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The Shadow of the Skyscrapers: Real Estate Corruption in China

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Corruption in the Chinese real estate (RE) industry is a very serious and prevalent issue. This article focuses on variations in Chinese RE corruption. It argues that due to an expansion of the official players at each step in the RE development process, corruption is an unintended consequence of the reform to regulate the industry. Despite the empowerment of local governments and bureaucracies, corruption has emerged in these entities, spreading from local people's governments to functional units, creating a chain of corrupt practices which includes groups of officials and large sums of money.
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The Shadow of the Skyscrapers: real
estate corruption in China
Jiangnan Zhu
Available online: 07 Feb 2012
To cite this article: Jiangnan Zhu (2012): The Shadow of the Skyscrapers: real estate corruption in
China, Journal of Contemporary China, 21:74, 243-260
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The Shadow of the Skyscrapers: real
estate corruption in China
JIANGNAN ZHU*
Corruption in the Chinese real estate (RE) industry is a very serious and prevalent issue. This
article focuses on variations in Chinese RE corruption. It argues that due to an expansion of
the official players at each step in the RE development process, corruption is an unintended
consequence of the reform to regulate the industry. Despite the empowerment of local
governments and bureaucracies, corruption has emerged in these entities, spreading from
local people’s governments to functional units, creating a chain of corrupt practices which
includes groups of officials and large sums of money.
The real estate (RE) industry, while an economic engine, has become one of the most
corrupt economic sectors in China. According to the State Council rankings,
commercial bribery (shangye huilu ) was most prevalent in land transfers
and construction.
1
Corrupt officials who have been discovered in recent years have
invariably been involved in RE corruption. This article examines the ‘shadow’
behind the industrial splendors and disentangles corruption—defined here as abuse of
public power for private gain in violation of state rules—at each stage of RE
development. Using RE corruption as an indicator, this study confirms the trends of
corruption in China, i.e. the increasing involvement of high ranking officials, bribe
taking, and big stakes since the 1990s.
2
However, this does not mean that government
measures, such as establishing new agencies and a legal framework to manage the
land market and RE development, are completely powerless to control corruption.
Overt corruption, for instance during land transfer, has in some aspects greatly
* Jiangnan Zhu is an assistant professor in the Department of Political Science at the University of Nevada, Reno
(UNR). She obtained her Ph.D. in political science from Northwestern University in 2008. She joined UNR in July
2008. Her research interest is mainly concerned with Chinese politics, especially corruption and anti-corruption in
China. Her previous work has appeared in Asian Survey. She has several research projects currently in progress. She is
grateful to Victor Shih, William Eubank, Jie Lu, Brandon T. Condren, Isaiah Price, the anonymous referee, and the
late Professor Tianjian Shi for their great help and comments on the paper. Any errors or omissions remain the
author’s responsibility. The author can be reached by email at jzhu@unr.edu.
1. Sun Aidong, 2006 nian sida redian zheshe zhongyang fanfubai juexin [Four Hotspots in 2006 Reflect the
Central Government’s Commitment of Anticorruption ], (December 2006), available at: http://news.xinhuanet.com/
politics/2006-12/25/content_5528527.htm.
2. Melanie Manion, Corruption by Design: Building Clean Government in Mainland China and Hong Kong
(Cambridge, MA: Harvard University Press, 2004); Andrew Wedeman, ‘The intensification of corruption in China’,
The China Quarterly 180, (December 2004), pp. 895 921; and Yong Guo, ‘Corruption in transitional China: an
empirical analysis’, The China Quarterly 194, (June 2008), pp. 349 364.
Journal of Contemporary China (2012), 21(74), March, 243–260
ISSN 1067-0564 print/ 1469-9400 online/12/740243–18 q2012 Taylor & Francis
http://dx.doi.org/10.1080/10670564.2012.635929
Downloaded by [University of Nevada - Reno] at 11:37 10 February 2012
disappeared under the new regulations. At the same time a subtle dynamic has
developed in which corruption has grown in ‘sophistication and complexity in terms
of causes, forms and characteristics’.
3
Corruption has become less visible, more
volatile, and more adaptable to new regulations so as to be ‘immune’ to detection.
Most importantly, I argue that much of the dynamic of RE corruption is actually an
unintended consequence of the increased number of official players (i.e. officials or
government agencies) now involved in the decision-making process as a result of
attempts to reform China’s fragmented state authority.
This research is based on in-depth interviews with three RE developers in Tianjin
and Jiangxi Province, two industrial analysts and two officials in Nanjing, and is
supplemented by media reports and government publications.
4
I first discuss the
institutional roots of RE corruption as an overview, and then briefly introduce the
formal management system of the RE industry. After that, I illustrate in detail how
corruption in the process of RE development has adapted to various policy changes
and has found its way into different administrative departments, such as the local
people’s government, land management and urban planning bureaus as well as other
agencies.
The institutional root of RE corruption
An underlying question in the current literature of corruption in contemporary
China is whether the state retains the capacity to keep corruption under control. An
optimistic view holds that corruption in China is relatively centralized when
compared to corruption in many Eastern European countries because of the gradual
economic reform and the strong party state in China. Centralized corruption is a form
of monopolist corruption, which generates higher aggregate revenue for the state
(because the state keeps its rate of extraction at the optimal level) than decentralized
corruption. Decentralized corruption as a form of bribe taking by state agents acting
as independent monopolists not only makes corruption more widespread, but also
reduces the aggregate amount of income for the state.
5
Though policy implementation
in China is not always effective, the state has become more institutionalized and the
center has been able to maintain its fundamental leverage over local governors and the
monitoring of corruption.
6
Therefore, corruption in China remains limited to a certain
extent.
3. Ting Gong, ‘Dangerous collusion: corruption as a collective venture in contemporary China’, Communist and
Post-Communist Studies 32, (2002), pp. 85103 at p. 85.
