[House Hearing, 108 Congress] [From the U.S. Government Printing Office] PROPERTY SEIZURE IN CHINA ======================================================================= ROUNDTABLE before the CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA ONE HUNDRED EIGHTH CONGRESS SECOND SESSION __________ JUNE 21, 2004 __________ Printed for the use of the Congressional-Executive Commission on China Available via the World Wide Web: http://www.cecc.gov ______ U.S. GOVERNMENT PRINTING OFFICE 94-854 WASHINGTON : DC ____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800 Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001 CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA LEGISLATIVE BRANCH COMMISSIONERS House Senate JIM LEACH, Iowa, Chairman CHUCK HAGEL, Nebraska, Co-Chairman DOUG BEREUTER, Nebraska CRAIG THOMAS, Wyoming DAVID DREIER, California SAM BROWNBACK, Kansas FRANK WOLF, Virginia PAT ROBERTS, Kansas JOE PITTS, Pennsylvania GORDON SMITH, Oregon SANDER LEVIN, Michigan MAX BAUCUS, Montana MARCY KAPTUR, Ohio CARL LEVIN, Michigan SHERROD BROWN, Ohio DIANNE FEINSTEIN, California DAVID WU, Oregon BYRON DORGAN, North Dakota EXECUTIVE BRANCH COMMISSIONERS PAULA DOBRIANSKY, Department of State GRANT ALDONAS, Department of Commerce LORNE CRANER, Department of State JAMES KELLY, Department of State STEPHEN J. LAW, Department of Labor John Foarde, Staff Director David Dorman, Deputy Staff Director (ii) C O N T E N T S ---------- Page STATEMENTS deLisle, Jacques, professor, University of Pennsylvania Law School and member, the faculty of the Center for East Asian Studies, University of Pennsylvania, Philadelphia, PA.......... 2 Davis, Sara (Meg), researcher, Asia Division, Human Rights Watch and visiting scholar, Columbia University's Weatherhead East Asian Institute, New York, NY.................................. 9 Prosterman, Roy L., president, Rural Development Institute and professor of law, University of Washington School of Law, Seattle, WA.................................................... 12 APPENDIX Prepared Statement Prosterman, Roy L................................................ 34 Submission for the Record Prepared statement of Patrick Randolph, Elmer E. Pierson Professor of Real Estate Law, University of Missouri, Kansas City, School of Law............................................ 67 PROPERTY SEIZURE IN CHINA ---------- MONDAY, JUNE 21, 2004 Congressional-Executive Commission on China, Washington, DC. The roundtable was convened, pursuant to notice, at 2 p.m., in room 2200 Rayburn House Office Building, John Foarde (staff director of the Commission) presiding. Also present: David Dorman, deputy staff director; Christian Whiton, Office of Under Secretary of State for Global Affairs Paula Dobriansky; Carl Minzner, senior counsel; Keith Hand, senior counsel; and Susan Weld, general counsel. Mr. Foarde. Good afternoon, everyone. Welcome to this issues roundtable of the Congressional-Executive Commission on China. My name is John Foarde. I am the staff director, and work for Congressman Jim Leach, who is our Chairman. We pride ourselves on trying to start on time and to finish on time, so we are going to get busy and not try the patience of our distinguished panelists. Today's roundtable seeks to look at property seizures in China and we are looking into these because, over the past year, urban demolitions and rural land acquisitions have become the leading causes of social unrest in a great many places in the Peoples' Republic of China [PRC]. Since 1991, nearly 900,000 families have been relocated in Shanghai. Last year in Chengdu, 24,000 families were moved. The same story seems to be true across cities in China. The rapid pace of development and the high value of land in China continues to fuel corruption and abuse in land deals. A recent government survey uncovered more than 150,000 irregular land transactions in the PRC. Reports of protests, sometimes violent, hit the news wires almost daily, and the numbers of petitions and administrative lawsuits related to property disputes has increased sharply in recent years. This trend is clearly causing alarm in the central government, which has issued a series of directives in an attempt to deal with the problem. This afternoon, we want to examine the law and the politics of land seizure in urban and rural China and assess whether recent reforms are likely to address the problem, including the amendment of China's Constitution to explicitly protect private property rights. To help us this afternoon, we have three distinguished panelists with great experience in looking at these issues. Jacques deLisle, Meg Davis, and Roy Prosterman are going to help us. I will introduce each of them in more detail before they speak, but as we have over the past two and a half years, each of the panelists will have 10 minutes to make a presentation. I will remind them that they have two minutes left after about eight minutes. When all three have spoken, then we will go to a question and answer session. We hope to be joined during the course of the afternoon by other staff members representing our Commissioners, but if not, just the five of us will try to ask intelligent questions of the panelists to illuminate these issues. I would like to recognize, therefore, Jacques deLisle, professor of the University of Pennsylvania Law School. He is a professor at Penn and a member of the faculty of the Center for East Asian Studies. His recent writings have focused on legal reform and the law and politics of economic reform in contemporary China, the PRC's approach to sovereignty, and international law. His publications include ``Chasing the God of Wealth While Evading the Goddess of Democracy: Development, Democracy and Law, in Reform-Era China.'' So, welcome, Professor deLisle. STATEMENT OF JACQUES deLISLE, PROFESSOR, UNIVERSITY OF PENNSYLVANIA LAW SCHOOL AND MEMBER, THE FACULTY OF THE CENTER FOR EAST ASIAN STUDIES, UNIVERSITY OF PENNSYLVANIA, PHILADELPHIA, PA Mr. deLisle. Thank you for the kind introduction and for the invitation to be here today. This panel has a big topic, and I have been asked to address an especially broad swath of it, and therefore I will approach the subject more shallowly than my colleagues. I want to set some of the background and context for the issues we are talking about today. Any discussion of property rights in the People's Republic of China is in some ways an odd topic. After all, everywhere throughout the formal Constitution and legal code in China one sees reference to it still being a socialist, Marxist-Leninist system in one form or another, with property presumptively owned by some collectivity, and indeed, often the state. In a technical, legal sense, of course, land in the urban areas remains state owned, and land in the countryside remains collectively owned. And, of course the Chinese policy is officially a system that operates under the dictatorship of the proletariat, with the Chinese rendering of proletariat literally meaning ``property-less classes.'' Yet, now, in recent years, we are talking about something of a property rights revolution, as its proponents would have it, although the revolution has not yet triumphed in practice. The most recent striking development in this area, of course, is the constitutional amendments that were adopted at the National People's Congress session in March. Here, there is a good deal of new language that raises private property to a status previously not held. Some will tell you that the new provisions accord private property equal status with state property or socialist property. That is actually not true, but the gap in status is a lot smaller than it used to be. If time permitted, I would be happy to go through the amendments chapter and verse. Failing that, I think it is fair to summarize the reforms as saying that private property has been raised from a grudgingly acknowledged sector to a fully accepted one in the Constitution, although one that is still somewhat inferior to various notions of collective property. Many of the amendments address the right to private property. They also address the protection of the rights to private property by promising compensation for takings of private property by the state. Such innovations are also linked to other constitutional amendments that are not specifically about property. One is that ``the builders of socialism'' are added to the preamble's list of the ``good guys'' in the official perspective. This addition is generally taken as a reference to the first of Jiang Zemin's ``Three Represents''--a reference to the entrepreneurial classes, who own a disproportionate share of the new private property. This status for important private property holders and, in turn, their private property is further underscored by the ``Three Represents'' itself being put into the preamble. The other areas of significant amendment to the Constitution this time are provisions dealing with ``states of emergency,'' protections of human rights, and social security rights. The first largely builds on existing law governing martial law and expands it to deal with a wider range of crises, some of which, in particular contexts, might have implications for the protection of property rights. The second, ``human rights'' amendment, for the first time, offers a general statement that the state respects and safeguards human rights. For some proponents of relatively radical reform in China, the protection of property rights is of a piece with the promised protection of human rights-- whether this be based on a theory that the right to property is a human right or that secure rights to property are a precondition to the effective enjoyment of core human rights. The third amendment could be similarly interpreted as linked to matters of human rights, and certainly there are potentially positive implications for some types of property rights--a ``new property'' with Chinese characteristics--in the notion that the state shall establish a social security system to guarantee a minimum standard of living. These constitutional reforms, which are still quite modest and quite general, were politically dicey. It was a long, hard road to get them into place. They had to reach their final form in the final moments before the NPC session and against the backdrop of the ``three unmentionables,'' which is not a reference to Chinese lingerie, but is rather a reference to the political directive prohibiting discussion of revising official judgments on the June 4, 1989 Tiananmen Incident, constitutional reform, or political reform during the crucial months that were the run-up to the constitutional amendments. There certainly were more radical proposals for constitutional reform on the table that were eschewed. There was discussion of ``big'' as opposed to ``small'' constitutional reforms. There were conferences in Beijing and Qingdao and other places that talked about a more thoroughgoing attempt to address rights more broadly, and structural reforms. The irrepressible Cao Siyuan trotted out his latest book on constitutional reform and, interestingly, drew very tight connections among property rights, economic reform, political reform, and human rights. He sees those as very linked, and he is not alone in that view. For the relatively modest reforms that were adopted, the argument was largely that they were justified on economic grounds. That is, the way the changes were officially presented was, roughly: you need stronger property rights, and you need clear property rights with stronger legal underpinnings, in order to have an effective market-oriented economy. That was the main selling point for the constitutional reforms, and that, of course, is the general direction that China has been going for some time. On this view, property rights protection is a way to reassure, energize, and bring into full play the energies of the ``builders of socialism'' and others who do or might respond to market signals. Greater official and legal acknowledgement of private property is also a way of dealing with the growing unrest over the expropriation of, if we cannot call them property rights, at least property interests, and in some cases, property rights. What has been going on in the countryside, what has been going on in the city, the expropriations or disregard for property rights and interests in rural and urban China, are matters that the chair has already noted. And the regime has at least partly recognized the dangers that the failure to protect such property rights or interests can pose. The question is, if property rights recognition or protection has such compelling justification in terms of economics and political stability, why was it seemingly politically so hard to adopt as a matter of constitutional or legal principle? There are several answers to that. To suggest what some of them are, I want to give a brief overview of the arguments, pro and con, of how much reform or enhancement of property rights needs to be done in China. One view says that the ambiguous, limited, vague, informal property rights that arguably have characterized reform-era China are just fine, thank you. After all, it is hard to argue with success. Look at the growth rates. Look at the sectoral transformation of China's economy. Look at the investment, domestic and foreign, that has flooded into the Chinese economy. It is a remarkable story of growth and development. This economic transformation has happened despite some fairly weak elements in the property rights system. What exactly rural land-use rights holders had, especially in the early days of reform but even now, has been, at minimum, a little uncertain and a little insecure. So, too, in the urban land-use sector, and so, too, with enterprises across the spectrum from state-owned behemoths to spontaneously arising private firms. There has been an ambiguity, a weakness, a vulnerability, and a paucity of enforcement mechanisms, at least by Western standards, to property rights in all these areas. Yet, people have raised capital, people have invested, the economy has grown, and it has transformed with, indeed, some of the greatest growth occurring in sectors--such as IP-intensive industries or projects with complex financing--in which clear and strong property rights often are thought to be especially important. This has happened despite legal lacunae, and despite an approach to relevant legal reforms that can perhaps best be described as backing and filling. Many of the features that we associate with market-based property rights and their protection grew up as practices before the legal underpinnings were put in place--in effect recognizing them retroactively-- and that continues down to this day. Some argue that China's economic success despite the absence of a robust legal regime for property rights does not show merely that what China has was ``good enough''--that China ``satisficed'' on property rights. In some views, the informality or vagueness of property rights was a good, perhaps optimal, arrangement . It was functional and adaptive. The literature adopting this view is fairly vast, but many of the arguments boil down roughly to the following: In the context of a half-reformed economy, which China has had through much of the reform period and still has today, where state or political actors can still step in and stop certain things from happening, there is an argument for letting the state and its various pieces be a residual interest holder and a residual risk holder in a way that would be unlikely to occur--or complicated and costly to sustain--under a regime of clear, formal property rights. So, ambiguity and informality actually work better, given the context. They give such potentially growth-undermining and efficiency-impeding government or political actors a material share--or stake--in the development of new economic undertakings that in other systems might be better supported by clearer property rights, more formally enforced. There is also an argument that, with such ambiguous or informal rights, it is possible to avoid additional, related perils to growth. One can avoid the tragedy of the anti- commons, which hit many post-Soviet economies--the problem of there being so many actors who held some piece of the claim to control an asset--be it land or something else--that they could block its use, transactions costs being so high that markets were unlikely to provide a cure for the trapping of assets in suboptimal uses, or simple non-use. The ambiguity and informality of property rights characteristic of the Chinese reform-era system may make it possible get around those problems, giving potential hold-outs fewer rights to block usage of assets, and giving a key potentially impeding set of actors--state or political entities--economic incentives to see assets used productively and efficiently. There are also narrowly legal factors--ones that are not so purely economic in their focus--that enter into this argument for the functionality of vague or weak or informal property rights. First, things are changing so fast in China on the ground, and legislation is a slow process, and the number of lawyers and lawmakers are so few, and getting changes through the NPC is so hard, that optimal or effective legal change must be pursued in a flexible, pay-as-you-go, make-it-up-as-you-go- along way. Otherwise, legal rules will get badly out of sync with economic reality--by running too far ahead or lagging leadenly behind--and the attempt to write the ``right'' clear and formal rules on property rights--or other matters--will end up retarding market-oriented development. Second, property is a hard ideological nut to crack in China. At least for much of the reform era, it seemed likely to be much easier to do all the things one could do functionally with clear, formal legal property rights through some other means. There was thus much apparent wisdom in reformers' avoiding a path that required an unambiguous endorsement of private property or formal mechanisms for protecting private property rights. Consider how, during the Jiang Zemin era, we saw the step- by-step hollowing out of what it meant for the state-owned sector to be the dominant sector of the economy. There was some clever and protracted ideological finagling here, and much reform was achieved and legitimated in this way. And still, tackling the question of private property and some forms of ownership reform remained hard even in the mid-2000s. Think of the Russian disease, rapid, bare-knuckled privatization leading to the rise of the notorious oligarchs and, in turn, the controversial prosecution of media and oil kingpins. While such a path was hardly inevitable, it serves proponents of a Chinese-style approach well by illustrating that there can be a variety of problems with privatization where relatively clear rights are handed out early in a transition from a Soviet-style economy. Third, adopting a clear, formal regime of legal property rights would require reaching decisions on how best to handle some of the tough questions with respect to which there appears to be little consensus in China today, much less in earlier phases of the reform era: How do you sequence providing a social safety net, establishing alienable-in-the-market property rights and other interrelated property-relevant reforms? There are social justice questions, and growth-vs.