ESTATE


Chinese land grab
2009/02/11, 1:22 am
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Forbes.com

International
Land Grab
Gady Epstein 02.02.09

Chen Yun’s parcels of land in Chongqing had everything a Chinese developer could possibly want. These former cornfields were to be easily accessible from the city center by a new eight-lane road. There would be enough space set back from traffic to provide China’s emerging middle-class customer a quiet, affordable enclave in a prospering interior megalopolis.

Chen, a 61-year-old son of peasants and self-made millionaire from this once rural area, planned four residential towers with a view of the Yangtze River, the highest of the four going to 20 stories. The $360,000 he paid for the 7 acres in 2000 seemed a bargain.

The problem was a powerful government official, Tang Wenfeng. Tang demanded Chen turn over some land he held next door to the 7 acres so that Tang could build his agency’s headquarters there. And then Tang came back for the rest. Chen fought back but would learn that it’s not what you own but who you know that matters.

“If I had known some powerful person, I would not have gotten such a bad result,” Chen says. “But that’s how I’ve always done business. I didn’t want to give a fat envelope under the table.”

For years popular dissatisfaction with land policy in China has focused on the forced relocations of the powerless for little compensation, as well-connected developers and their government patrons reap huge profits and take graft. Recently the government began moving to expand the land rights of farmers and to better define the scope under which land can be taken.

Chen’s case illustrates, though, that even wealthy developers can face the same plight as farmers. “How to use the land, what is the development capacity of the land and how much the land can earn—all this can be decided by the officials,” says Qiu Daochi, a former land resources official in Chongqing, currently a professor of geological science at Southwest University there.

In Chongqing that elite group of kingmakers long included Tang, a party cadre who as chief of an economic development zone wielded close to absolute power over land in his fiefdom, including Chen’s. “Tang was like the emperor of Rome,” says Li Xingchen, a Chongqing journalist and blogger who covers land issues and has followed Chen’s case closely. “No one could touch him. He had the power to decide everything.”

Chen tried to appease Tang by agreeing to hand over land for the zone’s headquarters. But in 2003 Tang would do to Chen, rich from a construction business and a nearby apartment complex he owns, what has been done to farmers in China for years: take his remaining land, 7.1 acres in all, in the name of “the public interest,” then turn over almost all of it less than two months later to another developer, Chen Liwei, for a sweetheart price of less than $2.5 million. Tang’s agency gave Chen back his purchase price of $360,000, plus $130,000 compensation, but Chen knew he had lost out on the fortune of a lifetime.

“I put too much trust in the Communist Party,” says Chen. “If we can’t trust government, who else should we trust?”

The central government itself reported, for a four-month period ending Jan. 15, 2008, 31,000 cases of official abuse involving 540,000 acres of land. Each year tens of thousands of protests and complaints against officials revolve around land disputes. Satisfactory resolutions are rare.

Chen had the wherewithal to sue, and he figured he had a strong case: He’d been told the land was needed for construction of the eight-lane road that was to border the property, and under the law, it should not have been resold. (Two economic development zone officials declined to comment on Chen’s case, claiming they weren’t familiar with the details, and Tang could not be reached.)

Zhou Xiaoyu, marketing director for the favored developer’s company, Bao Tian, said the land had been acquired “absolutely through proper channels.”

Suing would mean antagonizing the very bureaucracy that is so essential to making money in real estate. But, says Chen, “They really bullied me too much. Is that just because I’m not as close with Tang as other people? How could they grab the rice in my bowl to feed others?” Chen says. “I have my rules of doing business: One is not cheating others, and the other is not allowing other people to cheat me.”

Three times during his legal battle courts in Chongqing ruled that the government had acted improperly and that Chen should be given more compensation for his land. Last year one finally set what Chen considered a paltry award of $2 million. The government appealed the ruling.

Then authorities went after Chen’s nemesis, Tang, one of nine Chongqing officials in land-related jobs to be investigated for corruption in the last year. Tang appeared last Nov. 7 in court and confessed to abuse of power in accepting more than $1 million in bribes from two construction companies, as well as embezzling $30 million and conveying much of it to the two companies. (This case is unrelated to Chen Yun’s land dispute.)

In his confession statement Tang said he had been arrogant and willful and deserved punishment. Now 60, Tang was sentenced in late December to a life term in prison to cap his career.

Would having his opponent put down for corruption do anything to help Chen or hurt his rival developer, Chen Liwei? Hardly. The government moved last year to revoke, retroactively, Chen’s original claim to the property, and in October a Chongqing court endorsed the state’s creative maneuver, ruling that Chen never had legitimate rights. Chen doesn’t have to return his original compensation of $490,000, but he no longer stands to receive the $2 million awarded him in 2007.

Today the land is overgrown with brush and weeds, literally overlooked by the economic zone headquarters that was built on the neighboring land Chen had agreed to give Tang seven years ago. Bao Tian plans to build a hotel, shopping mall and office complex on the property in 2010.

For now Bao Tian has some apartments to sell next door; to do the job they have built a grandiose sales office on one corner of Chen’s former property. Chinese employees stand at attention dressed in some fanciful approximation of Buckingham Palace guards, watching over a manicured faux-European garden and fountain. The advertising promises, in English, “rejuvenation of the life intent.”

Murky property rights, arbitrary rules on development, eminent domain used to benefit not the public but private interests—Chinese land law sounds so foreign. In fact, though, all these are features of American law. The difference is in degree—and then there’s the fact that in Chinese legal disputes, the government wins virtually whenever it really wants to. Chen learned that lesson the hard way.

Additional reporting by Li Jie.

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