4. Three of the interviewees were interviewed twice.
5. Andrei Shleifer and Robert W. Vishny, ‘Corruption’, The Quarterly Journal of Economics 108, (August
1993), pp. 599617; Pranab Bardhan, ‘Corruption and development: a review of issues’, Journal of Economic
Literature 35, (September 1997), pp. 1320– 1346; Oliver Blanchard and Andrei Shleifer, ‘Federalism with and
without political centralization: China versus Russia’, IMF Staff Papers 48, Special Issue, (2001), pp. 171179; and
Minxin Pei, China’s Trapped Transition: The Limits of Developmental Autocracy (Cambridge, MA: Harvard
University Press, 2006), p. 37.
6. Yan Sun, ‘Reform, state, and corruption: is corruption less destructive in China than in Russia?’, Comparative
Politics 32, (October 1999), pp. 1– 20; Andrew J. Nathan, ‘China’s changing of the guard: authoritarian resilience’,
Journal of Democracy 14, (January 2003), pp. 6– 17; and Dali Yang, Remaking the Chinese Leviathan: Market
Transition and the Politics of Governance in China (Stanford, CA: Stanford University Press, 2004).
JIANGNAN ZHU
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Meanwhile, more pessimistic views argue that corruption in China has moved from
‘centralized predation’ (i.e. state predation by the ruler) to ‘decentralized predation’
(i.e. predation by agents of the state). The state loses its effective control over the local
officials due to the decentralization of property rights, ineffective monitoring, newly-
emerged exit options for public officials (e.g. ownership stakes in private firms,
overseas investments), and the erosion of institutional norms: ‘Although the Chinese
state appears to be institutionally unconstrained, centralized, and omnipresent, its
ability to implement policy and enforce rules is severely limited by its incoherence,
internal tensions, and weaknesses’.
7
Government directives are willfully defied by
local authorities in the interest of local protectionism.
My research shows that RE corruption in China is becoming more decentralized, as
more state agents from an increasing number of government agencies become
involved in corruption. Contrary to the pessimistic views blaming the erosion of state
capacity, the growth of corruption is actually an unintended consequence of efforts to
reform China’s fragmented authoritarianism.
‘Fragmentation of authority is a core dimension of the Chinese system. What on
paper appears to be a unified, hierarchical chain of command turns out in reality to
be divided, segmented, and stratified.’
8
One significant fault line in the system is
found in the division between the ‘center’ and the ‘locale’ (i.e. provinces, munici-
palities and counties, etc.), while the other organizing concept is that of vertical
functional hierarchies. Thus, much of the reform has, first, sought an appropriate
blend of national uniformity and provincial autonomy, such as reform of the
budgetary process and the banking system; second, it has clarified the relationship
between the vertical functional systems to the horizontal territorial governing
bodies, such as the reform of the energy sector in the mid-1980s; and third, it has
delineated the extent to which units in different ministries and/or functional systems
cooperate with each other.
9
During this process, local governments and the functional units of the state are
sometimes empowered by the center. In some circumstances, new administrative
agencies are created to facilitate the reform. These measures have increased the
number of necessary steps a project must go through, and more importantly the
number of official players—both officials and government agencies—in a decision-
making process. Some of these official players are ‘veto players’, as their dis-
agreement could block the passage of a decision.
10
Other players, resulting from the
introduction of new procedures, though not given the veto power, can affect or delay
a decision-making process.
Theoretically, the increase of official players should reduce corruption. As Rose-
Ackerman shows in her classic work, if bribery buys illegal benefits, in a sequentially
7. Pei, China’s Trapped Transition, pp. 13 and 4142; Tomas Larsson, ‘Reform, corruption, and growth: why
corruption is more devastating in Russia than in China’, Communist and Post-Communist Studies 39, (2006),
pp. 265281; and Jean-Louis Rocca, ‘Corruption and its shadow: an anthropology view of corruption in China’, The
China Quarterly 130, (June 1992), pp. 402416.
8. Kenneth Lieberthal and Michel Oksenberg, Policy Making in China: Leaders, Structures, and Processes
(Princeton, NJ: Princeton University Press, 1988), p. 137.
9. Ibid., pp. 138141.
10. George Tsebelis, Veto Players: How Political Institutions Work (Princeton, NJ: Princeton University Press,
2002), pp. 1718.
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organized bureaucracy with veto players, one honest official could spoil a corrupt
outcome.
11
This will decrease the incentives of bribery. Additionally, if there is inter-
official competition in a bureaucracy where ‘applicants have a chance of obtaining a
bribe-free benefit from an honest official’, this official’s refusal to accept bribes may
lead to the elimination of bribery throughout the entire system.
12
Moreover, even if
all the officials are corrupt, a larger number of official players in a sequential process
might deter some potential bribers, as the potential costs of bribery can be expected to
rise. Though there may be no change in each individual bribe amount, the total sum
increases further with each new palm the briber has to grease. If collusion among
government agencies is needed, the bribers will have to pay more, as one of the
purposes of collective corruption is to maximize individual gains for each official.
13
Reality shows that as long as an industry’s profits are high, many incentives exist to
bribe the official players. Bribery also self-adjusts in terms of its forms adapting to
new procedures and regulations in order to be ‘acceptable’ to public officials. Once
corruption occurs, it inevitably involves more government agencies and snowballs
into a corruption chain involving multiple groups of officials and huge sums of
cash.
14
The power to influence the decision-making process also gives officials
opportunities and advantages to elicit bribes.
In the RE industry, though the center owns state land de jure, local governments
hold the de facto right of local land disposal. Thus, corruption during land transfer,
which is a major step of RE development, has been primarily concentrated in local
governments and has followed a complicated path in response to policy changes.
To lower the cost of land, development companies first try to obtain free land
through administrative approval. As the market distribution of land expands,
companies seek low prices by making transfer agreements with local governments.
After transfer agreements of commercial land were banned, open tender, auction,
and listing of land (TAL, zhaopaigua,)isrequiredsothatallqualied
companies can compete equally for land in an open market. While some companies
colluded with each other in open TAL to get an advantage, others tried to lease
land or zone industrial land for commercial use to evade the high land conveyance
fees.