- equity questions that I think have not been worked out, and that an agenda of establishing clear legal rights in property and related fields would demand be answered. Finally, I want to turn briefly to the other side of the argument--to the argument that says, basically, China does need to do more. China does need to have clearer and more formal property rights, and the urgency, the need to create these, is increasing. Part of the argument is simply based on the assertion of a counter-factual. Yes, China has done spectacularly well economically during the reform era. But it would have done even better with clear, formal property rights. This is the old, classical argument for the functional value of property rights in a market-based economy. But beyond that, there is a claim that China needs--and increasingly needs--clearer property rights because much of the argument for the virtues of ambiguous or informal property rights is an argument about what works in a transitional system, and an economic system cannot be in transition forever. If you go through a transition far enough, you must eventually come out the other side, and you need laws and institutions appropriate for the post-transition economic order. This view is, in effect, the revenge of the classical view. The argument is that, as the economy gets more de-state- ified, the notion of the state's having an active and discretionary hand, holding a residual economic interest, in relatively fully marketized economic sectors does not make the sense it might once have made, and becomes a threat to growth and further development. In addition, the pressure for more unambiguous and formally protected property rights may be accelerating with globalization and China's accession to the WTO. On this view, there are growing pressures on China to play by world rules, and perhaps more importantly, there will be pressure on Beijing to unify and make uniform rules and practices across China, which now vary substantially between rural and urban areas, and across different regions of the country. Further, there may be much force to the argument that, as China becomes a more sophisticated economy--which is a somewhat different point from China's becoming a post-transitional economy--it needs clearer and more formal property rights. The easy gains from simply getting State planning out of the way have been reaped. Growth and progress now depend on the development more sophisticated financing vehicles, more complex product and factor markets, and advanced technological sectors where the ability clearly to define, effectively to protect and freely to alienate property rights will be vital to realizing potential economic gains. Much of this is a long way of saying that features that used to be plausibly praised as showing the virtue of ambiguous and informal property rights in China may now constitute the burden of complex and fragmented property rights. That is, changes in the conditions and context of China have made it necessary or at least desirable to make the contours of property rights crisper, to make it easier to bundle fragmented property rights, and thereby to encourage or at least permit them more easily and efficiently to migrate to their highest value uses through markets rather than through a mixture of markets and gatekeeping by state or other political actors. On this side of the debate too, the arguments are not limited to economics, and do include legal-political considerations. The trajectory or momentum of legal change--and underlying policy changes--in China strongly favor more expansive, clearer and more formally protected property rights. There are, to be sure, considerable shortcomings, some of which I have noted and some of which will be addressed in detail by my colleagues on this panel. But compared to what? Think of the baseline. You can tell a story of remarkable legal change from the General Principles of Civil Law in the 1980s, and legal reforms undertaken even before that, down through property laws and related laws that are being drafted now, including the general Property Law which is in draft form and about to be passed, innovations in mortgage law, laws recognizing private ownership of economic assets, and many other areas. If you want to look beyond the kinds of property I have mostly been talking about, think of shareholders' rights and private securities litigation and things of that ilk. These are areas of substantial and substantive legal change, and there is an agenda of significant further change going forward. In addition, there is a plausible set of arguments that politically China may need clearer and more formal property rights--more than one would otherwise think--because of peculiarities in the Chinese system. First, because so much is in flux politically and economically and, for that matter, legally, the system may need some fixed point, some pole star, and property is a good place to start, especially given reform- era China's long-standing core commitment to developing a market economy. With property rights in place, greater ambiguity and more extensive tinkering with other economic laws and policies, forms of government structure and regulation and so on may be more smoothly accommodated. Second, the law, in many ways, including the assertion of legal rights to property interests asserted by individual owners, provides a substitute for pressures for political democracy. It creates a steam valve. It allows the regime to monitor, and sometimes to address on its own terms and in its own way, problems that otherwise could create greater pressure for political accountability. Third, a political need to go unexpectedly far in making property rights clearer and more formal in China may arise from the lack of trust in the regime that we have seen develop over a variety of issues, particularly including property rights- focused complaints arising from the expropriation of property in the countryside and in the cities. The final point I would make in this regard, brings us back full circle: formal commitments to greater protection for property rights have been put in constitutional form, not because we are on the eve of constitutional litigation in a meaningful sense in China, but rather because writing such commitments into the Constitution provides an important political lever. Once the regime says it is alright, a member of civil society, an elite intellectual, a policymaker below the top levels can push for further change, at least around the edges. Outsiders can play some role here. One thing the United States can do is help with such officially tolerated pushing, and property rights is a particularly good area to do so. A property rights reform agenda now is ideologically acceptable in China. Foreign advice or advocacy for it can be put in technocratic, technical, legal assistance terms, not potentially rankling political or ideological forms. A property rights agenda permits foreign advice and advocacy to draw upon the prestige and power that American and Western models have as successful models of property-rights-supported, market-oriented economic growth. Simply, the argument is: we have property rights and it has worked for us; it has worked for the world. Thus, U.S. policy and advice can push for property rights without pushing buttons as much as would be the case with, say, a straightforward political or human rights agenda. If U.S. policy goes forward with such an agenda, I think it is important--as it would be with any agenda--to listen to allies within the PRC system who share the same basic reformist ends. I think it is important to emphasize implementation, enforcement, and monitoring mechanisms, for those currently lag behind the existing and impending property laws on the books. Thank you. Mr. Foarde. Thank you very much, Professor. A lot of provocative ideas to take up in the question and answer session. I would now like to recognize Meg Davis, researcher in the Asian Division of Human Rights Watch, who joins us from New York City. Meg earned her Ph.D. from the University of Pennsylvania in 1999, and she has taught and held post-doctoral fellowships at the University of Pennsylvania, Yale, and UCLA. At Human Rights Watch, she has written ``Demolished: Forced Evictions and the Tenants' Rights Movement in China,'' and she is also the author of a forthcoming book, ``Song and Silence: Ethnic Revival on the Borders of Southwest China.'' Her articles and op-eds have appeared in Modern China, the Asian Wall Street Journal, and the South China Morning Post, and she is an old friend of ours at the Commission. Thank you very much for sharing your expertise this afternoon. STATEMENT OF SARA (MEG) DAVIS, RESEARCHER, ASIA DIVISION, HUMAN RIGHTS WATCH AND VISTING SCHOLAR, COLUMBIA UNIVERSITY'S WEATHERHEAD EAST ASIAN INSTITUTE, NEW YORK, NY Ms. Davis. Thank you very much. A special thanks both to the Commission for the invitation, and also to staff, including Keith Hand, for pulling this roundtable together and bringing us together. My comments today draw on my recent report for Human Rights Watch, which is available in full on our website, www.hrw.org. The report details the growth in protests and lawsuits over forced evictions in urban areas in China in recent years, especially the past two years. As we all know, China's rapid growth, especially for the 2008 Olympics in Beijing, also more recently in Shanghai, has really sparked a land grab in many urban areas. In fact, 10 years ago, many people welcomed having their homes knocked down and being moved to new apartments, because of the improvement in their lifestyles. But over the past 10 years, millions of people have been evicted around China. Quite a few have wound up homeless, and we are really beginning to see that this is not just a natural stage in the process of development, but that in some respects it may even be development out of control, development that the central state is not able to regulate to the degree that it may even wish to. The problems around forced evictions are beginning to point up weaknesses of the court system which could really threaten the long-term stability of the state. So, I am going to talk a little bit about what happens to people who get evicted from their homes. What we are seeing, is especially problems with due process. People often have little to no notice of their eviction. They come home, in some more extreme cases, to find the character ``chai,'' ``demolish,'' written on the walls of their homes. Others are approached in advance by developers. They are offered some form of meagre compensation for their homes. They begin to negotiate over this because they have no hope of actually stopping the development, so instead, they negotiate over the compensation. Some are actually are forcibly evicted before the negotiations are concluded. Those who feel that their negotiations have reached a dead end can seek arbitration in local government offices that ``manage'' demolition and eviction. But what they encounter there are problems with corruption, which are endemic in the system. Local officials often have financial interests in the projects. Some of them run companies that actually do the demolition, others are investors in development projects or may be profiting from fees associated with the process of demolition and eviction. Some residents then try to take the developers to court in an effort to obtain fair compensation or to stop the development project. I and my Chinese research assistant, who asked to remain anonymous, so unfortunately I cannot give him full credit, reviewed dozens of laws around the country, provincial and metropolitan laws. We found that, overwhelmingly, these laws tend to favor developers. The courts are also often subject to Communist Party interference at every level, so even judges who may be tempted to find in favor of evicted residents and homeowners may find that they are encountering political pressure that prevents them from doing so. In most provinces, you cannot get an injunction to stop the process of demolition during a pending court case, so you can actually win the case, but have already lost the home. Perhaps worst of all, lawyers face harassment, and even jail. The most famous case is a case in Shanghai, where some of the biggest protests have erupted in the past couple of years. This was the case of lawyer Zheng Enchong, who assisted a number of evicted residents and homeowners to file suits, and then got involved in filing a case alleging official corruption in Shanghai, and sent some faxes to an international human rights group about what he was doing. He received a three-year sentence for circulating ``state secrets.'' After the Zheng Enchong sentencing, a number of Chinese lawyers and residents told Human Rights Watch that lawyers were afraid to take cases that had to do with forced evictions, and certainly they were very nervous about talking to us, with good reason. In some of the worst cases, we hear about what is called ``yeman chai qian,'' ``savage or violent evictions,'' in which people wake up in the middle of the night to find bulldozers knocking over their homes or wrecking crews knocking down the walls of the house while they are still in the home. Many people have been injured, and some have even been killed, during the process of forced eviction. It is this combined lack of redress, this kind of Orwellian lack of any route, that is driving people to the streets to protest in unprecedented numbers. In Tiananmen Square last year, there were sometimes almost daily protests. There have been some extreme protests, as I think most people on this roundtable know, suicide protests, people attempting, and sometimes succeeding, with self-immolations. Numbers of protesters have been jailed and sent to labor camps. For some of the Shanghai protestors, we have had credible reports of torture in detention. Perhaps the one great success story here is the success of the Internet as an emerging political tool in these protests. We are beginning to see really great numbers of people posting stories about their individual experiences, exchanging information, seeking consultation about the law in their areas. We have seen circulation of large numbers of open letters, petitions which thousands of people sign onto, people circulating news from different areas that previously did not circulate. Really, our report could not have been written without the emergence of the Internet as this kind of tool. And Chinese news media have become increasingly critical, openly critical. The China Economic Times has run a scathing series of editorials about forced evictions, and the People's Daily has actually been critical about this issue. And we have seen senior legal scholars sending letters to the government requesting reform. So, we are really beginning to see mobilization at many different levels of society around this issue. There has been quite a bit of government response, and I am sure we are going to talk later on about the degree to which this has been effective or not. I tend to come down on the glass-half-empty side, which probably will not surprise anyone here. But there have been a series of State Council circulars, what Keith Hand has been calling the ``this time we really, really mean it'' circulars, mostly urging local governments to follow national law. We have seen, of course, the expanded constitutional language protecting property rights. But the problem is that the Constitution does not yet really have the force of law. It is not justiciable. My favorite case in this regard, which I will close with, is the case of Liu Jincheng, a retired teacher in Hangzhou who decided to use the previous protections of property rights that were in the Constitution in order to challenge the local Hangzhou government regulations. Of course, the Constitution also protects freedom of speech, free assembly, free association, and so forth. Liu Jincheng got a white medical coat and painted ``Protect the Constitution'' on it in black paint, and marched to the local city government to protest, and was promptly detained for illegally demonstrating. So, what we have seen is that the Constitution does not really provide the kind of protection that it needs to provide. We have this fundamental problem of a weak court system, which 10,000 State circulars is not going to address. The Party is continuing to interfere at every level of the court system, and until there is a truly independent and strong court system, we are not going to see significant change, I would argue, on this issue. That is, I think, where the United States could probably also lend some assistance, in terms of technical assistance, programs that would push for a stronger court system. The government wants protestors to take their complaints to the court and not to the streets, but in order for the court to function as a pressure valve, it has to be a place where they can find justice. Thank you. Mr. Foarde. Thank you very much, Meg. Also lots of thought- provoking concepts in your presentation. We are gratified that we have been able, particularly on this panel, to draw panelists from a number of places other than the Washington, DC area, where we of course have a number of China experts. I think the one who now has come the farthest, at least, in any of our roundtables so far is our next panelist, Professor Roy Prosterman, president of the Rural Development Institute and professor at the University of Washington School of Law. Professor Prosterman is a leading expert on land reform and has spent over 30 years conducting field research and consulting on land reform issues throughout the developing world. He and his colleagues at the Rural Development Institute have worked with China's central policymakers on rural land tenure issues since 1987 and have been the principal foreign advisors for a series of reforms under which millions of families have received secure 30-year land use rights. So, welcome to Professor Roy Prosterman. Thank you for being with us. STATEMENT OF ROY L. PROSTERMAN, PRESIDENT, RURAL DEVELOPMENT INSTITUTE; PROFESSOR OF LAW, UNIVERSITY OF WASHINGTON SCHOOL OF LAW, SEATTLE, WA Mr. Prosterman. Thank you very much. Much of what I discuss will be against the background of some 1,000 field interviews that we have done directly over the past 17 years with Chinese farmers, outside of the presence of local cadre or officials, I might add, as well as two extensive sample surveys that we have done cooperatively with Renmin University on the implementation of farmers' 30-year land rights. Those who may want to look at a very detailed presentation of the findings from the later 2001 survey might want to look at the Columbia Journal of Asian Law, fall 2002 issue. The question of takings and of security of farmers' land rights arises in the context of two particularly important background issues or facts. One is that 800 million Chinese still live in, and make their living in, the countryside from agriculture. It is still 60 to 65 percent an agricultural society. When one speaks of progress and development in China, one is speaking mostly of progress in development for the other 500 million, or a bit fewer than 500 million, who live in the urban areas. That is reflected in the second fact, that the ratio of per capita incomes in the cities to the countryside, as of the end of 2003, was calculated as roughly 3.24 to 1, which is a reform-era high. Zhu Rongji referred to it frequently as his biggest headache. The current administration, if anything, sees it as an even bigger headache, source of instability, and a reflection of the fact that rural productivity is quite low. In particular, the utilization of the fundamental rural resource, land, is quite low. If you compare it, for example, to Taiwan, Taiwan produces 8.5 times as much value added per acre as mainland China in its agriculture. South Korea produces 13 times as much value added per acre. Those are also very small-farm agricultures. But one key difference, as also in Japan, is that Taiwan and South Korea benefited from U.S.