Chinese See Communist Land Sales Hurting Mao’s Poor to Pay Rich
November 02, 2011, 5:34 AM EDT - Bloomberg.com

Oct. 24 (Bloomberg) -- Bulldozers razed Li Liguang’s farmhouse four years ago after officials in the Chinese city of Loudi told him the land was needed for a 30,000-seat stadium.

What Li, 28, says they didn’t tell him is that he would be paid a fraction of what his plot was worth and get stuck living in a cinder-block home, looking on as officials do what he never could: Grow rich off his family’s land.

It’s a reversal of one of the core principles of the Communist Revolution. Mao Zedong won the hearts of the masses by redistributing land from rich landlords to penniless peasants. Now, powerful local officials are snatching it back, sometimes violently, to make way for luxury apartment blocks, malls and sports complexes in a debt-fueled building binge.

City governments rely on land sales for much of their revenue because they have few sources of income such as property taxes. They’re increasingly seeking to cash in on real estate prices that have risen 140 percent since 1998 by appropriating land and flipping it to developers for huge profits.

“The high price of land leads to local governments being predatory,” said Andy Xie, an independent economist based in Shanghai who was formerly Morgan Stanley’s chief Asia economist. “China’s land policy is really screwed up.”

The evictions are alarming the nation’s leaders, who have taken steps to tackle the problem and are concerned about social stability. Land disputes are the leading cause of surging unrest across China, according to an official study published in June. The number of so-called mass incidents -- protests, riots, strikes and other disturbances -- doubled in five years to almost 500 a day in 2010, according to Sun Liping, a sociology professor at Beijing’s Tsinghua University.

Final Insult

There’s more to come. Some 60 million farmers will be uprooted over the next two decades as the urbanization that propelled China to the world’s second-largest economy gathers pace, according to an estimate by the Chinese Academy of Social Sciences in Beijing. In many cases, officials take land they don’t use, an August report from the academy said.

That was the final insult for Li. The rice and bean plot his family farmed for generations still lies empty, weeds sprouting from the red earth. Villagers are convinced that the city has sold it to developers, even though they can’t point to any documentation to prove it.

“They flattened the land and still haven’t used it,” says Li, a wiry man with short-cropped hair, sitting inside the hut he built in a garbage-strewn alleyway across a main road from the stadium. “They sold it for I don’t know how many millions of yuan.”

Officials in Loudi, located in central China in Mao’s home province of Hunan, wouldn’t answer questions about whether plots in Li’s village were sold or what they will be used for.

50 Million Evicted

Li is among 50 million farmers who’ve lost their homes over the past three decades since Deng Xiaoping began breaking up Mao’s collectivized farms to make way for factories, roads and airports, according to numbers from the academy. Turning people like him into more economically active citizens is part of an urbanization policy that has swelled city dwellers to about 50 percent of the population, from 21 percent in 1982, according to official census data.

Termed “chaiqian” in Chinese, the demolition and relocation of communities has become increasingly controversial. Cities have been grabbing land to finance operations and pay back or restructure mushrooming debt that reached at least 10.7 trillion yuan ($1.68 trillion) by the end of 2010. Almost a quarter of that is backed by land, according to China’s National Audit Office.

The money paid for the building spree that was designed to maintain China’s economic growth in the wake of the global recession. Loans were obtained through more than 10,000 financing vehicles cities created to get around laws prohibiting them from borrowing, according to a central bank count.

Low Compensation

Cities may have to accelerate land sales as they struggle to repay the debt, said Victor Shih, a professor at Northwestern University in Evanston, Illinois, who studies China’s local- government finances. There’s also an incentive for officials to keep payments to farmers as low as possible, he said.

“Without suppressing land compensation, local governments can’t make the margins to pay back the banks,” Shih said. “In essence, they are the engines of inequality in China. Land development is the redistribution of income from average households to rich households.”

Loudi is one of 186 local authorities from Guangxi on the Vietnamese frontier in the south to Heilongjiang on the Russian border in the north that issued bonds or short-term notes through financing vehicles in the first nine months of this year. Some 105 of them said they engage in “chaiqian,” according to their prospectuses.

Rights Violated

The seizures frequently lead to local officials violating farmers’ rights that the national government has sought to improve since 1998 when it gave them 30-year tenure over their land, said Gao Yu, China director for Landesa, a Seattle-based group formerly known as the Rural Development Institute that studies global land issues.

Rules that prohibit authorities leaving land like Li’s idle for more than two years are also often broken, Gao said. Across China, compensation given to farmers is at least 15 times lower than prices for land sold to development, according to Landesa.

“The local governments earn a lot of money from the price difference between what they compensate farmers and villagers for their land and what they sell to developers,” said Wang Erping, a scholar at the Chinese Academy of Sciences in Beijing who studies social unrest. “This is really objectionable, but these governments don’t have any alternative to raise money.”