At the same time, central ministries, such as the Ministry of Land and Resources
and the Ministry of Construction (Ministry of Housing and Urban Rural
Development after 2008),
15
have transferred specific regulatory powers to their
local functional departments. In this way, these and other government agencies
maintain a say in their specific fields throughout the development of an RE project.
Getting an RE project approved often means sending bribes to every bureaucrat
11. Susan Rose-Ackerman, Corruption: A Study in Political Economy (New York, NY: Academic Press, INC.,
1978), pp. 171182. Sequentially organized bureaucracy means applicants of a project must approach bureaucrats in
an ordered sequence (p. 171).
12. Ibid., p. 138. Here we assume that all the applicants are legally qualified to receive the benefit.
13. Ting Gong, ‘Dangerous collusion’, p. 88.
14. A firm could bribe each government agency separately, but very likely it will have to bribe several relevant
agencies. If a firm has a wide connection in government, it could also bribe to organize a collusion of several
government agencies.
15. Ministry of Construction merged into the Ministry of Housing and Urban– Rural Development in 2008. The
names of its local branches were also adjusted accordingly, but the main function on urban and rural development and
construction remains.
JIANGNAN ZHU
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in the chain, which has created a ‘grey cost’ of an estimated 15% of the total
project cost.
16
It should also be noted that though corruption might still be somewhat
monopolized via kickbacks that different departments give to local party secretaries,
complete monopoly is not very likely due to the high turnover rate of mayors and
party secretaries at local levels.
17
Therefore, RE corruption has become more
widespread, at least when measured by the number of officials involved, despite
market and government regulation reforms (see Figure 1).
In other words, corruption not only spreads from one industry to another while
economic reform intensifies, as previous studies have shown, but it also relocates
from one government sector to another during a particular industrial reform and
during government clarification of jurisdiction over the industry: ‘The institutional
cleavages and fragmentation that so often give rise to corruption and other
pathologies of the state could shift from horizontal, geographical lines to vertical,
functional ones’.
18
In the RE industry, since manipulation of land transaction has
been made harder, and companies search for new avenues of influence, RE corruption
has spilled over from local governments and land administration departments to other
agencies, such as the department of urban planning. Similar situations also exist in
other industries, such as the finance and pharmaceutical industries. While a new
government agency, the State Food and Drug Administration (SFDA), was founded
to better regulate the pharmaceutical industry, it actually created new opportunities
for corruption and led to the infamous case of Zheng Xiaoyu, the former director of
the SFDA who was executed in 2007 for corruption and possibly tainted products in
China.
Formal management system of the RE industry
The current Chinese RE industry was made possible by reforming the socialist
housing system and commercializing urban housing. By the late 1990s, urban
housing was mainly allocated by work units either for free or with subsidies. In July
1998, the State Council announced the termination of welfare allocation of public-
owned housing, ordering the work units to grant housing allowances to employees
and let them purchase public-owned housing.
19
It also urged the establishment of the
RE industry as an economic backbone for the state. Since then, housing privatization
has become mainstream policy, leading to a rapid growth of the housing market and
the urban RE industry. The added value of the RE industry rose from 1.8% of Gross
16. Zhu Hongjun, ‘Fangdichan laoban jiemi nadi xu jingong, yougongzhang de difang jiuyou fubai keneng’ [‘RE
bosses disclose that bribes are needed to acquire land, whenever there is the need to get government signatures, there
is the possibility of corruption’], Nanfang zhoumo [South China Weekend ], (23 November 2006), available at: http://
view.news.qq.com/a/20070131/000021.htm.
17. See Pierre F. Landry, Decentralized Authoritarianism in China: The Communist Party’s Control of Local
Elites in the Post-Mao Era (New York, NY: Cambridge University Press, 2008), ch. 3, for the turnover of high-level
generalists.
18. Andrew C. Mertha, ‘China’s “soft” centralization: shifting tiao/kuai authority relations’, The China Quarterly
184, (December 2005), p. 791.
19. ‘Guanyu jinyibu shenhua chengzhen zhufang zhidu gaige jiakuai zhufang jianshe de tongzhi’ [‘Notice
regarding further deepening urban housing system reform and acceleration of housing construction’], the State
Council, (3 July 1998), available at: http://www.law110.com/law/guowuyuan/2025.htm.
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Domestic Product (GDP), or Y32.5 billion, in 1990 to 4.5% in 2004. RE investment
reached Y2,144.6 billion in 2006, accounting for 23% of total investment.
20
The development of an RE project generally includes four major steps: acquiring
land !applying for and obtaining requisite certificates and permits from various
government agencies !construction !sales.
21
During this process, the state plays
assorted roles at different levels, through several agencies: it is the land supplier,
project supervisor, and quality evaluator. At the top, the State Council exercises the
right of ownership of land and makes the major decisions, policies, and regulations
concerning the disposition of land. The Ministry of Land and Resources and the
Ministry of Construction provide professional opinions to the State Council and make
supportive rules. These central organizations oversee macro land utilization policy by
defining the general purpose of land at the national level, setting quotas for annual
land conversion, and inspecting the implementation of local land plans.
The local government exercises the actual disposal right of land by making
important decisions concerning land supply, transaction modes, zoning, prices, and
the requisition of land at the local level, within the autonomy given by its higher level
governments. The local branches of the functional departments, reporting to their
upper levels professionally and to the local people’s government administratively,
manage an RE project mainly by issuing various certificates and permits to a
company. Figure 2 sketches the general governmental structure of the industry.
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Figure 1. Officials involved in RE corruption as percentage of officials in all newspaper-reported
corruption, 19952007.
Note: The number of corrupt officials in the data set increases from year to year. The percentage line in
Figure 1 indicates that RE corruption has become a major form of corruption in China and involves more
and more officials.
Source: All the corruption cases disclosed by major Chinese newspapers between 1995 and 2007. I thank
Professor Guang Zhang for providing the data set.