-supported land reforms in the immediate post-war era, land reforms which gave full ownership, full security, full transactability to the great majority of the rural population. I would argue that the take- off in those societies began before they became export-oriented economies. The development of the internal market was critical, and I think the Chinese leadership sees the development of the internal market and the creation of greater rural prosperity and productivity to be absolutely critical. It is in that broader context that the land tenure issue, the land security issue, and, as a major part of that, the land takings issue, arise. Takings of agricultural land clearly cause a whole bunch of problems for the central government and for the development process. It means in a direct sense that you lose land for agricultural production. It means more broadly that you undermine the security of farmers' land rights, both because what they get paid when the land is taken is generally a pittance and only a small fraction of the total amount recovered for the non-agricultural use, and also because takings are often accompanied by illegal readjustments of land. Readjustments are the key source of tenure insecurity. China was the first of the Communist societies to physically break up, to de-collectivize, the farmland. They did that from 1979 to 1983 very successfully. But what the vast majority of farmers received under de-collectivization was what we would call ``at will'' land rights. They could be booted off at almost any time by the local cadre in the name of readjustment, as it was called. Readjustment was justified either on the basis of demographic change in the village, the idea being, ``let us give absolute arithmetical equality to every person in the village,'' or in the name of land takings because one or a few households would lose land, often much or most of their land, and instead of compensating those families with cash or by other means, the cadre sought to spread the pain equally through the whole village by taking all the land back, redistributing it in new patterns that reflected that there was less land now in the village because some of it had been taken. Of course, one of the effects of creating this kind of absolute equality was creating absolute insecurity, and if you are absolutely insecure on the land, as farmers began telling us when we first interviewed in 1987, they are not going to invest in the land. So, for the vast bulk of the rural population for the last 20 years, they have been absolutely prevented from investing in irrigation, drainage, land terracing, tree planting, intensive soil improvement, land leveling, you name it, any improvement that has a multi-year return. The farmers do not make such investments because, they tell us, we do not know if we are going to be on these same pieces of land next year or not. So the process of ending readjustment looms as an absolutely critical one if farmers are to get security or to be able to invest in the land and be able to improve their incomes and their consumption. All of this being closely tied to the process of takings, insofar as takings both directly lead to readjustment of land, and also because the local cadre will often use as an excuse for readjustment that there has been demographic change in the village, when actually the idea is to have 5 or 10 percent of the land stick to their fingers in the process of readjustment, hold that back, and then suddenly, 6 months later, transact that to some outsider for a very valuable consideration. So takings are closely linked to undermining farmers' land security, undermining the value of farmers' land rights, undermining farmers' ability to invest in the land, cheating farmers out of the income received from takings leading to a good deal of instability, as we have already heard in the discussion today, and also distorting land markets: to the extent that much land then is cheaper or below market value, subsidized investments in terms of the land factor distort markets and create incentives to invest in times and places where those investments should not exist. And, finally, it induces corruption of local officials, because a lot of the resources that get paid for the transaction of land from agricultural to non-agricultural uses get taken, either in a directly corrupt way personally or indirectly to buy the new ``village'' VW or have a series of banquets at the village or township level. Let me say then in these last minutes just a word about what efforts have been made. In a broader way, the Chinese have, since 1993, been trying to introduce so-called one- generation, or 30-year, land rights. The survey reproduced in the Columbia article, as you will see, indicates that by 2001 they had reached about 40 percent of farm households with secure, no readjustment, 30-year rights. But that meant they had not reached the other 60 percent, and that is the goal of the Rural Land Contracting Law which was adopted in 2002 and is beginning at this point to be implemented. But related to that, a key part of the implementation of that law being the end of readjustment, is the related and parallel need to stop or restrict takings, three key elements in which are to limit takings to truly public purposes, to make the takings process more transparent, and to provide reasonable and adequate compensation. There have been some very late- breaking developments, but I will hold those until the question period. [The prepared statement of Mr. Prosterman appears in the appendix.] Mr. Foarde. Perfect. You were remarkably disciplined, and therefore we will have the time to come back to those things. I am going to let our panelists rest their voices for just a minute while I make an announcement or two. In connection with today's roundtable, we are delighted to also be distributing a written statement for the record by Patrick A. Randolph, who is professor of law at the University of Missouri, Kansas City. Professor Randolph is an expert in property law and the co-director of the Center on Land Law and Policy at Beijing University in Beijing. He is also the author of a book entitled ``Chinese Real Estate Law,'' and he has been a panelist of ours in the last year on related questions. So, we are happy to have that statement. It is also available on our website. [The prepared statement of Mr. Randolph appears in the appendix.] Mr. Foarde. This leads me to my second point. That is that the proceedings of today's roundtable, and all of our hearings and roundtables, are available on the CECC website at www.cecc.gov. Let us go ahead then to the question and answer session. What we usually do is give each of the staff panel up here the chance to ask and hear the answer to a question for about 5 minutes, and we will do as many rounds as we have time for before we are all exhausted, or before 3:30 comes, whichever comes first. I will kick things off by asking Meg Davis, I was really taken by your description of the lack of alternatives for residents whose homes have been taken and razed frequently as Orwellian, because it seems that there really is no way out for these people. What do the residents that you have talked to or read interviews with really want in terms of process? Ms. Davis. That is a really interesting question. I would say that quite a few of the people that we either spoke with or that we gathered through the web would have been happy if there had been some kind of redress in the legal system. They are used to encountering corrupt officials and so forth. That is part of daily life. But I think there was a great deal of sense that there was some hope, with all the talk about rule of law and so forth, that there was going to actually be some kind of answer in the legal system. I think they are very disappointed that that did not happen. Mr. Foarde. So they are not adverse to going to court. Ms. Davis. Well, I mean, the people that we speak with, you have to understand, are going to be an elite. Right? I mean, they are going to be people who, in some way or another, found someone who could get them in touch with an international human rights group. These are the people who tend to be leaders in their communities, in certain respects, if they have the courage to contact us, knowing that that could send them to jail. So, these are people who probably have a little bit more sense about the legal system than maybe a lot of other people to whom it would not occur. Mr. Foarde. And what is the principal goal of going through a process? I mean, are they looking principally for just a fair shake or looking principally for remuneration, or what are we really talking about? Ms. Davis. I think most people wind up looking for fair remuneration because that is the only thing they have any hope of getting. By the time they find out that the project is going forward, it is really too late for them to try and stop it, at least, certainly in the urban cases that we are familiar with. In rural areas, it may be different. But they do not really have the sense that it is possible to stop a project or that they could have input at an earlier stage of the process. That does not even cross their mind. So I think they wind up focusing on remuneration because that is all there is, really. Mr. Foarde. So would you describe that as a legal problem, or a political problem, or both? I am interested in your perspective on that. Ms. Davis. I do not think, in China, it is possible to separate the two, because there is no legal system without political interference. Mr. Foarde. Thank you. Very useful. I am going to pass the microphone on to my friend and colleague, Dave Dorman, who is the deputy staff director of the Commission and works for Senator Chuck Hagel. David. Mr. Dorman. Thank you, John. First, I would like to thank each of you for coming today. I studied your written testimonies over the weekend and the topic of this roundtable strikes me as one of the most complex issues that this Commission has dealt with, so I very much appreciate you all taking the time to share your experience and knowledge with us. I would like to use my five minutes with a quick question to each of you, and I think we can probably do that. I will start with Dr. Davis. In looking at the excellent Human Rights Watch report on forced evictions over the weekend, I was struck by one of the chapters where it referred to the ``tenants' rights movement.'' Social movements of this type are generally not something that we see referred to in China. Can you comment briefly on the extent to which this is actually a national movement as opposed to a fragmented series of events that have some relationship in terms of topic, but little relationship in terms of public awareness of what is going on elsewhere in the country? To what extent is news of the protests--rural protests, urban protests--linked nationally through the Internet or through the press? Ms. Davis. Should I answer that? Mr. Dorman. Sure. Ms. Davis. That is a great question. I am not a political scientist, I am an anthropologist, so I get a little more leeway using words like ``movement'' than some of my colleagues. I chose, and we agreed on the word ``movement,'' because it really did seem to be mobilizing across regions, which is, I think, a really salient thing about this in terms of Chinese political grassroots activities. I think, really, with the Internet, with a slightly more liberalized news media, we are beginning to see what the state has wanted to prevent for a long time, which is people moving from one region to the next, organizing protests, people in one area knowing what kind of protests are happening in another area, people consulting national law centers to ask for assistance or advice. So, I think it is fair to call it a movement, although I agree, it is right on the borderline in certain respects. Mr. Dorman. Well, I am a political scientist, and I am always pleased to have another social scientist close because I am usually the only non-lawyer within 25 feet of the podium. [Laughter.] So, this is important. Ms. Davis. It is not often that anthropologists and political scientists find ourselves on the same side. [Laughter]. It is a pleasure. Mr. Dorman. Professor deLisle, one of the really interesting things about working on the Commission is how often we receive comments from groups and individuals throughout the United States on what the Commission is doing: what we are doing right and what we are doing wrong. We take these comments very seriously. And one of the things that I have noticed over the last couple of days are a few comments that suggest by focusing on the issue of property rights, we are, in fact, looking at a secondary issue. It is not directly linked to human rights. We should be looking, for instance, at freedom of association or freedom of speech. If either of these existed in China, property rights would not be a problem. You mentioned in your opening statement that some have said there is a direct connection between human rights and property rights. Can you comment on that statement, and I apologize for the brief 30 or 35 seconds you have to answer. Mr. deLisle. I will try. I think they are linked in, possibly, three ways. One, of course, is in human rights discourse in the West. Certainly, we think of the Enlightenment tradition in which our own Constitution was written, and there is a pretty close connection. In the classic Lockean view, there is life, liberty, and the pursuit of property. We changed the last to ``happiness'' in our Declaration of Independence, but that did little to remove the sense that property is part of the classically liberal package of human rights. Particularly where there is a government that, like China's, has historically put its people in a position of insecurity, property ownership and secure rights to property can offer an appealing defense against some forms of State intrusion and undermining of a wide range of rights. You can find a lot of people in China who talk that way. The issue is one of people who feel vulnerable, in part because the kinds of interests that could be protected by property rights are at risk. Second, as this in part suggests, the discussion has been explicitly linked in Chinese policy. Even in the official position on constitutional reform, property rights and human rights strikingly came together. That is, the private property rights provisions were added to the Constitution at the same time that the first general statement about human rights, as opposed to the list of specific rights that have been in there before, was added. They came in as a package. Premier Wen Jiabao, after the March 2004 NPC session, gave speeches which mentioned both human and property rights. He did not link them terribly clearly, but certainly their connection is part of the story of constitutional reform in 2004. Third, there are unofficial, more radical reformers within China who draw the link explicitly. Cao Siyuan, I think, is probably the most voluble on this subject, but his views are not unique. The argument from this perspective is that, until the government is restrained from taking people's property, it is not going to be restrained from disregarding other rights of citizens, and there is not going to be an adequate material or political basis on which people will be interested in and willing to push for political accountability. Such views illustrate that, in the political science world, everything old is new again. We are really back to a Barrington Moore-style argument on this: a property owning bourgeoisie becomes a basis for pressing for political accountability and democratic reforms or, if need be, revolution. And if we look around at what is going on in China, we have seen people who are suffering violations of what they see as, in effect, their property rights become quite visible and vocal in making demands on the regime and challenging its behavior-- both peasants coming into the city and protesting or burning local party or government headquarters, and city people who are being kicked out of their houses in areas slated for redevelopment complaining through protest marches or other demands for legal or political redress. We have also seen the urban rich do it, organizing homeowners' associations in gated communities or luxury condominia, and taking on developers-- often with strong ties to local government--who renege on promises concerning amenities or open space. The last of these is one of the more striking examples of, if not politically inspiring, then at least truly autonomously created and officially tolerated endeavors to assert rights. Mr. Dorman. Good. Thank you. I am out of time. Mr. Foarde. Out of time, but we will come back. Good. Susan Roosevelt Weld is the general counsel of the Commission. Over to you, Susan, for questions. Ms. Weld. Thanks a lot. I wanted to ask you all this question. I have been reading of many ways in which these land transactions give rise to worsening problems of corruption. Could each of the three of you tell me: What are the opportunities for corruption in land development, urban renewal, and expropriation of lands in the rural areas? At what point does the problem of corruption arise most sharply? What are the things the Chinese government is doing to try to forestall or cure those problems? Mr. Prosterman. In terms of the corruption problem vis-a- vis rural land, it arises in terms of local officials trying to capture increased value of such land both for non-agricultural and agricultural purposes. For non-agricultural purposes, as I have commented, they attempt to capture it in the takings process in which the best estimates are that only 5 to 10 percent of the cash paid for land for non-agricultural purposes ends up with the farmer/ cultivator who loses the land. The other 90 to 95 percent ends up with the local cadre and township or higher levels. So that is a big inducement if they can get away with such a taking. There also have been takings for agricultural purposes in terms of taking away farmers' land and allocating it to what the farmers call outside bosses. There was a very strong central directive, number 18, that came out about 18 months ago prohibiting such actions and that was also incorporated as part of the Rural Land Contracting Law adopted in 2002 which became effective on March 1, 2003. We have, in our interviewing, actually seen what seems to be quite a substantial decline in those agricultural takings, those attempts to allocate to outside bosses. In fact, we may have a chance to get into it later in the questioning, but we have actually seen several instances in which really strongly worded and thoughtfully implemented central directives have been quite effective in sharply limiting