but may not the timber use.