20. Hiroshi Sato, ‘Housing inequality and housing poverty in urban China in the late 1990s’, China Economic
Review 17, (2006), pp. 3750. For more on housing reform, see Bill Adam, ‘Macroeconomic implications of China
urban housing privatization, 19981999’, Journal of Contemporary China 18, (November 2009), pp. 881888; and
Neil Gibson, ‘The privatization of urban housing in China and its contribution to financial system development’,
Journal of Contemporary China 18, (January 2009), pp. 175184.
21. This classification only includes the major steps of an RE project. It should be noted that lots of corruption and
infringement on basic human rights have occurred in the controversial process of dismantling existing houses and
relocating existing residents. Also, corruption in construction is probably more serious in the public investment
projects.
JIANGNAN ZHU
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The Chinese urban open land market, formed after the separation of ownership
and land use rights in 1988, has a three-tiered structure as shown in Figure 3.
22
The
primary market represents the first-hand conveyance of land use rights to state-owned
land in urban areas and to the land in rural areas which has been converted from
State Council
Ministry of Construction Provincial/CAM* People’s
Government Ministry of Land &
Resources
CAM
Bureau
of Urban
Planning
CAM
Bureau of
Land&
Housing
Management
CAM
Construction
Commission
Provincial
Bureau of
Construction
(ting)
Municipal people’s
Government Provincial
Bureau of
Land &
Resources
Management
CAM Bureau
of Land &
Housing
Management
Municipal
Urban
Planning
Bureau
Municipal
Land &
Housing
Bureau
Municipal
Construction
Bureau
County Gov’t. Municipal
Land &
Housing
Bureau
Land Bank
Land Ttrade
Center
Central level
Prefecture
Level
Provincial
Level
Figure 2. Structure of the land and construction systems.
Note:*CAM: Centrally Administrated Municipalities, i.e. Beijing, Tianjin, Shanghai, and Chongqing.
Transfer Tender
Agreement Auction
Listing
State – Land Reserve
State – the Landowner
Development Company
Land User Land User
Primary Market
Secondary Market
Tertiary Market
Land User
Reclaim unused land
Figure 3. Structure of the land market in China.
Note: The figure partially refers to Figure 5.1 in Li Ling Hin, Privatization of Urban Land in Shanghai
(Hong Kong: Hong Kong University Press, 1996), p. 44.
22. Li Ling Hin, Privatization of Urban Land in Shanghai (Hong Kong: Hong Kong University Press, 1996),
pp. 4345.
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collective ownership to state ownership through requisition. The state, as the only
grantor at this primary level, decides how much land will be supplied based on the
overall plans and the benchmark price of land. This provides a guideline for the
negotiation of land price and influences the final transaction price when a specific site
is about to be dispensed by the authority.
23
At present, by the notice of the Ministry of
Land and Resources in 2002, land for profit-making should be sold by open TAL.
24
The grantee in the primary market is usually a development company, which can
renew the leasehold upon payment of renewal fees when the term expires (i.e. 70
years for residential and 50 years for industrial) even if de jure privatization of land
is still not allowed.
25
The secondary market governs the transfer of land use rights
from development companies to land users, such as commodity housing residents,
after a certain level of development has been completed. The tertiary market is for
horizontal transfer of land use rights among different land users.
New regulations have been implemented to strengthen the state monopoly of land
supply in the primary market. Companies must now meet two conditions before re-
selling the land. The first condition is that they must make complete payment of the
land conveyance fee and obtain the ‘land use rights certificate for state-owned land’
(tudi shiyong quan zhengshu ). The second condition is that they
must spend at least 25% of the total stipulated development costs; in other words, the
land must be improved before it can be transferred in the secondary market.
26
Such
restrictions are intended to deter the type of land speculation seen in Hainan Province
during the early 1990s.
Under the new regulations, the state maintains the right to reclaim land. The Urban
RE Management Law requires that development companies must carry out
construction on time; otherwise a ‘land waste fee’ of up to 20% of the conveyance fee
may be levied for each one-year delay. The state may also requisition the land
without compensation if construction is delayed for more than two years.
27
Additionally, as required by the State Council since 2001, most cities have set up a
land reserve system for land sale.
28
This system requests that the municipal land and
resource management bureaus establish a ‘land bank’ and a ‘land trade center’. The
former is responsible for obtaining and reserving land for primary market transaction,
while the latter is responsible for managing the open trade of land.
23. Ibid., pp. 7177. A benchmark price is ‘the average price level established within a specific time period in a
particular area/locality for a particular land use’. It includes several elements, i.e. conveyance fee, payment for
infrastructure development in the neighborhood, and the compensation payment for the sitting tenants.
24. Guotu ziyuan bu guanyu jinyibu tuixing zhaobiao paimai churang guoyou tudi shiyongquan de tongzhi [Notice
from the Ministry of Land Resources about Further Impelling Open Auction and Tender of Use Rights of State-Owned
Land ], Ministry of Land Resources (MLR), (27 December 2004), available at: http://www.mlr.gov.cn/zwgk/flfg/
tdglflfg/200412/t20041227_63696.htm; and Zhaobiao paimai guapai churang guoyou tudi shiyongquan de guiding
[Regulations of Transferring the Use Rights of State-Owned Land by Open TAL ], MLR, (6 April 2005), available at:
http://www.mlr.gov.cn/zwgk/flfg/dfflfg/200504/t20050406_66761.htm.
25. Section 41, Chapter VI of the 1990 Ordinance of Conveyance and Transfer of Land Use Rights.
26. Chapter IV, Article 38 in the Urban Real Estate Management Law, MLR, (25 June 2004), available at: http://
www.mlr.gov.cn/zwgk/flfg/tdglflfg/200406/t20040625_395.htm.
27. Article 25, Chapter III in the Urban RE Management Law.
28. Guanyu jiaqiang guoyou tudi zichan guanli de tongzhi [Notice about Improving Management of State-Owned
Land Resources ], Chinese Academy of Sciences (CAS), (30 April 2001), available at: http://www.cas.cn/html/Dir/
2001/04/30/5769.htm.