various kinds of corrupt activities by local cadre vis-a-vis land. Ms. Weld. Thank you very much. Mr. Foarde. Please, go ahead. Mr. deLisle. I went on too long on the last answer, so I will try to be very brief in this one. Two things. One, I would second that last set of remarks. One of the best barometers of where corruption is creeping in is: What is the center is squawking most loudly about concerning what is going on or going badly at the local level? So, when the official media or official spokesman says, ``We really mean it this time; we are determined to eradicate X'' or ``There are a very small number of cadres or citizens who were going off the track by doing Y''--those kind of statements mean that X and Y are matters that the regime considers to be significant problems. Second, I also worry about a slightly different problem. Although the one you point out is more important than the one I will mention, the one I mention is in danger of being overlooked because it is more obscure. That is, some of these laws create loopholes. I would predict that if we do see more progress in making the new formal rules matter on some of these property rights issues-yes, we are a long ways from that happening in full, but we do see progress--there are some dangers to watch out for, creeping back in through the loopholes broadly reformist formal law retains. For example, there is the category of ``public interest'' and the question of what constitutes a ``public purpose'' for a lawful taking of private property. In China, these can be very broad concepts. I think we can already see some of this risk in the urban areas where they talk about redevelopment districts. One example is the expansive master redevelopment plan for the Eastern District of Beijing, the business district to the east of Tiananmen. Another is the massive tearing down and rebuilding associated with the 2008 Olympics. When challenged, the necessary acquisitions of land use rights are or can be defended as serving a public purpose, even if the same developer has benefited at the end through the same connection with the same people as would have occurred under a simple, old-style regime of declaring the displaced residents to be without property rights. Much the same dispossession-- often at not much greater cost--thus can be done through a medium that is really unimpeachable, as a formal legal matter. Ms. Davis. Just a few cases. One, is in many instances we are hearing that officials who are involved in sort of various stages of the development process are either owning companies, for example, the Demolition and Eviction Management Departments, which, according to national Chinese law, are not supposed to own demolition and eviction companies, the wrecking crews. Often, they do. In Shanghai, I think something like half of the companies are owned by local officials. In other cases, they may be invested in the projects. In other cases, we get reports that they are getting paid off by developers. Then there is the great system of fees. I saw this a lot when I was working in Xishuangbanna in Yunnan Province, where a hotel would be given permission to build, and you would see a half-built hotel for about three years because halfway through the process they then got assessed a new set of newly-imposed fees, which the developer decided to abandon the project rather than pay. Mr. deLisle. One last legal point. In the property rights amendments to the Constitution, there is talk of compensation. What was dropped, but had been proposed, was market-rate compensation, or full and adequate compensation. The language ultimately chosen clearly provides another way of driving down payments for taking of property and thus weakens protections of property rights. Mr. Foarde. Useful. Thank you. Christian Whiton represents Under Secretary of State for Global Affairs Paula Dobriansky. Under Secretary Dobriansky sits on the Commission. Over to you for questions, Christian. Mr. Whiton. All right. Thank you, John. Dr. deLisle, in regard to the theory you mentioned that moving ahead with legal reform might be viewed by the Chinese as a pressure valve for demands for political reform, which raises the specter that the international community, if they ratcheted up demands for that political reform for human rights, that you would actually have an end result of moving along legal reform. Do you personally believe that is true? Are you seeing that at all on the ground? Mr. deLisle. I am sorry. I missed the last part of that. Mr. Whiton. Well, in your own view, you are ticking off a list of theories. Do you view that one as accurate? Do you think that is a real possibility, that increasing demands for political reform would actually have the unintended result of moving ahead legal reforms? Mr. deLisle. I think the relationship between legal and political reform is neither one of pure complements nor pure substitutes. I think that, viewed from the regime's perspective, offering a certain modicum of legal rights is seen as preempting or postponing greater pressure for political change. This echoes the almost classical radical critique of rights-asserting litigation: legal rights are problematic because they do serve as a steam valve that relieves pressure for more radical political change. That is, if people have means to bring their own individual claims, and they have a reasonable hope get some redress, to get some compensation, then they are not going to take it to the streets. Instead, they are going to take it the courts, or more likely, in China, to an administrative process. Or, still, more informally, they can be bought off one by one as they raise their complaints to local authorities, and the ones who cannot be bought off, and who might lead or fuel organized movements demanding more systemic change, will be quashed. There is, on this view, some set of plausible political circumstances where legal rights, in effect, buy an undemocratic regime time, at the very least. Personally, I think that ultimately rights consciousness on the legal side, in most places and under most conditions, tends to play out ultimately in rights consciousness on the political side. So, in the long run, people who are used to asserting legal rights start to think, ``Gee, I would like to have a role in shaping the rules under which I am asserting these rights.'' At the level of macropolitical theory, that tends to be my view. I think comparative history generally tends to bear that thesis out. In the best of all possible worlds, authoritarian regimes' ``defensively'' offering legal rights, including property rights, creates a softer landing scenario than one where the regime provides no rights of either sort, and then we see a revolutionary explosion. I do not think China is terribly close to that latter scenario. I think the eruptions and the pressures we are seeing now in China with respect to property are from people who are feeling wronged in a generalized way, and except for an elite, we do not have a clear articulation of that as a matter of rights consciousness in a legal sense. The gradual recognition of some legal rights to property or other interests by the regime promises to provide some room for accommodating the emergence of a greater popular legal rights consciousness. At least for now, the property protesters in China seem to have a sense they are being wronged, and whether that means political action or legal action in response is a matter with respect to which I think we tend to draw the categories as more firmly distinct from one another than the people who are living in that system do. Mr. Whiton. All right. Thank you. Dr. Davis, do you have an understanding or a view on the land displacement that specifically surrounds the 2008 Olympics in Beijing? Does that come into a special category? Are you seeing a lot more related to that, especially as it gets closer? Ms. Davis. It is more of a quantitative than a qualitative difference, I would say. There is no question that there is just an explosion of development in Beijing that is either directly linked to the Olympics or is being linked to the Olympics for marketing purposes, especially high-end condominiums. There is a whole satellite city being built in the north area of Beijing that is almost certainly going to involve forced eviction that is actually being designed by U.S. architectural firms. So, especially, I think, this is something I think we should be concerned about, is the growing participation of U.S. firms in development in these urban areas, and the degree to which they are involved in developing policies that are going to minimize these kinds of abuses. Mr. deLisle. Of course, you have French architects who design collapsing buildings. [Laughter.] Ms. Davis. Yes. Mr. Foarde. Let us go on. I would like to recognize the person that is responsible for helping us put together this roundtable this afternoon. Each of the roundtables that we have are really the product of a vision and a lot of hard work by one of our staff members, and in this case it is Keith Hand, who is senior counsel. Keith, go ahead. Mr. Hand. Thanks, John. Thanks very much to all three of you for your time and statements today. I have a question for Professor Prosterman. In looking into this rural land takings issue, it seems like there is a significant gap between the economic value of a 30-year land use right and the current legal standard for compensation of farmers when their land is requisitioned. I am wondering, how Chinese policymakers justify it. Do they even try and justify this gap? Are there any new regulatory initiatives or measures on the horizon that you think may deal with this enormous compensation gap? Mr. Prosterman. There are new measures on the horizon. I might note that the present provisions of the Land Management Law and its regulations call for three categories of compensation to be paid when agricultural land is taken for non-agricultural purposes. One is compensation for standing crops and fixtures. That goes to the farmer, but it is a very small amount. Second is a resettlement subsidy which goes to the farmer only if no other provision is made for resettlement or for some new source of livelihood. Of course, if they carry out a readjustment, even though they have robbed Peter to pay Paul, they will argue that they have, in fact, made other provision and they will hold onto that cash. The third, and usually largest, is the compensation for the loss of land, and the regulations under the 1998 Land Management Law affirmatively provide that that goes to the collective and does not go to the farmer. So, one important need for legal reform is to change that provision at least to allow it to go to the farmer, better yet to say that it must go to the farmer. What we have argued, is that since--without getting into the formula in detail--30-year land rights at the beginning of the term should be worth something like 75 percent to 95 percent of the value of full private ownership, or fee simple absolute, that the farmer should indeed get 75 percent to 95 percent of the compensation to be paid. We have urged that that be the standard put into the law. They have now said that they are going to amend the Land Management Law, and a number of individual statements and directives have come out that suggest that this is the direction in which they are going to be going in amending it. Mr. Foarde. Does anybody else have a comment on that question? [No response]. Keith, go ahead with another one. Mr. Hand. Sure. A number of you mentioned efforts the central government is undertaking to address problems both in the urban and rural areas. It would be interesting to get your sense for how serious the central government is about solving these problems. Is this primarily an issue of local implementation, local corruption, and a desire to fuel economic development? Is there some other issue at the central level with their basic approach to these issues that we should be concerned about? Ms. Davis. Well, I do not doubt the sincerity, actually. I think there is certainly, at least, a very strong faction at very senior levels that sees this as an urgent issue. But the question is, local officials, through the network of ``guanxi,'' of relationships and favors, is able to exert control over the legal process, just to keep flogging this horse. So, the problem is the degree to which people at the local level are really going to be responsive to the series of ``we really mean it this time'' circulars, and also to the degree to which the Party itself is willing to tackle that issue, because that really gets at the heart of party legitimacy. These local officials who are able to wield this kind of unrestricted power, who are able to influence judges and jail lawyers, and all the rest of it, the Party really needs to tackle that, and they have not shown themselves able to yet, though maybe a crisis will force them to. Mr. deLisle. I think there is a lot of seriousness about it. I think, to be somewhat simple-minded about it, most of what the top leadership or the dominant group in the leadership, or perhaps more accurately the center of gravity within top leadership, is guided by, is really a twofold agenda. One is to sustain economic development at a sustainable pace, which means to cool off, heat up, whatever the imperatives of the day seem to dictate, but to keep the GNP growing at the rate needed to deliver on the promise of rising prosperity. And the second is to maintain social stability while doing so. Unfortunately, of course, growth sometimes comes with huge, dislocating costs, and that is where we see some tradeoff between development and social order. I think property rights and some of the specific reforms concerning takings, compensation, and perhaps social security that we have been talking about are seen as a way of squaring that circle, permitting the freeing up of assets for alienation in markets for property, and paying people enough in compensation--or assuring that they have secure claims to sufficient wealth-- that the regime does not face too many people coming and protesting for too radical agendas of political change. Now, the formula here, and the role of property rights and takings law, remain something that the central regime and local authorities have yet to work out. I agree that the Chinese Constitution is not something that anybody can invoke in a direct or formally legal way, but I think it has symbolic and programmatic importance, although we are a long ways away from judicial or other formal legal enforcement of its provisions. If you look at the discussion of the particular constitutional amendments adopted last time out, almost everywhere you turn--although, interestingly, this is said less about property rights than the other amendments--there is a discussion that asserts, in effect, that constitutional change is step one; what is next needed is implementing legislation and other measures. So, in that sense, the members of the leadership that approved formal legal reforms in property and related areas are serious. They have a sense they cannot afford not to do it. The question they have not faced yet is, can they afford to do it? The cost of reining in local government, the cost of giving people these kinds of rights, the costs of having a court system with administrative review of government action that this will entail, what that will imply, the second order political effects--I do not think those issues have been fully grappled with yet. Mr. Foarde. I would like to recognize our friend and colleague, Carl Minzner, who is a senior counsel on the Commission staff as well, for some questions. Carl. Mr. Minzner. Thank you very much. I have a particular interest in rural issues, as well as migrant issues, and would like to direct this question toward Professor Prosterman. But to the extent that our other panelists can address it as well, I would be very interested in your opinions as well. I would like Professor Prosterman to talk a little bit about exactly what the boundaries and extent of collective land ownership are in the countryside. Let me give you a specific example. I have been noticing an increase, particularly in Shaanxi Province, in the number of legal cases involving the rights of migrants, as well as women who have married out of the villages from which they come, but these migrants and these women still retain a rural residence identification with the village itself. When land is seized and compensated, often these individuals are excluded from distribution of the compensation on the theory that many people in the village feel they are outsiders now, that they do not belong to the village and the compensation does not belong to them. I wonder, is there any clear identification as to, what does it exactly mean to have collective ownership of the land in the villages? When compensation comes, who should get compensated? Who should receive the money? If there is no clear answer to that, what are the trends that are taking place? Mr. Prosterman. Very complex legal issues. Their collective, of course, is somewhat ambiguous in itself because it could mean either the old production team level, which is essentially the natural village, the old brigade level, which is the administrative village, or the old commune level, which is the township, currently. It is quite unclear, even in the minds of local officials, often, as to which of those levels is the collective owner. But usually the allocation of land shares takes place in terms of the population in the hamlet or natural village. The unit is the household. Remember, it is a household responsibility system, so every person in the household gets a land share. Now, up until the recent legal reforms, it was typical in those provinces, the great majority of provinces which had readjustments, that when a daughter married out to another village, she would lose her land share in the next readjustment. The household would lose that portion of land. In the next readjustment in her husband's village, she would receive a land share. Now, the new Rural Land Contracting Law has two important provisions on this issue. One, is Article 6, which for the first time explicitly recognizes that men and women have equal rights with respect to land in rural China. The second, is Article 30, which basically says that, when a woman marries out, if there is land--now, there is not supposed to be any readjustment, but there might be flexible or other land--that she can get land in her husband's village, and in case of divorce or death of the husband, she can choose between keeping that land or taking land in her maiden village, retaining that, because that is not any longer to be readjusted away. That land will stay with the household that originally received it in the maiden village. The problem then is how this plays out in terms of takings. That is not provided for at this point in either the Rural Land Contracting Law or any other place in the law, insofar as I am aware. It is linked to the question of the adequacy of compensation and whether there is to be cash compensation, which of course should go, and go in its lion's share, to the farm household. I would think that the best way of resolving that would be to allow the cash compensation to go to, first, the household which lost land, and then probably to allow the wife to make an election, if she wished, to