Collision Course

Land sales make up 30 percent of total local government revenue and in some cities account for more than half, according to Wang Tao, a Hong Kong-based economist for UBS AG.

That’s putting city bosses on a collision course with national leaders who were already struggling to contain lending to local governments and reverse rising property prices. A central government circular in April said some local governments took excessive land for property development, resulting in the forced eviction of farmers. Such evictions are considered a “gross violation of human rights” by the United Nations.

President Hu Jintao said in August that developers should stop using arable land for building new projects, while Premier Wen Jiabao in September criticized the role local officials are playing in land grabs, according to state media.

Premier’s Criticism

“Right now, some areas just brutally destroy farmers’ homes without paying attention to their rights, and put the farmers in apartment blocks,” Wen, 69, said at a symposium in Beijing to discuss the safeguarding of China’s cultural traditions, according to the account in the state media. In March, Wen called for urbanization to be accelerated.

A crackdown has led to 57 officials being punished for 11 demolitions that resulted in deaths of residents so far this year, the government said on Sept. 25.

Videos of people being forced out of their homes, sometimes by gangs wielding sticks, have caused public outrage when posted online on websites.

One farmer from the city of Fuzhou in Jiangxi province, first took his anger out on weibo, China’s version of Twitter. Qian Mingqi wrote that he had lost 2 million yuan because of inadequate compensation after he said officials illegally demolished his home to make way for a highway.

Then, on May 26, he detonated three bombs by government buildings killing himself and two others, the official Xinhua News Agency reported.

Fuzhou’s investment vehicle went to the country’s bond market this year for the first time, raising 800 million yuan to build sewage treatment works and flood control works. In its prospectus, the company said its main business included construction, land development and “resettlement.”

‘Avalanche of Demolitions’

“Forced evictions are one of the biggest sources of public unrest and public dissatisfaction with the government because they are unstoppable,” said Phelim Kine, a senior Asia researcher with New York-based Human Rights Watch. “We’ve seen an avalanche of forced evictions and illegal demolitions.”

The trend is also exacerbating rural-urban wealth disparity that Landesa’s Gao says is the greatest challenge confronting China’s leaders today. Incomes in cities are now more than three times those in rural areas, wider than at any time since Deng started economic reforms.

The government is working on ways to increase farmers’ income, Zhou Qiang, the Communist Party secretary in Hunan Province where Loudi is located, said in an interview in Beijing on Oct. 19. That includes providing skills training to make them employable in cities and ensuring farmers are adequately covered by social security, he said.

Land acquisition and relocation must be done according to law and there are “clear policy and legal provisions” to protect farmers’ interests, he said.

Artificially High prices

One problem is that the value of urban land is artificially inflated because it’s kept scarce by China’s quota of maintaining 1.8 billion mu (120 million hectares) of arable land, says analyst Xie.

Officials in Loudi have run up more than 4 billion yuan in debt, expanding a provincial town into a city of 4 million people with a new railway station, six-lane expressway and a white colonnaded government building.

Where Li and about 70 other villagers for generations tended plots in Dawu village, now sits the freshly built stadium, a bulb-shaped gymnasium and a wavy-glass-covered aquatic center where kids line up to swim.

Family of Nine

Li’s family of nine -- including his wife, first child, parents and brother’s family -- had lived in a 400-square-meter two-story farmhouse on almost a half-acre of land. He said he didn’t worry about feeding them, and he was able to pay for extras by selling his vegetables a couple times a month in the city and doing odd jobs.

“It was a reliable income,” said Li. “Before we had food to eat. Now if I don’t work as a laborer, we don’t have anything.”

Then came the evictions. The sports bureau took about 47 acres of land in Dawu and another village, issuing notices -- and verbal threats -- in 2006 saying it was needed for the stadium.

“They told us that if we didn’t move, they would send a lot of people to destroy our house,” Li said. “If you didn’t agree they would detain you.”

Villagers were initially relocated to the alleyway where they built shanties with tarp and corrugated-tin roofs. The only bright notes are the red scrolls bearing the Chinese characters for good fortune that adorn some front doors.

From the lane, Li can see the stadium gleaming at one end and new luxury high-rise buildings to the other.

Temporary Home

Li’s shelter was supposed to be a temporary home while he builds a house on the 70-square-meter (754 sq. ft) plot the city gave him about 100 meters further south. He said his family of nine received 280,000 yuan in compensation, not enough to finish construction of their new home. Unable to get bank loans, he borrowed 100,000 yuan from family and friends.

That still wasn’t enough, putting Li in a Catch 22: without a loan he can’t finish his house, and without a house he has no collateral for a loan.

Most of Li’s income is spent on groceries, he said. Food inflation in China was running at 13.4 percent in September.