JIANGNAN ZHU
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Corruption in land transfers
Most corruption in the RE industry occurs during the process of transferring land
use rights. As mentioned previously, corruption at this stage has adapted to reform of
land transaction modes, which has evolved from administrative allocation to market
transfers. Corruption during land transaction is mainly concentrated in the local people’s
government and in the local land management department, as the former holds the actual
legal rights to dispose of land locally and the latter executes the disposal rights in
practice. Of the officials involved in real estate corruption cases during the period 1995 –
2007, as disclosed by newspapers, 46% worked in land management departments. This
percentage is the highest among all the functional units.
29
Administrative allocation of land
Most corruption during land transfers is related to the ‘dual-tracks’ of market and non-
market systems of land distribution, similar to the notorious ‘official profiteering’ in the
1980s caused by the ‘dual-price system’. Apart from the market system, if the project is
public or non-commercial in nature, the developer can apply for free land through the
old administrative land allocation system (huabo ). This creates both incentives
and opportunities for corruption because in reality the purpose of land is up to the
prerogative of the local leaders and the allocation system is selected without oversight.
The worst type of land allocation corruption occurs when local officials arbitrarily
give away land for free, utilizing their power of administrative approval. The most
infamous example is probably the ‘Mu & Ma Case’ in Shenyang, where both the
party secretary Mu Suixin and the deputy-mayor Ma Xiangdong of the capital city of
Liaoning Province were prosecuted for corruption in 1999. One of their crimes was
approving a huge plot of land in a business center for free to the head of a local mafia
group after accepting Y2 million and US$170,000 from him. The real value of that
land was at least Y350 million.
30
In this kind of case, land is usually distributed under
the guise of public or non-profit use, e.g. intended for economical and comfortable
housing for low-income families. After receiving the land, the developers then either
re-sell the land in the secondary market or build high-priced commodity housing.
The other type of corruption related to administrative allocation is participation in the
RE business by local governments and government organizations themselves. Some local
governments sell or lease land, which is originally allocated and planned for public use, at
the market price, earning higher profits, while sacrificing the supply of land intended for
infrastructure and long-term economic development. Other local governments carry out
actual RE development by themselves or initially in cooperation with development
companies and then sell or lease the buildings to the public.
Corruption of this type is partially caused by murky property rights regarding
allocated land. In the past, public organizations, such as state-owned enterprises
29. The data source is the same as Figure 1. In this dataset, beside land management departments, urban planning
is another very problematic area. Some 12% of officials worked in urban planning departments, while 42% of officials
worked in various other departments.
30. ‘Tudi churang fubai pinfa yuanyin hezai’ [‘Why does corruption frequently occur in land transfers?’], Jiancha
ribao [Procuratorial Daily ], (published 28 August 2007), available at: http://www.sclr.gov.cn/800/news/detail.
asp?img ¼&ID ¼2800.
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(SOEs), military units, hospitals, and schools, were given the right to use and manage
the land allocated to them. They also ‘acted as the de facto owner who could make
decisions about exchange and transfer of the land they occupied’.
31
The Land
Management Law, revised by 1998, stipulated that all administratively allocated land
parcels needed to be transferred to the government before being leased out to
developers.
32
Still, the situation did not change immediately. For instance, the head
of Jiangsu Provincial Bureau of Land Management noted in 2001 that some state-
owned mineral resource districts profited by letting development companies build
commodity housing on land allocated to the district. He noted that by 1999 only 60%
of the SOEs had disposed of the land allocated to them in the manner required by law
during the SOE reform. These kinds of illegal land transactions cost the province
about Y10 billion.
33
Operation with transfer agreements
In the urban land market system, land use rights could be transacted through transfer
agreements (xieyi zhuanrang ) and open TAL. However, by 2003, 95% of
land around the country had been transferred at low prices by private agreements
signed between local governments and RE developers; only 5% of land was sold
publicly at competitive prices by TAL.
34
Corruption is the main reason leading to the
significantly disproportionate usage of transfer agreements.
First, free entry into the land market is often blocked to reserve profit-making
opportunities to selected companies. Theoretically speaking, if land is sold on the
market, information such as the benchmark price, the location, and the final
transaction price, should all be publicly announced regardless of which transaction
mode is in use. Nevertheless, transparency merely existed on paper as information
remained accessible to selected individuals. Further complicating the issue, some
local governments published advertisements of land availability only in certain
newspapers with limited circulation or released the information solely to persons
close to them. This made truly open TAL impossible and most land was sold by local
governments to development companies through agreements unknown to the
public.
35
For instance, with these transfer agreements, industrial land always went to
large enterprises while small and medium-sized enterprises had no chance to
compete. A CEO of a small electronics company complained, ‘Before open TAL was
practiced in Shenzhen, we had no idea how to get land from which government
departments at all’.
36
31. You-tien Hsing, ‘Land and territorial politics in urban China’, The China Quarterly 187, (September 2006),
pp. 575591 at p. 580.
32. Ibid., p. 583.
33. Yang Renyuan, Jiada tudi shiyong zhidu gaige lidu [Strengthen the Land Use System Reform ], Development
Research Center of the State Council, available at: http://report.drc.gov.cn/drcnet/corpus.nsf/c5941e2eb28628344825
6538000d3426/01ea8b61a9517907482569ee0012076b?OpenDocument.
34. Zhu Hongjun, ‘RE bosses disclose that bribes are needed to acquire land’.
35. PHIN02/22/2008/TJ, phone interview conducted in East Lansing, MI on 22 February 2008, interviewee is in
Tianjin.
36. Zhou Tao, Yang Jingchun and Chen Wenya, ‘Shenzhen gongye quandi diaocha’ [‘Investigation on industrial
land enclosure in Shenzhen’], Jingji guanchabao [Economic Observer ], (6 April 2006), available at: http://house.
sina.com.cn/news/2006-04-06/1137123175.html.