participate in that. But then you would have a kind of double dipping question as to whether she could do that and also maintain her rights to a land share, if she had received one, without readjustment, which would be illegal, in her new village. But as one of a number of issues that will have to be decided, probably this one can be decided in regulations under the Rural Land Contracting Law. Mr. Foarde. Really interesting. Let me pick up the questioning now. Jacques deLisle, you have brought up an issue that is of great interest to each of our Commissioners, and also to us on the Commission staff. That is the whole question of the pace of legal development and legal reform in China and the extent to which, if any, it is driven by Chinese's accession to the WTO and the commitments that it has made under WTO. Separately, you mentioned globalization and the WTO as factors. So I wonder if you would tease that out a little more and tell me if you think that the pace of legal developments with respect to property, and real property, have any relationship with WTO commitments and the changes that have been wrought by them. Mr. deLisle. I think they do, although, of course, they are much less dramatic than in things like the Foreign Trade Law, the new version of which takes effect July 1. Obviously, the WTO does not specifically demand changes in those areas, but the indirect links are there, I think, in a variety of ways. First of all, I think the general ``WTO mania'' in China matters here. You cannot go into a bookstore without finding half the shelves crammed with ``China and WTO.'' In fact, you do not even have to read Chinese to know this. You can see ``WTO'' on the spine of everything. SARS and WTO are the two English acronyms that recently have made it into the contemporary Chinese lexicon. Mr. Foarde. And ``website'' as well. Mr. deLisle. Right. ``WTO'' is all over the place. Actually, people are reading those books, unlike the selected works of whomever among the present or departed political leaders, which are gathering dust over in the corner. So I think WTO accession has created this atmosphere of thinking about laws and thinking about how the outside world handles the regulation of economic activity. I think there is something to the argument that the WTO, despite all its professed neutrality on things other than trade law narrowly defined, assumes a heck of a lot. It clearly demands that member states provide a degree of judicial review of government action, and it clearly assumes, as an underlying substrate, some form of property rights. So, I think there is that kind of link between property rights and China's WTO membership. Beyond that, I think that the question of whether China provides a level playing field for foreign traders and investors is becoming a real issue. We are used to thinking of such issues in this country as an American complaint about how American companies are discriminated against, and certainly that is a perennial and sometimes a valid concern. But there is a curious structure that has emerged in China's foreign trade and foreign investment law throughout much of the reform era that gave foreigners certain advantages to foreigners over Chinese actors. True, there were many informal factors that clearly benefited Chinese firms, but if you look at the formal regulatory structure and many practices, foreigners have been privileged: there were tax breaks, there was streamlined government approval of applications, and there was preferential access to key inputs. There were even clearer property rights for foreigners, certainly compared to those for private ownership in China. With China's entry into the WTO, the aspects of the preexisting system that discriminated against foreigners are under pressure for change. Seeing their former advantages thus eroding, Chinese parties are now among those insisting that there must be a level playing field. They want the property rights and other protections that the previous system provided in greater abundance to foreigners. So, there is a Chinese domestic constituency, certainly outside the most traditional State ownership sector, that says we need to be ``leveled up'' to create a level playing field by providing us with clearer and stronger rights of ownership. More simply and more conventionally, the foreign investors who are being asked into joint ventures with Chinese firms or who are coming in as competitors with Chinese firms are expecting, and are relatively successful-though not perfectly successful--at getting, some property rights protections. Especially in the joint-venture context, the ``spillover'' effects to the ``domestic'' Chinese economy are hard to contain in post-WTO-accession China. You cannot keep the ``domestic'' and ``foreign'' economies very separate any more. Mr. Foarde. So I just want to make sure that I understand. You think, in a lot of ways, the demand of Chinese, say the Chinese business class or property owning class, to have the same sorts of privileges that have existed up until now in, say, foreign joint venture enterprises, foreign invested enterprises, is part of what is driving this? Mr. deLisle. I think it is part of it. Foreigners demand property rights protection as the price of providing their capital, and that protection can be provided more or less formally. The trend is toward providing it more formally. Chinese counterparts to foreign firms and investors say, ``We have to be able to compete on a level playing field.'' Chinese in positions of political power realize that they have a problem if the foreigners come and take huge swaths of the economy, especially if their ability to do so is enhanced by legal rules and policies that favor foreigners. It is a political problem; it may be an economic problem. I do not have a theory about precisely how these factors and concerns determine policy, and I would be grateful for anybody out there in the political science or legal world who can tell me how the politics of this actually works in China. It is hard to tell what is pull and what is push, but there is a Chinese side to this story along the lines that you suggested. Mr. Foarde. Really interesting. Anybody else have a comment? [No response]. No. All right. Let me ask Dave Dorman if he wants to pick up the questioning. Mr. Dorman. Professor Prosterman, just a comment and a question. I was recently in China and had the opportunity to speak at length with an official who was a senior official in a provincial-level reform and development office. This official described his primary function as finding ways to compensate those whose land had been taken for bridges and roads and railways, and he was quite satisfied that in each case, month by month, he was able to either compensate these individuals and families through the funds available to his office, or go directly to the province and get what money was required to satisfy all parties. But what struck me in the conversation was, although he was representing a reform and development function at a rather senior level, his responsibilities did not include addressing the issue of rural incomes, or increasing agricultural efficiency for farmers. Is there a disconnect between rural reform policy and the current status of the legal system? Let me explain. I was looking at a statistic in your paper pointing out that perhaps 1 percent, understated, of arable land is disappearing each year in China. When you look at that number and think of how long this has been going on, you almost have to wonder whether the problem of land taking will be solved by other means before the legal system catches up. But the question to you is, and I know you have been dealing extensively with the organizations involved in rural development, to what extent are policies in this regard focusing only on converting arable land to other uses as opposed to looking at the interests of farmers in terms of raising incomes or raising agricultural efficiency and productivity? Is there a disconnect in policy? What organization is responsible for ensuring that rural development is responsible and equitable? Mr. Prosterman. Well, two points, perhaps, worth making. One, is that I think, at the very highest level of the government, including the President, the Prime Minister, the State Council, that there probably is a pretty strong consensus that the key need is to improve rural incomes and narrow the gap between urban and rural incomes. They really see that as a terrible problem, both in terms of potential instability, potential super-rapid and ``hard-landing'' urbanization, and in terms of reflecting a lack of development of the internal economy of the 800 million who live in the countryside. I think they realize that a nation of 1.3 billion cannot export its way to developed country status. They must develop the internal market. That means that the 800 million who live in the countryside, that market has to develop. The only way that can really develop is if their principal asset, land, can be fully utilized, which cannot happen as long as this horrendous process of readjustment or the associated process of unregulated takings continues. The other point is that there have been two recent and important developments. One, is an urgent notice of the State Council issued at the end of April on what is called land market correction and tightening land management, which is essentially aimed at restricting takings. It is essentially a moratorium for this calendar year on most takings of agricultural land for non-agricultural purposes. Just issued on June 10 is an accompanying regulation which basically limits takings of agricultural land to a specific list of seven public interest needs. It is an approach that, in comparative law terms, you might call it a ``list approach'' to takings, a very, very strict, restricted approach where you cannot count on a judicial system to narrowly interpret the meaning of ``public purpose'' or ``public interest'' takings. These listed takings also must be approved by the State Council, so at least for this year they are going to have a very strict restriction on takings for non- agricultural purposes. The next step, hopefully, will be to extend this moratorium beyond 2004, perhaps make it permanent in terms of using the expropriation power for any but a narrow list of clearly public purpose takings. There have been other straws in the wind that very much suggest they are going in this direction, so that any commercial, or industrial, or residential development takings, any for-profit takings, would have to, beyond getting approval for the change in use of land, rely on direct negotiation and paying a market price to the user of the land, which is definitely the direction in which they should be going. I think there is overwhelming central support, as far as we can see, for this overall approach to the problem. Now, there are undoubtedly pockets of resistance. There are constituencies both at the center, and certainly at the local level, that are doing their own thing, but I think they are being pretty sharply reigned in at this point. Mr. Foarde. Good. Thank you. Susan Weld, more questions? Ms. Weld. Thank you. I wanted to ask about the role of banks and credit unions. One reads a lot about the urban situation where there is sort of a malignant combination between the banks, the officials who might not be very pure, and the developers. The people who just get rolled over are the holders, the residents of those land areas. Can you tell me how that can be improved? What are the ways that that might be alleviated in the cities? In the countryside, one way, I would suppose, to let the farmers get their bit of value out of the land would be allowing them to use the land as collateral for a mortgage. Is that something that is in the wings? Mr. deLisle. We are passing a hot potato around here. I will not purport to speak to the rural areas at all on that, because I probably know even less about that than about urban areas on the banking issue, and because there are two panelists who know a lot about the rural sector. In the urban area, I think it is part of the generic problem with banks in general. I think there have been sincere, and in many ways Herculean, efforts to fix the banks. But the policy loans are still there, and until you get banks out of an environment where they are being told to do two different things--policy loans and commercial loans-- you are going to see a lot of very sloppy banking behavior, and I think that means the continuation of lending based in part on bankers' personalistic connections with developers for urban development, and that sort of thing. And, yes, there is a real estate bubble, by nearly everybody's reckoning. Ms. Weld. So, there are rules for disclosure of those things, but they are just not being enforced? What is the situation on disclosure? Mr. deLisle. I do not know much about it. My impression is that the answer is, quite weak. Again, I do not have much to say about the specific narrow questions you are asking, but I think it is going to be very hard to fix the problem, absent dealing with the broader problems of transparency and hard budget constraints and such on the banks. I think that is partly just because there is not a culture of disclosure. The banks are not listing on the exchanges yet. A couple of them are getting close, and that will help. So too will the expected formation of joint ventures with foreign banks. Of course, when some of the big State banks do list on exchanges, enter into joint ventures, and particularly when they try to raise capital abroad, there will be all sorts of tighter restraints that will develop, and that may improve things. But I think what you have got now is banks in the curious position of juggling these portfolios in very different undertakings--policy lending, commercial lending and so on-- and it is all under one roof. There are categories of loans and investments that nobody expects ever to be profitable, and then there are banks' quests for opportunities that hold out promises of being profitable, and that leads to a risk of speculative loans. The collapse of the TICs was in part a problem of bad and speculative real estate lending. I think that is at least a small piece of what is going on here, but I do not know enough about the details of real estate finance to go any farther than that. Mr. Prosterman. On the rural situation, the rural credit union offices have mainly acted as a recipient of farmers' savings to be channeled to urban lending. It is very rare that you find a farmer who is able to get credit. They will say in interviews, only if you have really got good connections or a brother-in-law at the bank, or something like that. But the government is getting very close to allowing mortgage of land, that goes naturally with giving long-term, 30-year rights, which, as I say, have something like 75 to 95 percent of the value of full ownership, to allow their use as collateral. That almost got into the Rural Land Contracting Law. We think it very likely will get into the forthcoming Property Law. That should allow, hopefully, the beginning of a modern rural banking system. Mr. Foarde. Christian, would you like to pose another question? Mr. Whiton. Sure. Just one last one. Dr. Davis, I was struck that you said last year there were almost daily protests regarding property seizures, and these were in Tiananmen Square. Do you see anything happening with momentum? Has this fizzled out? Do you think they will be back? Do you see any events on the horizon that may spark this to become something larger? Ms. Davis. At the moment, it is difficult to say because we had real significant crackdown around June 4, which is, of course, the fifteenth anniversary of the Tiananman Square massacre. Around that period, the whole square was shut down. Lots of people were jailed or put under house arrest. Internet activists, especially, were put under lockdown. Websites were shut down. So, there has really just been a kind of drying up in terms of information coming out of urban areas. Also, I think a lot of people have been laying low until that period passed. So, now that that is behind us, we may, in the next month or so, begin to see some more protests emerging. I mean, I doubt they have really shut that down permanently, but it is not uncommon around major holidays or anniversaries of big protests. Mr. Foarde. Let me give the last questions of this afternoon to Keith Hand. Keith. Mr. Hand. Thanks, John. Jacques, it is interesting that you mentioned all the WTO books in bookstores, because I always find bookstores to be a fascinating touchstone for what is on people's minds in China. I was recently in Beijing, Shanghai, and Chengdu, and the bookstores were full of books on urban demolitions, and also how farmers protect their rights, these sort of how-to books with form documents and very simple answers to some basic legal questions. One last question about the problem with urban demolitions and the related legal framework. We see a lot of abuses in terms of procedure and people getting their homes knocked down before they have had a chance to raise an issue about why their land is being developed or about compensation. In a lot of the conversations I had, compensation does seem to be the very central issue. Another problem that I sense relates to this compensation issue is that people's property rights themselves are a bit unclear. People do not own the land itself, of course. That is all owned by the state. They may have been allocated a place to live by their work unit at a subsidized rate. Or they may have been allowed to stay on land that they never paid use rights for. I think it was in the 1982 Constitution that declared that land all belonged to the state. So it seems that these people are angry because they have been living on land for a long time and the compensation that they get is not enough to buy new housing in the central part of a city where housing prices have gone up very quickly. On the other hand, if they did not own their apartment, or their shack, or wherever they lived in the first place, what would they be entitled to even if all these process issues were worked out? Ms. Davis. We may all have different answers to that one. Our touchstone on this tends to be international law. The International Covenant on Economic, Social, and Cultural Rights actually allows governments to exercise eminent domain. It allows forced evictions. But the problem is, forced evictions have to be conducted according to law and they have to have certain procedural protections which are supposed to include consultation with the people who are going to be affected. Whether they are residents or homeowners, Chinese law does not distinguish, as you know, between the two. It has to give people adequate notice of their eviction. It has to give them information on the proposed use of the land from which they are being evicted. Government officials are supposed to observe the eviction process to make sure there are no abuses. There is supposed to be proper identification of the people doing the demolition and eviction, which of course is often not the case in China where you have wrecking crews of guys from the countryside come in to do it. And, most crucially, there has to be some kind of legal remedy available. A lot of these protections are not existent in the letter of Chinese