“The renminbi is appreciating everywhere in the world, but in China it’s depreciating,” Li said one late August evening, smoking a White Sand cigarette and sipping bootleg liquor in a restaurant overlooking paddy fields.

Putrid Stream

The only beans the family grows now are cultivated by Li’s mother on a four-square meter plot behind the temporary home, where the stench of a putrid bright green stream hangs in the air. Stooped, with gray hair, she recalls the well water they had access to before that was so clean she could wash with it.

Officials say the development is benefitting Loudi residents as it seeks to cash in on its location on a major high-speed rail route linking Shanghai in the east to Kunming in the west. The stadium was partly funded by a 1.2 billion yuan bond issue in March by the city’s financing vehicle -- Loudi City Construction Investment Group Co. -- that pledged to repay with proceeds from selling land.

“People’s lives have improved,” Yang Haibo, an official at the city’s financing vehicle, said during an interview at his office in June. Yang wouldn’t talk in follow-up calls and the company didn’t respond to faxed requests for comment. The city government also didn’t respond to calls and faxes.

‘Hoarding Land’

Some Dawu villagers say their lives have gotten worse, not better.

Wu Zifei, 27 and a father of two, takes out a compact disc with pictures of his old house one July afternoon in his family’s store in the new Dawu village. Li likes to play cards there with friends on days when they can’t find work.

“The older place was much better,” said Wu, a thin man who waves his arms as he talks. Wu continued to use the old family plot -- which like Li’s has been left unused behind a mound of earth at the edge of the stadium construction site -- until June, when a mudslide killed his crop of corn.

“They are hoarding land, waiting for the prices to rise,” he said. “I really can’t stand the way authorities do things.”

Other Dawu residents say they were left homeless because they weren’t allocated any city land. Zou Fuqiu’s home was demolished in 2010, following an eviction order in August 2009.

“It breaks my heart that they demolished my home,” said Zou, 59, a stout man who rolls his white shirt up above his stomach to cool himself from Hunan’s mid-summer heat. “It was the best house in the village, but they didn’t compensate us accordingly.”

Wife Cried

He went to see the village cadre at his office to plead for land, where he says his wife sat crying beside him for three hours. It was no use. Instead, Zou built a shack on unoccupied wasteland where he hangs two old black and white photos of his parents in revolutionary jackets and a portrait of Mao, near a small Buddhist shrine.

“They tore my house down with no regard for where I would live, but they themselves live in high-class homes,” said Zou of the officials. Behind him in the dusk, a chandelier turns on inside one of the stadium buildings.

Loudi city officials work in a building with five white domes and an archway entrance, nicknamed “the White House” by locals. There have been two separate purges for corruption in the past five years, including the removal of 16 officials in August, according to the official Hunan Daily newspaper.

Hundreds of meters from the main entrance to the building, a small door has a gold plaque that says petitioners can be received there. Petitioning is the practice dating from imperial times by which people take their complaints either to local officials or directly to the capital.

Low Compensation

The compensation that Dawu villagers say they received works out at about 6 percent of what the city was selling land for in 2008, a year after they were evicted. Dawu natives said they received 38,000 yuan per mu, a Chinese measure of land that is about one-sixth of an acre. That’s less than half the average of 85,420 yuan the Loudi city government says it paid, according to a notice on the website of its land resources bureau.

The land is worth many times even the higher figure. Loudi city in 2008 sold its land to developers for 600,000 yuan per mu, according to the bond prospectus. A similar plot to Li’s near the stadium sold in March for 1.2 million yuan per mu, according to the website of the city’s State Land Resources Bureau.

It would take Li 92 years to earn enough to buy back his still-vacant plot at that price based on his present wage rate as a day laborer.

Daily Struggle

Li’s focus is on the daily struggle to feed his family and finish his new home. He wishes officials would start building on his land, giving him the chance to pick up some work. Ultimately, he hopes to use the home as collateral to borrow money to buy a digger so he can earn more money at construction sites.

In his hut, where the only decoration is a vase of yellow plastic flowers and a 2009 calendar celebrating the 60th anniversary of the Communist state, he laments the loss of his old, simpler way of life.

“Our house was not like this before,” he said. “Five years ago I had my own house, and everything surrounding it was mine.”

--Henry Sanderson, Michael Forsythe. With assistance from Bob Ivry in New York and Neil Western in Hong Kong. Editors: Neil Western, Melissa Pozsgay.

To contact Bloomberg News staff for this story: Henry Sanderson in Beijing at hsanderson@bloomberg.net. Michael Forsythe in Beijing at mforsythe@bloomberg.net

To contact the editors responsible for this story: Melissa Pozsgay at mpozsgay@bloomberg.net. Peter Hirschberg at phirschberg@bloomberg.net Shelley Smith at ssmith118@bloomberg.net