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Private negotiations left room for black box operations, such as reduction of land
conveyance fees. An example is Wang Huaizhong, the former vice-provincial
governor of Anhui, who took a huge amount of bribes from RE developers. Between
1995 and 1997, he intervened in the decision making of several departments,
reducing infrastructure fees of Y1.023 million that Guoyin Investment Corporation
should have paid for their project. In July 1997, Wang took AU$10,000 given by the
president of Guoyin when Wang sought foreign investment for Anhui in Australia.
From 1997 to 1999, Wang took four bribes, totaling Y400,000 from the managers
of Fuyang Huixin Development Ltd, and helped them get land with a lower
conveyance fee.
37
Changing the purposes of land is another common trick in private transactions.
Usually land for industrial use is sold at a much lower price than land for housing
and commercial usage. Some RE developers, in hopes of gaining an advantage, bribe
the bureaucrats in land administration departments to re-zone the commercial
land as industrial land, and sometimes even as ‘unused land’. One of my interviewees
disclosed that if land was sold by transfer agreements, floor areas could also be
deducted, enabling companies to pay much less money. In open TAL, by contrast,
this would be almost impossible.
38
Changing the purpose of the land also helps
developers obtain land that is impossible for them to buy if the originally defined use
does not change. Some developers, after learning that an area is scheduled for urban
development, will lobby the government to convert the land from agricultural or
industrial use into commercial use in order to make huge profits.
Initiating the open tender, auction, and listing of land (TAL)
The State Council encouraged local governments to use open TAL for land
transactions as early as 1999. Most local governments just ignored the order,
however, claiming that conditions for open trade were not yet satisfied. In 2002, the
Ministry of Land and Resources issued the Regulations of Transferring the Use
Rights of State-Owned Land by Open TAL. These regulations required open TAL
from 1 July 2002 for all profit-making land transactions, including commercial,
tourism, entertainment use, and commodity housing.
39
These regulations explicitly
demonstrated the central government’s intention to promote open market transfer of
land, and therefore denoted a new stage in the evolution of the Chinese RE industry.
Transfer agreements were essentially banned for commercial land transfers.
Yet local governments implemented the central government’s decision only
reluctantly. For instance, while the Beijing Municipal Government, on the one hand,
ordered a stop to transfer agreements in general, on the other hand, it still allowed
private deals for some projects, such as environmental insulation areas, construction of
little townships, commercial buildings closely related with large public projects, and
37. The Central Disciplinary Inspection Committee (CDIC) of the Seventh Disciplinary Inspection and
Supervision Office, ed., Jiada chaban anjian gongzuo de lidu yancheng fubai fenzi—chaban Wang Huaizhong anjian
zhuanji [Increase the Strength of Case Investigation, Harshly Punish Corrupt Officials—Special Documents on
Investigation of the Case of Wang Huaizhong] (Beijing: China Fangzheng Publication, 2004), pp. 84 –85.
38. PHIN07/09/2007/TJ, conducted in East Lansing, MI.
39. Regulations of Transferring the Use Rights of State-Owned Land, MLR, (6 April 2005), available at: http://
www.mlr.gov.cn/zwgk/flfg/dfflfg/200504/t20050406_66761.htm.
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those approved by the government.
40
This actually put off the implementation of open
trade of land and left the window open for the continuation of transfer agreements.
Transfer agreements did not cease nationwide until September 2004. On 31 March
2004, the Ministry of Land and Resources, together with the Ministry of Supervision,
issued Notice No. 71 about Continuing Law Enforcement and Supervision Work on
the TAL of the Use Rights of Commercial Land. This notice stressed strengthening
the supervision of land transactions and the punishment of illegal transactions. It
set 31 August 2004 as the deadline for local governments to clear out all land use
rights problems caused by previous illegal transactions, threatening reclamation of
improperly handled land parcels.
41
This policy finally led to the decline of transfer
agreements and made open TAL more formally practiced.
Manipulation under open TAL
All of my interviewees perceive that corruption has definitely been reduced under
open TAL, especially in large cities where most information is openly posted on the
local land management bureau’s official website or is listed in the land trade center.
However, the interviewees also point out that a form of ‘fake’ TAL, or TAL which is
not truly open to competition, still widely exists in smaller cities and counties. One of
my interviewees, doing business in a large municipality, said, ‘as far as I know, no
open TAL is real. Entering the land trade center, you will find no strangers there. In
fact, don’t even think about participating in TAL if you are an outsider’.
42
Similarly,
a supervising officer within the Ministry of Land and Resources remarked, ‘though
overt violation of state orders is rare in recent years, and most local governments dare
not to sell commercial land by transfer agreements, fake TAL still exists’.
43
The main technique employed in this fake TAL is to lift the bar of entry, such as
requiring firms to hold at least a certain amount of capital or have certain ratings,
ensuring that only limited firms can compete. Sometimes middlemen are hired by
companies to ‘coordinate’ the relationship with the government in order to make sure
that other competitors would be filtered out by the entry conditions imposed by the
government. Very often, only one or two qualified firms are left for the ‘open’
competition and the winner is predetermined. Sometimes, the local government might
even tell the firms to make a deal among themselves before the bidding opens.
44
Evident collusion in open TAL becomes dangerous as supervision and law are now
more strictly enforced. If firms are found colluding, fines of up to twice the conveyance
fees might be assessed by the police department’s economic office. Nowadays
40. Guanyu tingzhi jingyingxing xiangmu guoyou tudi shiyongquan xieyi churang de youguan guiding
[Regulations about Stopping Transfer Agreement Transaction of Use Rights of Commercial-Use Land], CAS, (26
June 2002), available at: http://www.cas.cn/html/Dir/2002/06/26/0036.htm.
41. Guanyu jixu kaizhan jingyingxing tudi shiyongquan zhaobiao paimai guapai churang qingkuang zhifa jiandu
gongzuo de tongzhi [Notice about Continuing Law Enforcement and Supervision Work on the TAL of the Use Rights
of Commercial Land ], (3 September 2004), available at: http://www.soufun.com/news/2004-09-03/318325.htm.