law, and most of them are absent in practice. I think these kinds of minimal protections would go a long way toward easing some of the problems. Mr. deLisle. I would second that, in general. In addition, I'd offer a couple of specific points. There are people who face displacement who do not clearly have whatever rights people might have living in those positions. There is a spectrum running from quasi-squatters up to people who have as good a claim as one can possibly have in Chinese property law, but you are right, that claim is still not one of underlying ownership to the land itself. There is also the compensation problem. Compensation to the displaced generally is offered at well below market rates, if by market you mean what this land is going to be worth if you were selling it--the right to occupy this space-in a fair and efficient market. I am struck in looking at the Reform and Development Commission's, the national one's, statement of reform objectives for the current year. What is striking is how little it addresses these problems, despite talking about a lot of other property rights related issues. I think that reflects either that the leadership has not been able to come to an agreement or that they are in denial. Seemingly everything else is in the official agenda. There is a statement about the need to address the compensation problem in the rural areas, to have such takings compensated at something closer to market rates. There is a statement of recognition of the need for a more sophisticated, transparent, functional market system for property rights in the urban areas. This is seemingly a pro- developer item. There is a statement of the need to make land- related property rights alienable and to create markets. Even mortgage-backed securities are on the agenda. There is discussion of the need for a social security system, of some floor for the material wellbeing of people that include the displaced, but is not tied to their rights to the particular apartment that they are losing. And there is a statement of the need for better State administration of State assets, to address the asset stripping problem. That is the agenda. Where is the piece of it that addresses the concern you raise? Mr. Prosterman. Perhaps, finally, one small step in the right direction that came out at the end of May. The Ministry of Land and Resources announced the creation of an Internet hotline for accepting complaints about, and reports on, illegal land takings, both rural and urban. So, that is the kind of incremental movement that we very much like to see. Mr. Foarde. It is certainly welcome. We are out of time for this afternoon. So, it is my privilege, on behalf of all 23 members of the Congressional- Executive Commission on China, and particularly Chairman Jim Leach and Co-Chairman Senator Chuck Hagel, to thank, first, our three panelists, Meg Davis, Jacques deLisle, and Roy Prosterman, for coming from out of town, and some of you a very great distance, to share your expertise with us this afternoon. We appreciate it very much. In addition, everyone who came to hear the testimony this afternoon, thank you for participating with us. You will see the proceedings of this roundtable in a few weeks up on our website, and the statements will be available as well. Please sign up for our mailing list. That is the best way to find out about the next activity of the CECC. For this afternoon, we will bring this one to a close. Thank you all. [Whereupon, at 3:30 p.m. the issues roundtable was concluded.] A P P E N D I X ======================================================================= Prepared Statement ---------- Prepared Statement of Roy L. Prosterman\1\ June 21, 2004 The Rural Development Institute has worked in China on issues relating to the decollectivization of agricultural land and farmers' security of tenure--including the important tenure-related issue of land takings for non-agricultural uses--since 1987. Over that time I have directly participated in village interviews of more than 1000 farm households in some 20 Chinese provinces and province-level municipalities (my RDI colleagues have participated in several hundred more household interviews), most of which have included questions as to land takings. I have also helped oversee and analyze two sample surveys, each of more than 1600 farm households in 17 provinces, carried out in cooperation with Renmin University (Beijing Peoples' University) in 1999 and 2001.\2\ RDI has also carried out comparative fieldwork and policy advisory work on rural land-tenure issues in 39 other countries or settings since 1967, in many cases including land takings as a significant issue. --------------------------------------------------------------------------- \1\ The witness is Professor of Law at the University of Washington, Seattle, and President of the Rural Development Institute, a non-profit organization of lawyers which works on land law and policy issues in transitional economies and traditional developing countries. \2\ The full results of the 1999 survey are described in Roy Prosterman, Brian Schwarzwalder & Ye Jianping, Implementation of 30- Year Land Rights Under China's 1998 Land Management Law: An Analysis and Recommendations Based on a 17 Province Survey, 9 University of Washington Pacific Rim Law & Policy Journal 3, 507-567 (2000). The full results of the 2001 survey are described in Brian Schwarzwalder, Roy Prosterman, Ye Jianping, Jeffrey Riedinger & Li Ping, An Update on China's Rural Land Tenure System Reforms: Analysis and Recommendations Based on a Seventeen-Province Survey, 16 Columbia Journal of Asian Law 1, 141-225 (2003). --------------------------------------------------------------------------- The present testimony is based upon that cumulative work, discussions with Chinese government officials, discussions with other scholars and specialists, and on an ongoing review of the available literature.\3\ --------------------------------------------------------------------------- \3\ Also submitted for the record is a longer RDI memorandum, to Files, from Brian Schwarzwalder, Roy Prosterman, and Li Ping, on ``Land Takings in China: Policy Recommendations,'' dated June 5, 2003. --------------------------------------------------------------------------- WHY AGRICULTURAL LAND TAKINGS ARE PROBLEMATIC Takings of agricultural land in China for non-agricultural purposes have been a major source of concern to the central government.\4\ There are a number of reasons why such takings are, and should be, of major concern: --------------------------------------------------------------------------- \4\ See, e.g., Central Committee Document No. 1 of 2004, entitled ``Opinions of the Chinese Communist Party Central Committee and State Council on a Number of Polices for Promoting Increase in Peasant Incomes'' (one of the policies to be promoted is to reform the land expropriation process to protect farmer rights and provide increased compensation when land is taken for development), reported in ``Text of Chinese Policy Document on Raising Farmers' Incomes,'' Xinhua News Agency, Feb. 18, 2004, available in LEXIS BBC Worldwide Monitoring. This was the first No. 1 Document since 1986 to focus on rural issues. ---------------------------------------------------------------------------
Loss of agricultural land for production. It is difficult to estimate the amount of land being lost, especially to the extent that many takings may not be disclosed to the central authorities. Since China is attempting to feed approximately 20 percent of the world's population on around 9 percent of its arable land, any significant loss of such land is of concern. Perhaps in anticipation of policy and legislative reform on this issue, reports indicate that a substantial land grab has occurred over the past 12 months, with government reports suggesting a staggering total of 168,000 fraudulent land development cases in 2003, twice as many as reported for 2002.\5\ Non-agricultural construction took 1,527,000 hectares of arable land in 2003, stated to be an increase of 17 percent from 2002.\6\ These latter figures suggest a recent annual loss rate of roughly 1 percent \7\ arable land per year to non-agricultural takings, but again, may be understated due to non- disclosure to the central government. \5\ See, e.g. Ching-Ching Ni, ``Land Grabs Sow Pain, Poverty for Chinese Farmers: As the Economy Grows, Development Deals Are Often Corrupt and Victimize the Peasantry,'' Los Angeles Times, March 7, 2004. See also Elizabeth Rosenthal, ``Factories Bump Rural Chinese; Farmers Left Unpaid for their Land,'' The New York Times, March 24, 2003. \6\ Ministry of Land and Resources Declaration or Chinese Land Resources in 2003, available at www.mlr.gov.cn/query/gtzygk/2003.htm \7\ See FAO Production Yearbook 2002, Table 1. --------------------------------------------------------------------------- Undermine the security of farmers' land rights. As we shall discuss subsequently, China's farmers, under the 1998 Land Management Law and the 2002 Rural Land Contracting Law, are now supposed to be in possession of their land under 30-year use rights, in general not subject to ``readjustment'' (take-back and reallocation) by local cadres. Yet takings for non-agricultural uses are often accompanied by illegal ``readjustments'' of all the remaining agricultural land in the village, spreading the pain of land loss (and tenure insecurity) among all the farmers. Underlining the loss sustained by land-losing farmers, farmers themselves typically receive only a tiny fraction of the compensation paid for the portion of land being converted for non- agricultural use. Thus land rights village-wide may be perceived as both worthless and insecure. Undermine the value of farmer's land rights. To the extent that farmers' land rights are perceived to be readjustable and short-term rather than genuinely secure for 30 years, agricultural land will develop far less market value, and be far less transactable--undermining major goals of the Rural Land Contracting Law.\8\ --------------------------------------------------------------------------- \8\ Based on the values of agricultural land in comparable Asian settings, we have calculated that secure and marketable 30-year land rights in China should, as markets develop, achieve an average value of between US$3,750 and US$4,750 per hectare (roughly Rmb30,750 to 38,950 per hectare), suggesting a total value in the range of US$500-600bn (roughly RMB4.1-4.9tr) for China's 135m hectares of arable land. This value, realized through market transactions and, eventually, through mortgage of arable land rights (not yet permitted), represents capital that farmers can begin to apply to investments in agriculture, enterprise, education, and consumption. See generally Roy Prosterman and Brian Schwarzwalder, From death to life: giving value to China's rural land, China Economic Quarterly, Q1 2004, p. 20. See also, on the importance of bringing, as he calls it, ``dead capital'' to life, Hernando de Soto, The Mystery of Capital (2000). --------------------------------------------------------------------------- Undermine farmers' ability to invest. An even broader and more immediate consequence of undermining farmers' tenure security is through reducing their ability and motivation to make mid- to long-term investments in the land, which are critical for the increase and diversification of production, the increase of farm incomes (which currently lag behind per-capita urban incomes in a ratio of 1:3.24), and the increase of rural consumption (which would permit enhanced reliance on the development of the internal market).\9\ --------------------------------------------------------------------------- \9\ Successfully carrying through the implementation of farmers' 30-year land rights in China may be thought of in parallel with the three great post-war land reforms which were supported by the U.S. in Japan, Taiwan, and South Korea, each of which gave land ownership to what had generally been unmotivated tenant farmers with short-term land rights. In Taiwan, for example, in the decade following land reform, farmers increased their rice production by 60 percent and (aided by further investment and diversification) their average per capita income increased by 150 percent . Rural consumption grew greatly across a wide range of goods and services. See Chen Cheng, Land Reform in Taiwan 84- 88 (1961). In interviews conducted with farm households throughout Taiwan in 2000, we found that Taiwan's small farmers were full participants in the island's vibrant consumer economy. Virtually all of the farm households we interviewed (most of whom were part-time, rather than full-time, farmers) possessed a wide range of consumer electronic goods--color TVs, VCRs or DVD players, stereos, cellular phones, washing machines, refrigerators--as well as owning automobiles (and often motorcycles). Most families also held private life insurance policies, had purchased stocks in Taiwan's stock market, had a computer, and had traveled off island on at least one occasion. The implications for a Chinese rural economy of more than 800 million potential consumers are clearly enormous. --------------------------------------------------------------------------- ``Cheats'' farmers, creates instability. Takings of farmland for non-agricultural purposes represents a significant source of rural discontent. Farmers usually receive grossly insufficient compensation for the lost land, and without either adequate rules or effective judicial redress, farmers have typically reacted through demonstrations, as was reported in Jinyun county of Zhejiang Province in November 2003,\10\ or by traveling to Beijing to lodge complaints at various ministries.\11\ --------------------------------------------------------------------------- \10\ South China Morning Post, ``Around 1,000 Villagers Clash With Police over Land Seizure,'' November 27, 2003. In the Jinyun case, farmers claimed that the local government had illegally requisitioned up to 260 hectares of farmland belonging to 6,000 farmers. Farmers were compensated through a one-time cash payment of RMB 20,000 (approximately US$2,500) for their land. At least one farmer from Jinyun traveled to Beijing to lodge an official complaint regarding the taking. The clash between villagers and officials in Jinyun was reported to have involved around 1,000 farmers surrounding the industrial park in which the land is located. When local authorities intervened, violence ensued, with dozens of people reportedly injured. \11\ Officials at both the State Council and the Chinese Academy of Social Sciences report that they receive detailed letters of complaint regarding land takings cases from farmers on a daily basis. Many of these letters indicate that farmers have already made extensive efforts to register their complaints with various agencies in Beijing, each of whom push them to other departments. See generally on taking-related rural instability, Thomas Bernstein, Instability in Rural China, in Is China Unstable? Assessing the Factors 96 (David Shambaugh, ed. 2000). --------------------------------------------------------------------------- Distorts land markets. To the extent that farmers are deprived of fair compensation for their land rights in part (sometimes in large part) to provide land to buyers or end users at a subsidized, less-than-market price, the result is also a corresponding distortion of factor markets in the Chinese economy. Land as a factor of production is then undervalued--in the most extreme cases, considered as virtually a free input--with consequent distortions in investment decisions and the inappropriate allocation of capital, as well as accompanying and frequent underutilization of the land acquired. Indeed, the twin distortions of artificially cheap credit and cheap land have probably contributed greatly to the recent perceived overheating of the Chinese economy, with its accompanying fallout (such as potential inflationary pressures) for the world economy.\12\ --------------------------------------------------------------------------- \12\ See, e.g., Keith Bradsher, ``China's Squeeze on Credit Shows Signs of Success as Economy Slows,'' New York Times, June 12, 2004: Instead of interest rate changes, China's economic policy makers this spring have relied on a brute-force approach of restricting loans and land-use authorizations for industries that they believe to be overheating, notably real estate, steel, cement, and aluminum. These methods have drawn scorn from many free-market-economists. (Emphasis added.) --------------------------------------------------------------------------- Induces corruption of local officials. Low compensation paid to farmers for land takings in combination with the lack of transparency in the land takings process creates an opportunity for local officials to pocket huge profit for their own, contributing to the widespread expansion of official corruption. Three provincial level officials were convicted in 1998-1999 for taking bribes or embezzling land granting fees in an amount up to $20 million in offering cheap land to developers,\13\ and a large proportion of all corruption cases tried in recent years have involved illegal dealings with land granting fees. --------------------------------------------------------------------------- \13\ Shi Hechang, Investigation on State Land and Resources: Who Protects Our Lifeline? Earth [Dadi], Issue No. 20, 2000. --------------------------------------------------------------------------- THE LAW AND PRACTICE WITH RESPECT TO AGRICULTURAL LAND TAKINGS, INCLUDING PROJECTED REFORMS Over 800 million of China's 1.3 billion people make their living primarily from agriculture.\14\ China was the first Communist state to bring about the break-up of collective farms into individual family holdings (in 1979-83) but it did so under ground rules that left the great majority of individual farmers with very insecure rights as to any particular piece of land. Farmers' security on the land, and their ability to invest both ``sweat equity'' and financial resources in improving that land and its productivity have, however, been issues of increasing importance to the central leadership since at least 1993. These issues are now seen as being of crucial importance to China's overall economic development during the coming years and are key goals of the 1998 Land Management Law, the more recent (2002) Rural Land Contracting Law, and accompanying central-government pronouncements.\15\ --------------------------------------------------------------------------- \14\ See FAO Production Yearbook 2002, Table 3. \15\ The Rural Land Contracting Law became effective on March 1, 2003. The government's Central Rural Work Conference of January 2003 had identified implementation of the RLCL to be the highest priority for rural work in 2003. See ``Chinese Leaders Hu Jintao, Wen Jiabao Address Central Rural Work Conference,'' Xinhua News Agency, Jan. 9, 2003. Although there has been some concern that the Central No. 1 Document of 2004 appeared to focus more on short-term ``fixes'' than underlying tenure security issues, the most recent developments seem to indicate that the latter remain of key importance. See ``The State Council Issues an Urgent Notice Requiring Restoration of Production on Idle Land As Soon As Possible,'' People's Daily, March 31 2004 (a notice also dealing with measures for RLCL implementation). --------------------------------------------------------------------------- An extensive sample-survey by RDI and Renmin University in mid-2001 indicated that about 40 percent of Chinese farm households--85 million out of 210 million households, projecting from a sample of over 1600 households--regarded themselves as having received secure 30 year rights by that time, and subsequent village research by RDI and Chinese counterparts also indicated that this figure had probably neither substantially increased nor substantially eroded by early 2004.