The founding of New China in 1949 saw the establishment of a socialist public ownership of land. Under the planning economic system, construction land used by units mainly came from the allocation by the government. The state provided the land users with land use right without time limit and payment, and the land use right was not allowed to transfer between land users who did not use the land properly. The land use right and ownership were not separated, and land users lacked the self-control mechanism, which led to waste of great deal of land resources.

The reform of land system is to separate the land use right with ownership, and use of land must be paid and set within time limit to replace the unpaid and limitless use of land in the past. Use of land also entered market as the commodity property. The contents of reform are as follows:

1. Fees are collected in use of land in cities and towns. The comprehensive development and collection of land use fees in urban construction was formerly put forward in the National Urban Planning Conference held in 1980. In 1982, Shenzhen, Guangzhou and Fushun took the lead in collecting fees on users of occupied land annually. In June 1986, the State Council put forward the plan of fee collection on land use in cities. And in 1988, the State Council made the decision to collect fees (taxes) on land use in cities and towns, which demonstrated, both legally and economically, the state ownership of land.

2. Sales and transfer of state-owned land use right were trial-implemented in cities and towns. In April 1987, the State Council proposed that land could be transferred with payment, and in September of the year, Shenzhen took the lead to sell land use right, a 5,000-square-meter land for living houses was sold with 200 yuan a square meter for 50 years. In November, the State decided to conduct reform of land use system in pilot places of Shenzhen, Shanghai, Tianjin, Guangzhou, Xiamen and Fuzhou, and gradually expanded the reform from the coastal cities to inland. In April 1988, the first session of the Seventh NPC revised related regulations in the 1982 Constitution, and ruled that land use right could be transferred according to law. In December the Revision on Land Management Law was passed, which stipulates that the State implements the paid land use system according to the law. In May 1990, the State Council issued Provisional Regulations on Sales and Transfer of State-Owned Land Use Right in Cities and Towns of the People's Republic of China, which legalized state land use system.

3. Renting of land was trial-implemented in cities and towns. By the end of October 1997, 860 counties (cities, regions) had trial-implemented short-term land renting system. By renting of land, the State, as the owner of city land, leases the land use right, management and controlling right of land to renters within a period of time, and charge fees.

4. The reform of the construction land used by the collective. Construction land use by the collective includes the construction use of land by township enterprises and building houses by farmers. The reform of construction land use system by township enterprises began in Nantong City on a trial basis. On April 1, 1987, Jiangsu's Nantong City began to collect fees on land use for non-agricultural purpose from units and individuals. The reform effectively stopped abuses of land and promoted rational and economical use of land by township enterprises. In 1988, Dezhou in Shandong Province began paid use of land for building houses in rural areas, which was successively launched in the whole province, and in Hebei, Hubei and Jiangsu provinces. In January 1990, the State Council approved the Circular of the National Land Administration on strengthening rural house building land use management, then the trial work was launched throughout the country, except for some remote and poverty areas.