42. PHIN02/12/2008/TJ.
43. Buzhifa jianchaju fujuzhang Zhang Pu tan jiaqiang zhidu jianshe, fandui tudi fubai wenti [Vice-Director of the
Supervisory Bureau Inside the Land Ministry, Zhan Pu Talks about Increasing Legal Building, Anti-Land Corruption
Problems ], MLR, (published 30 October 2007), available at: http://www.mlr.gov.cn/zxft/2007/071029mayi/
071029zhibotupian/200710/t20071030_660178.htm.
44. PHIN02/23/2008/JX, conducted in East Lansing, MI, interviewee was in Jiangxi Province.
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corruption has to be invisible. Some local governments merge several smaller land
parcels into a large one, so that the land has to be sold at a price high enough that only
the wealthiest firm can afford it. This kind of manipulation is usually limited to small
cities and counties having few large companies. Local governments can easily justify
this tactic with the excuse that only Firm A or B can offer a magnificent and beautiful
project. My interviewee said this trick does not play well in large cities, where direct
government intervention in open TAL is much harder. Under the current system, local
governments in large cities could, at most, reduce various fees and taxes for a
development firm. Some local governments provide infrastructure to development
companies by building road networks connecting newly developed commercial
residential areas with the inner part of the city, which greatly raises the value of the
land.
45
Hence, special business government relations could also result in the
provision of public goods and developmental government, as it did in South Korea.
46
Since open TAL of commercial land has become more formalized, local
governments and development companies have started to look for loopholes in the
system. Two methods are mainly used. One method is to enclose industrial land by
transfer agreements at low prices and then transform it to commercial use later,
saving the extra costs caused by open bidding. The other method is to lease land so as
to avoid the expensive land conveyance fees.
Corruption in land acquisition is mainly caused by the government’s control over
land prices, the most influential factor in the interests of the developers. A president
of a company in Hainan province said:
No matter if land is sold by private or open transfers, the basic price is totally determined by
the pen held by the leader sometimes ... If local officials could bring me Y50 million in
profits by lowering the prices of land, I would happily take out Y20 million or even more as
returns for them ... So ever since 1992 when I entered the business, I have always paid my
‘tribute’ to the local government whether in Shenzhen, Guangzhou, or Hainan.
47
Another interviewee revealed, ‘The primary consideration for us is to have strong
financial backups and great government relations. Usually, with the support of the
local department of land administration, we will be able to get land at a low price’.
48
Nevertheless, manipulations in land transactions have become difficult today,
especially in large cities where the importance of land management departments has
therefore faded a bit. Consequently, urban planning departments have become a new
focal point in RE corruption.
49
Corruption spilling into urban planning
Local bureaus of urban planning are influential for several reasons. First of all, they
issue two permits to the companies that have acquired land, ‘the land for construction
planning permit’ (tudi jianshe guihua xukezheng ) and ‘the
45. PHIN02/16/2008/JX, conducted in East Lansing, MI.
46. David C. Kang, ‘Bad loans to good friends: money politics and the developmental state in South Korea’,
International Organization 56, (Winter 2002), pp. 177– 207.
47. Zhu Hongjun, ‘RE bosses disclose that bribes are needed to acquire land’.
48. PHIN05/23/2005/JX, conducted in Beijing, China, interviewee was in Jiangxi.
49. PHIN02/23/2008/NJ, conducted in East Lansing, MI, interviewee was in Nanjing.
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construction project planning permit’ ( jiangshe gongcheng guihua xukezheng
). Both are imperative to RE development and failing to get
them on time will result in the delay of the whole project. To gain these permits, a
project should meet several construction criteria set by the urban planning bureaus.
Some criteria are largely dependent on the preferences of the person in charge, such
as the design and the color of a building. Many entrepreneurs send bribes just to
ensure that the files will be processed on time or faster and that the construction
scheme will not be questioned for ambiguous reasons.
50
Second, the urban planning bureaus control three important standards in
determining the profits of a project, including the plot ratio, construction density, and
afforest rate. The most important among the three, the plot ratio, also called the ‘floor
area ratio’, is the ratio of the total floor area of the buildings on a certain plot of land
to the total area of the plot of land. For instance, if the plot ratio is three for a plot of
land with a total area of 10,000 square meters, then a developer can build a three-
story building totaling 30,000 square meters of floor area on this land, assuming an
equal area on each floor of the building; in other words, a building with three floors,
each with an area of 10,000 square meters.
51
The plot ratio, aimed at limiting the volume of construction and protecting the
residential environment in a certain area, is usually decided by the government before
land transfers. However, investors always want to bargain for a higher number, as a
1% ‘error’ might bring them a million-dollar increase in returns. One CEO said,
Whether I could build 0.1 million sq. meters housing or 0.12 million sq. meters housing
[on a certain plot] will make a huge difference to me. If I can sell a condo at Y2,000 per
sq. meter, an area of 10,000 more sq. meters means extra Y20 million revenue. I would
therefore like to use all means to build a good government relation.
52
Seeing opportunities for profit, some RE developers buy land with small plot ratios
at a low price, use connections to adjust the number to make it higher, and then re-sell
the land at a higher price. Although the price has increased, the land remains highly
desirable because buyers can make still greater profits with higher plot ratios on the
land. The middlemen previously mentioned have also moved to a new business as
open TAL is widely practiced. They make land ‘produce’ a greater value by utilizing
their relations with government officials to change the plot ratio of the land.
Both the central and local governments have tried to control this problem by
improving regulations on urban planning. Though significantly altering the plot ratio
for a firm is relatively hard now, for a finished construction project, one-tenth to two-
tenths of a percentage point increase in the ratio is very difficult to detect; ‘And
government supervision highly depends on the person in charge, or actually depends
on how much money we send to them’, said a developer.