\16\ Indeed, by that time, perhaps as many as one out of two farm households that had received secure 30-year rights had made long-term investments to improve the land, investments that they would not make under the old regime of insecure land rights.\17\ --------------------------------------------------------------------------- \16\ See China Economic Quarterly, supra note 5. \17\ See id., at pp.22, 24. See also Klaus Deininger & Songqin Jin, ``The Impact of Property Rights on Households' Investment, Risk Coping, and Policy Preferences: Evidence from China,'' World Bank Working Paper No. 2931, 2002. --------------------------------------------------------------------------- However, the remaining 60 percent of farm households had not (and have not) yet received secure land rights, and are subject to what may be regarded as four analytically distinct sources of insecurity on the land: (1) ``Readjustments'' of farmers' landholdings carried out by local (collective) cadres because of either population change in the village over time or population change within individual households over time.\18\ --------------------------------------------------------------------------- \18\ In a ``big'' readjustment made for population reasons, all village land is taken back and redistributed in new patterns, to maintain absolute per capita equality of every person's land holding-- this reflects both overall growth in village population since the last such readjustment, and individual changes in each household's population. In a ``small'' readjustment, only population gains and losses in individual households are considered, with the former gaining additional land at the expense of the latter. --------------------------------------------------------------------------- (2) Readjustments of farmers' landholdings carried out because some farm households have lost land to a taking, in which all the remaining agricultural land is taken back and redistributed to balance out (equalize) the loss among all village households. (3) Readjustments carried out purportedly because of village population change, but actually as an excuse for the cadres to hold back some land from reallocation for future or planned non-agricultural use (disguised taking). (4) Takings accompanied by low or no compensation to land- losing households (assuming there will continue to be no readjustments for the 40 percent of China's households who consider themselves to have secure land rights, this one further potential source of insecurity remains under the existing rules if takings occur that affect their specific land). What are the present rules with respect to takings of agricultural land for non-agricultural purposes, and what changes may be in prospect or desirable? \19\ --------------------------------------------------------------------------- \19\ The following has been adapted, in part, from Roy Prosterman, ``Rural China update,'' pp. 19-21 (CLSA Asia-Pacific Markets, Special report, May 2004). --------------------------------------------------------------------------- Under the existing rules and practices,\20\ there are major issues as to low farmer compensation, and also as to the overly broad purposes of land takings and the non-transparent procedures which are followed. Under existing laws, farmers are entitled to compensation that amounts to only a small share of the market value of the land. Under the 1998 Land Management Law, compensation for arable land expropriations includes: (1) compensation for the loss of land; (2) compensation for young crops and fixtures; and (3) a resettlement subsidy.\21\ --------------------------------------------------------------------------- \20\ Principally embodied in the 1998 Land Management Law and its accompanying Regulations. See generally the RDI memorandum to Files also submitted for the record, supra note 2. \21\ 1998 Land Management Law art. 47; People's Republic Of China Land Management Law Regulations art. 26 (1998). --------------------------------------------------------------------------- Standard compensation for the loss of land is set at 6 to 10 times the value of the average annual output of the arable land over the three years prior to expropriation. The collective, whose land has been expropriated, is required to report to its members (but often fails to do so) the compensation received for the expropriated land. Compensation standards for surface fixtures and young crops are stipulated by provinces, autonomous regions, and provincial level municipalities. Resettlement subsidies on average should amount to 4 to 6 times the average annual output value of the land for the three years preceding the expropriation. However, such resettlement subsidies may exceed that average, and are capped at a maximum of 15 times the average annual output value of the land for the previous three years. If land compensation and resettlement subsidies set according to these standards are still insufficient to help the displaced farmers maintain their original living standard, the resettlement subsidy can be increased upon approval by the people's governments of the provinces, autonomous regions and municipalities. The total amount of land and resettlement compensation is capped at 30 times the average annual output value for the three prior years. However, use rights for the land that is taken may be auctioned or sold by the State for a value that is many times higher than this figure. In fact, by most estimates, the compensation paid to farmers represents only 5-10 percent of the ultimate sale price of the land; 25-30 percent of the land value is kept by the village level collective, with the remaining 60-70 percent of the sale price captured by the county and township governments.\22\ --------------------------------------------------------------------------- \22\ Xiaolin Guo, Land Expropriation and Rural Conflicts in China, The China Quarterly (2001) at 422. See also RDI memorandum to Files, supra note 2, 11-12. --------------------------------------------------------------------------- While the compensation formula is already extremely unfair and well below the market price of the land to be taken, especially where the land is to be used for industrial, commercial, or residential developments, farmers who lose land to state takings cannot even get a large part of the compensation calculated based on these standards. The existing takings regulations explicitly require that the portion of compensation which is for loss of land be retained with the collective entity.\23\ Farmers are entitled only to compensation for standing crops and fixtures, and resettlement subsidies if neither the collective entity nor the state take responsibility for resettlement.\24\ --------------------------------------------------------------------------- \23\ Implementing Regulations of the Land Management Law (1998), art. 26. \24\ Id.Central government efforts to curtail rampant land development and speculation through bureaucratic and administrative changes had, at least as of early 2004, proven ineffective. In late 2003, the central government announced that officials at the county and township levels of the Ministry of State Land and Natural Resources would be brought under the direct supervision of province-level ministerial offices. There have been repeated calls for strengthening land use planning efforts in order to make China's system for protecting arable land the world's strictest. Anecdotal evidence--such as driving around any peri-urban area in China--inevitably leads to the conclusion that land continues to be developed at a brisk pace. --------------------------------------------------------------------------- Policy makers and legislators in Beijing recognize that action must be taken, and initial steps are underway. Constitutional amendments adopted by the NPC in March, 2004, added new language regarding compensation when property is taken.\25\ Although this change is unlikely to have an immediate or direct impact on land takings cases, it sets the broad direction for future reforms. --------------------------------------------------------------------------- \25\ Article 10 of the Constitution reads in part, ``the State may, for the necessity of public interest, requisition [zhengshou] or expropriate [zhengyong] land in accordance with law and pay compensation.'' --------------------------------------------------------------------------- Importantly, amendment of the 1998 Land Management Law, which has enabled local governments to acquire agricultural land at very low prices relative to its ultimate price, and retain the lion's share of resulting profits, has been added to the legislative agenda. Prior to amending the LML, however, the central government plans to issue a policy document related to land takings. Initial drafts of this policy have contemplated several fundamental changes to the current system of land development, including: Limitation of the state expropriation of land solely to public purpose takings, which will be defined in legislation (roads, public schools, etc.); For other, profit-making commercial, industrial, or residential development projects, allowing the collective landowner and farmer-users to directly negotiate land use right leasing transactions with prospective developers, without (in contrast to present practice) invoking the state's expropriatory power or involving the state in the development process; Increasing the compensation standard that is paid to farmers to more closely reflect the value of the land that is lost as a result of conversion to non-agricultural use;\26\ --------------------------------------------------------------------------- \26\ Depending on the discount factor used for future streams of income, secure 30-year land use rights should, at the beginning of the period, have an economic value equivalent to about 75-95 percent of the value of full private ownership, underscoring the argument that the farmer-user should get the lion's share of all compensation paid. Moreover, strong arguments can be made that compensation should be based on the full 30-year term, not treating the term as a depreciating asset. This can be supported both on the likelihood that the rights will be extended for a further 30years upon expiration of the present term, as has been indicated by former President Jiang Zemin, and by the practice in Hong Kong when farmers' 50-year rights are acquired for non-agricultural purposes. --------------------------------------------------------------------------- Providing key procedural protections to farmers whose land will be developed, including prior notice, an opportunity to be heard, and a right to appeal. In dealing with seemingly uncontrollable conversion nationwide of agricultural land for non-agricultural use, the central government recently took several drastic measures to administratively halt such conversion. On April 29, the State Council issued an urgent notice putting a moratorium on land conversions for the rest of the year.\27\ It requires government at all levels with authority of approving land conversions suspend their review of applications for land conversions during the moratorium period except for the conversions for projects with ``urgent needs.'' In clarifying such ``urgent needs,'' the Ministry of Land and Resources and the State Commission on Development and Reforms issued an Implementing Measures of the State Council's Urgent Notice on Carrying Out Land Market Correction and Tightening Land Management on June 8, 2004. The Implementing Measures explicitly list seven categories of uses that fall within the definition of ``urgent needs'' and may be approved within the moratorium: (1) energy projects; (2) transportation projects; (3) water conservancy and agricultural projects; (4) major urban utilities; (5) healthcare facilities; (6) education facilities; and (7) national defense facilities.\28\ These new developments clearly indicate the central government's grave concerns over rampant land takings, and appear to show its inclination in defining the scope of future land takings by listing public purposes in unambiguous terms. --------------------------------------------------------------------------- \27\ The General Office of the State Council Issues an Urgent Notice: Carry Out Land Market Correction and Tighten Land management,'' People's Daily, April, 30, 2004. \28\ The Ministry of Land and Resources and the State Commission on Development and Reforms' Implementing Measures of the State Council's Urgent Notice on Carrying Out Land Market Correction and Tightening Land Management, Sec. 2, available at www.mlr.gov.cn/project/querysta/ multidocview. --------------------------------------------------------------------------- Issuance of a longer term policy document, however, has been delayed, primarily because of objections raised by local governments, who consider the ability to offer low cost land to developers to be an important component of attracting investment and maintaining economic growth. Beijing still appears to be reconciling the potential negative impact of making land development transactions more expensive and time- consuming on a permanent basis, against the increasing social and political costs of the current system, which severely disadvantages farmers, badly distorts land markets and, quite likely, contributes to unhealthy overheating in various sectors of the economy. The central government also seems determined to increase farmers' compensation for land as an early step in the reform process -- but when and by how much remains to be seen.\29\ --------------------------------------------------------------------------- \29\ See ``China Will Increase Land Takings Compensation Standard (Woguo Jiang Tigao Zhengdi Buchang Biaozhun),'' Law-Star.com, citing the Ministry of State Land and Natural Resources, January 18, 2004. --------------------------------------------------------------------------- WHAT MORE NEEDS TO BE DONE? A longer-term central directive on the aggravated issue of land takings does seem likely in the near future, and should be followed by a package of amendments to the 1998 Land Management Law. These should include measures to specifically define and limit, following the current moratorium, the ``public purposes'' for which the power of compulsory taking can be used; moving towards a regime where any proposed taking of agricultural land for a commercial or private use should be on a non-compulsory basis, at a price which is voluntarily agreed to through negotiation both by the collective owner of the land and by the farmers who are the long-term users (that is, a market price); with a much higher compensation standard for compulsory takings than at present; with the farmers to receive the bulk of the compensation paid in both compulsory takings and negotiated acquisitions (versus the 5-10 percent of compensation they are estimated to receive now); and with highly transparent and public procedures being used, instead of the opaque and non-participatory process that has been used until now. Beyond issuance of a new policy document and amendment of the LML, there will be key measures of implementation required to bring any new restrictions on rural land takings into full effect. Three in particular should stand out: Publicize the new rules. This was vital to reaching 85 million farm households with 30-year land rights by 2001, and relied heavily on the repeated use of television (the great majority of farm households do have a television). Set up a hot-line for complaints. This has successfully been done for the province-wide implementation of tax-end-fee reform in Anhui.\30\ --------------------------------------------------------------------------- \30\ In parallel to the idea of hotline, the Ministry of Land and Resources recently issued a notice calling on all provincial level land administrations to establish an internet hotline for accepting complaints about and report on illegal land takings. See the Ministry of Land and Resources Notice on Effectively Strengthening Transparency of Government Information on Land Resources Through Internet, sec. 2, available at www.mlr.gov.cn/project/querysta/multidocview. --------------------------------------------------------------------------- Include takings-reform in monitoring. A national sample survey of farmers should be done within the next 12-18 months on the state of implementation of farmers' 30 year rights, and this should include specific questions on recent land takings in the village and farmers' knowledge of new rules (by then, hopefully, clearly in place) on takings reform. A broader benefit is that, as the central government begins such implementation steps on land takings, it will be setting patterns that are generally relevant, and necessary, in effectively extending other important normative regimes, and the rule of law generally, in the Chinese countryside.
Submission for the Record ---------- Prepared Statement of Patrick Randolph, Elmer E. Pierson Professor of Real Estate Law, University of Missouri, Kansas City, School of Law JUNE 21, 2004 Property Seizures in China: Politics, Law, and Protest THE URBAN RENEWAL ISSUE News reports from China for more than a year have been full of stories of conflict over what is popularly referred to as ``demolition,'' but what we call ``urban renewal'' here. To understand the issue, one must first know what ``urbanism'' is being ``renewed.'' During the 1980s, the Chinese filled their cities with apartment blocks to provide basic housing as part of the ``iron rice bowl'' promise. Everyone gets an apartment, be it ever so humble. These were generally six story walk-ups made of concrete, with terrible plumbing, service porches on the window side (for drying clothes) and enough space to house one person comfortably, although generally families of five to eight lived in them. Having constructed these monstrosities in great dirty rows, the Chinese proceeded to ignore them for two decades, letting them deteriorate with rust, dirt, and the detritus of many poor people trying to live together in not enough space. Painted in fading green, dusty rose, and beige, these buildings were the dominant visual element of Beijing, Guangzhou, Shanghai, Xian and other Chinese cities I visited in the early 1990s. Ugly and cramped as they were, the little concrete cubicles provided a warm (often too warm) and dry home for millions of workers in state-owned industries and lower-level government bureaucrats. The Chinese had become accustomed to living in close quarters, and often the apartments housed extended families that adjusted to the conditions and lived out their lives on top of one another. Buried somewhere in the rows of apartment blocks were schools, clinics, and community facilities all developed by the factory or bureau that owned them. In the interstices, very primitive concrete block or brick buildings housed the shops that provided food and basic necessities, again, all very convenient to the clientele. Sometimes these complexes actually were located within the walls of the big factories. Workers could easily walk or bike to their place of employment, and commonly went home on the long noon break to take a nap. The Chinese shopped for fresh meat and produce in open markets along the street. Few had refrigerators. Virtually none had air conditioning. But everyone that one knew (except a few high party bosses) lived pretty much the same way. At Peking University, the University President might have had a few extra square meters in his place, but it was otherwise indistinguishable from the nearby concrete cubes where his employees resided. This was the culture of communism. Although, in theory, this housing was provided as part of one's arrangement with the work unit to which one was assigned, in fact the system provided virtually perpetual occupancy. There was rent--but it was very small, and evictions for non-payment were virtually nonexistent. Laid off workers continued to be entitled to this housing (and also education and health care) from their former employer. When the family member who worked for the work unit died, other family members who still lived in the apartment were permitted to remain. When the state-owned industries failed, the State took over the housing and other social service responsibilities, and the housing remained. Around 1997, Premier Zhu Rongji announced that the game was over. Everyone in China's cities would stop living in State provided housing and buy their own homes. He set a 2-year deadline, but in fact the transformation, such as it was, took a number of years longer. The basic transaction was a sale of the living units by the State or the work units to the occupants, usually for small prices, which could be paid in installments that were not a lot more than the original tiny rent. Of course, now the occupants were responsible for their own maintenance, but they were used to very little of that. Today it is estimated that 80 percent of China's legal urban residents live in their own homes. I suspect the percentage is quite a bit smaller, since many Chinese own three or four of these little cubicles and rent them out to younger people who did not have the chance to buy an apartment when conversion occurred. But many of the lower echelon workers just stayed put in the concrete boxes they'd always known. Then came prosperity and with it the development of newer, nicer housing that workers could buy. Tens of thousands of new apartments structures rose up virtually overnight, often on surplus land within the urban area or suburbs, but on the fringe. Chinese had more money to spend, and they sopped up these larger (60-120 square meter) boxes, in elevator buildings with far more amenities, at least when new. The maintenance is still appalling by Western standards, but compared to what people had before--this is ``uptown.'' The new buildings often were developed on land that the developers bought from the State through the newly created program of ``land use rights.'' The same system was used to build the new office complexes, shopping centers, business centers, and other structures that marked China's economic renaissance. Local governments profited from the sale of these land use rights, and used the money to fuel massive infrastructure development (the flocks and flocks of building cranes). The process of providing better and better housing to Chinese consumers proceeds today unabated. Most are built on granted land use rights--so the residents in theory really have rights in the land itself, and not just occupancy claims in the buildings. The newest facilities can actually be pretty nice, and arguably the Chinese soon will be waking up to the fact that they're entitled to expect some real building maintenance from the state- owned maintenance companies paid out of owner's association assessments to care for these new places. Air conditioning is common, elevators work, and there is even underground parking. And, always keep in mind, we're talking lots and lots and lots of these buildings. There are a whole lot of urban Chinese seeking new housing. But now many of the cities that were most proactive in bringing about this economic rebirth have discovered that there is precious little land now available for the creation of new land use rights. And they've spent the money they already earned as fast as they got it. How to meet their future growth plans? The answer lies right there in the heart of the city--in those locations that were once dirty factory areas but now are prime residential sites as the city, surrounded by all the high rise office buildings, gleaming roads and other mass transit facilities. And convenience to work, once taken for granted and undervalued, has become a highly desired commodity. As the Chinese buy more and more private cars, they have discovered that wonderful western invention--traffic gridlock. People who have acquired apartments in the suburbs have found that it takes an hour or more to get to work, and there's a huge demand for more convenient middle and high-end housing. And there--right in the urban core--is all that land ripe for development. Even better, the land has never been the subject of granted land use rights, so the local land administrations can sell it to developers for a pretty penny. Just one little problem--there are people living in these squalid little places. In fact there are lots and lots of people, still trusting in government to take care of them consistent with the promises made to them during their youth. These people present special problems to the Chinese. In America, we've seen redevelopment of our urban cores time and time again. But, because theoretically we have an open market that will provide alternative housing for people living in these kinds of situations, we just startup the bulldozers and start ripping away. We pay the owners of the old apartments and flophouses and slum brownstones that we demolish, but the residents--usually rental tenants--get little by way of relocation allowance except when Federal money is used. But China had a political issue with that approach--these were people who trusted in Communism, and Liberation was all about guaranteeing basic standards to poor citizens. So when urban renewal happens in China, the local laws usually required that some effort be made to provide alternative housing to those living in these places, regardless of how it was to come to be there, and pretty much regardless of what ``ownership'' they might have. The compensation responsibility is placed upon the developer, and it is in addition to whatever the developer paid for the land itself. As the urban renewal push began in China we started to see people waking up one morning and discovering huge Chinese characters painted on their buildings indicating that demolition was imminent. This was the first thing that happened in the process, since it prevented anyone claiming relocation rights who moved into a building so decorated with warnings. Then the developers started to negotiate with the residents. But the residents, although their little apartments were hovels compared to many Chinese facilities, liked their little communities and especially valued their location. The developers offered replacement housing facilities instead of cash payments (permitted and even encouraged by the laws) but the tenants often concluded that the substitute housing, even when new, was too remote from their jobs, and in fact from the community that they'd always known, to be suitable. They knew that their location was valuable, and they wanted appropriate compensation, not some remote concrete box that required a complete change of life. Note that there are parallels here to the relocation that occurred when the great dam was built in the Three Gorges on the Yangtze River. But those were peasants, with different rights and different expectations. Now we're talking relatively sophisticated urbanites, who have friends and relatives still more sophisticated. It was one thing to say that one had to be removed because of highways or other public works. But when the demolition characters appeared solely because some fat cat developer intended to make a huge profit building new private housing where old private housing stood, people expected to be paid well. The situation from the government perspective was not aided by the exposure of massive corruption in the granting of land use rights for these purposes. Even though the requisite handful of developers and land administration officials were cashiered and imprisoned for the most egregious corrupt practices, the Chinese populace in fact felt that the occupants of these places deserved better treatment. We started to see demonstrations, sit-ins, even newspaper and television reports, and the Beijing taxi drivers were outraged--passing on their views to all who would listen. As I've been saying all along, with prosperity in China comes the expectation of protection from government for vested rights. And this in turn leads to participation in government. Since, in fact, there was little formal right to participate, the affected Chinese citizens and their friends resorted to the time-honored method of seeking redress from the power structure--harangue. Party officials and land administration leaders were contacted regularly and called to account for what were perceived to be abusive practices. The plot thickened when stories emerged about the emotional impact that destruction of these traditional urban communities had on the beloved older folks who had trusted in Communism their whole lives. There were some suicides that occurred while the bulldozers chugged toward the buildings, and other dramatic examples of how Chinese, like the rest of us, place an extraordinarily high value on the concept of ``home.'' I've seen U.S. newspaper pieces, fueled often by dissidents and ``China knockers,'' who have suggested that this is one more example of how much more abusive China is to its citizens as compared to the West. In fact, anyone involved in urban renewal here knows that we regularly have beat up on our poorest citizens in the same circumstances through the last 50 years. Tenants in slum buildings slated for demolition get virtually no compensation and little if any relocation assistance. Even commercial tenants routinely sign leases that say that any lease rights end on condemnation, thus eliminating any compensation for claimed property takings, and leaving the whole condemnation award for the landlord. In fact, if anything, China's greatest oversight as compared to the U.S. was the failure to recognize the claims of the landowners and non- resident owners of the apartments who had been renting to others. Oh yes, there were stories of inadequate payments and abusive evictions. But these were not, so far as I can tell, the dominant complaint. Most of the complaints have been about nothing more than money. And neither these abuses nor the underpayments were condoned by law. For several years, there have been a national statute and local regulations that clearly provided for adequate compensation for residents and an appeal process to resolve disputes. But neither the regulations nor the system provided for proper attention to the actual owners of the land use rights or the housing units (if they were not residents). Recently, things have commenced to change dramatically. There has been a dizzying release of new statutes and regulations. The national administration has promoted an amendment to the Chinese Constitution containing a guaranteed protection of property rights lawfully obtained and a specific requirement for compensation when such rights are taken. I saw a New York Times report citing Chinese scholars who said that the Constitution in China is not binding in the same way that the U.S. Constitution controls government behavior. True, but beside the point. The really significant fact is that the Hu administration is the interest group that initiated these reforms, and therefore the government appears prepared to take them seriously. There is one glaring omission in this whole structure, at least as compared to Western process. The Chinese system, so far as I can tell, provides no opportunity for notice or review by interested landowners of the question of whether a public purpose exists to justify taking away the private interests of some citizens and giving them to others. My Chinese scholar friends tell me that a ``public purpose'' requirement undoubtedly exists--apparently in some Supreme People's Court interpretation of the Constitution--and the demolition must be consistent with zoning decisions, where relevant. But most of the decisions to grant land use rights to developers occur outside of the public eye and immune from judicial review. Once the characters go up on the buildings, there is process and judicial review concerning payment (although usually by the time the fight is settled, the residents are out--condemnation in China is ``quick take''). Clearly there should be greater process to make sure that there is public justification to strike down the old buildings, and the justification probably should be something more than just making a housing developer rich. But because there is no real process, there are no standards here. Likely, in light of China's tradition of powerful government, any system that will be developed will favor the government. But the point is that legal due process rights often lead to the development of political process. The harangue tactics could start sooner, and citizens could openly negotiate with the government toward some standard as to when demolition is appropriate, and when not. It is important to note that, from the standpoint of substantive legal standards, American law also is grossly tilted toward the government. In 1954, in Berman v. Parker (the famous ``Poletown'' case), the U.S. Supreme Court pretty much rubber-stamped the notion that condemnation, redevelopment and resale to private developers is a legitimate government response to the problem of decaying central cities. The progeny of that decision have been some pretty egregious tactics in many local areas as governments vie with their neighboring cities to develop business opportunities, shopping centers, and, on rare occasion, even housing. In a few recent cases, State courts, interpreting the U.S. Constitution, have started to put the brakes on the most extreme practices. The Illinois Supreme Court struck down a local eminent domain action designed to eliminate the property rights of a factory owner who had the bad luck to be located just where a booming NASCAR track sought to put up an additional parking lot. The factory was by all accounts neat, clean and making a nice little profit. It was not a decaying urban core. But it was in the way, and NASCAR had neither the time nor the inclination to negotiate an acquisition price with the owner. The local government was more than accommodating, and authorized a ``quick take'' of the factory site at a price determined by eminent domain proceedings. But the owner had the resources to fight back, and his lawyers ultimately prevailed, convincing the state's high court that the procedure violated both State and U.S. Constitutions. The case does not stand alone, but is part of a series of lashback decisions responding to abuses of the eminent domain process around the country. But the U.S. Supreme Court has yet to address the issue, and there are lots of states where the process continues unabated. Even the Illinois court acknowledged that if the local government had gone through an administrative process by which it determined, by application of objective and reviewable standards, that there was a demonstrated public need for public intervention to resolve creeping urban blight, the public decision would have been entitled to great deference. But the local politicos here had dispensed with that process--perhaps because, on the facts--any such decision would have been a pure sham that would have received embarrassing treatment in the press and ultimately might not have survived even the gentle judicial review that the courts might have applied. In talks in China, I have emphasized this developing authority in America, noting that the political upset over the ``demolition'' practices might be alleviated, if not eliminated, by greater process before the actual taking commences. If people are given warning and opportunity to object, the most egregious corrupt decisions simply don't happen. Corruption dries up in the light of day, and in the threat of public scrutiny. Further, the Chinese need to educate their people better about what it is they are receiving compensation for. The Chinese practice of using replacement properties instead of money for relocation compensation strikes me as sound, so long as the new properties do not unduly destroy community or employment access. Further, the government needs to explain to its citizens that the right of occupancy for which they are being compensated is just that and no more. Most of these occupants of old residential blocks never paid for the land use rights (in many cases no one did), and the ``location value'' that goes with land value was never traded out by the state. Consequently, the State should not be required to pay for that value. Even the newest laws in China do not draw an adequate distinction between granted land use rights (where people pay for the right in the dirt itself) and allocated land use rights (where there is only a sort of revocable license for the dirt, but people own the buildings--an independent object of ownership in China.) Clarity of legal provisions and greater information to the people about these distinctions would help a lot. Of course, it's fun to criticize and cluck our tongues at the struggle of traditionally all-powerful government officials to deal with the new political awareness of their citizens. And it's useful to provide constructive criticism. But all of this should not obscure the real point here--the very publicizing of these disputes, and the agonizing of public officials over how to resolve them, and the consequent exposure of corruption--all of this is new stuff in China. It's clearly the result of a new commitment to openness, at least with regard to private ownership rights. Further, we should not lose sight of the fact that we here in America have swept these very issues under our own public policy carpets for many years. When we needed revitalized cities and gentrification of the slums, we didn't stand too hard on Constitutional principle, and this in a society that has limited government as a basic principle. The Chinese deserve credit and support for moving their traditional all-powerful government structure toward a new property rights regime. The battle over demolition in China shows that a highly developed, multi-layered and overbearing bureaucracy does not disappear overnight. But, given the opportunity to progress, I think we'll see some real political process emerging here, at least in the larger cities. Further, the U.S. is hardly in the best position to cast stones.