53
Many officials in urban
planning departments have been found taking bribes and adjusting the plot ratio for
RE companies in recent years. For example, in Kuming, the capital city of Yunnan
50. Ibid.
51. Dichan gujiazhong rongjilv xiuzheng xishu de queding [How to Determine the Correction Index of Plot Ratio
in RE Appraisal ], (published 21 August 2006), available at: http://www.studa.net/caiwuqita/060821/14271817.html.
52. Zhu Hongjun, ‘RE bosses disclose that bribes are needed to acquire land’.
53. Ibid.
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Province, three consecutive directors of the urban planning bureau—Li Zhaode, Hu
Xing, and Zeng Hua—were caught for corruption between 2002 and 2007.
54
The
head of the disciplinary inspection committee of Nanjing has estimated that if the
problem of plot ratio is solved, corruption in the urban planning area could decrease
by at least between a third and a half.
55
Group corruption as an outcome of more official players
Besides local people’s government, the land administration and the urban planning
bureaus, several relatively obscure agencies with very specific functions can also grab
a share of the profits from an RE project by their power to influence the passage or the
speed of passage of a project. For instance, to get the ‘construction permit’ (shigong
xukezheng ) from the construction bureau, a project must first meet
various requirements. It has to register with and get approvals from the civil air
defense bureau, the fire department, the environmental protection bureau, the
gardening and greening bureau, the transportation bureau, and the civil affairs bureau.
To sell or pre-sell housing, a firm needs to first apply for a ‘sales/pre-sales permit’
(xiaoshou/yushou xukezheng ) from the price management bureau
in order to have prices approved; apply for a ‘housing property rights ownership
certificate’ ( fangwu chanquan suoyou zheng ) from the housing
management bureau; and of course, when complete, the project will be evaluated by
all related government agencies. Figure 4 presents a simplified illustration of the
permits and certificates procedure.
Many RE developers believe it to be worth the extra expense to simply save some
time in the various departments. If each department delays an application by one or two
days, the whole process could take one or two months longer, hindering the back-flow
of capital. The principal means for the developer to speed things up is to buy off
everyone in charge, even if it means paying the same department repeatedly, for the
one who approves a project is often not the one who inspects the completed project.
Consequently, RE corruption often includes groups of officials in different government
departments simultaneously. A case uncovered in Anqing City, Anhui Province,
provides such an example.
In early 2001, the Hongcheng Company prepared to develop a residential area on a
parcel of land occupying an area of 35,000 square meters, acquired partially through
administrative allocation and partially by market transactions. Accordingly, the
company should have built both inexpensive and commodity housing on the land.
However, in an effort to get his money back sooner, Hongcheng’s president, Wu
Zaiqiao, decided to pre-sell the uncompleted inexpensive housing, though he had not
yet obtained the land use right certificate. Wu first spent Y70,000 buying off an office
head inside the price management bureau, Zhou Ende, who helped Wu funnel money
54. ‘Guihua juzhang qian “fu” hou ji: guihuabu cheng fubai gaofaqu’ [‘Urban planning bureau directors were
corrupt one after another: urban planning becomes high corruption sector’], Jiangnan shibao [Jiangnan Times ],
(17 May 2007), available at: http://review.jcrb.com/200802/ca679820.htm.
55. ‘Bugu baixing liyi guihua guanyuan sigai rongjilv’ [‘Regardless of people’s interests, planning officials revise
plot ratios privately’], Nanjing chenbao [Nanjing Morning Post], (11 August 2005), available at: http://view.news.qq.
com/a/20070131/000028.htm.
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to several officers in the bureau and helped get the housing price approved. These
officers also eliminated the Y100,000 fines that Hongcheng should have paid for rules
violations. After Zhou retired, he joined Hongcheng to help build government
relations employing his wide personal network within the government. Zhou and Wu
brazenly sent money directly to several officials in their offices in front of their
subordinates. They also went to the homes of some officials during holidays to show
their ‘little kindness’.
Between 2001 and 2004, the vice director of the urban planning bureau of Anqing
accepted Y100,000 in bribes and helped Hongcheng’s project pass the urban planning
quality test, although the project violated the regulations in several ways. Two leaders
in the civil defense office accepted bribes of Y150,000 and Y80,000, respectively, in
Land use rights certificate for state-owned
land
Land for construction planning permit &
construction project planning permit
(local urban planning bureau)
Various permits from the office of civil air
defense, fire department, greening office,
transportation bureaus, etc.
Construction permit
(local construction commission or bureau)
Letter to pre-sell/sell housings
(price appraisal by the price management)
Permit to pre-sell/sell housings
(local housing management bureau)
Quality inspection and quality certificate
(various government agencies)
Housing property rights ownership certificate
(local housing management bureau)
Figure 4. Simplified steps of permits and certificates for a RE project.
Source:Fangdichan xiangmu kaifa liucheng [RE Development Procedure ], (published 20 April 2007),
available at: http://www.fangce.net/Article/yingxiao/quancheng/200704/498.html, and interview notes.
Real procedures include back and forth between different departments.
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addition to approving another residential project carried out by the company, though
it did not meet the civil defense office’s standards. The director of the construction
commission received Y50,000 to reduce the compensation fees for Hongcheng by up
to Y280,000. Finally, the director of the housing management bureau reduced several
fees for the project and urged rapid processing of its files after receiving Y50,000
from the company.
56
When investigation of the case was concluded in June 2005, 19
officials were found to have been involved—11 of whom were at the bureau level:
variously from the municipal construction commission and the urban planning, price
management, civil defense, and housing management bureaus.
57
This case represents a common practice in the RE industry, that is, to ‘please
everyone in charge’ because any official player can stop or affect a project, although
he/she might not be able to help approve the project. All of my interviewees noted
that it is very important to maintain good relations with each of the relevant
government agencies, especially their leaders. One businessman admitted:
You have to maintain good relations with them just so not to be bugged by them and other
[organizations]. Of course, if you want to do something violating the rules, you have to
pay more ... Usually how much benefit you give the officials depends on how much
profit you can make from a project.
58
The means to cultivate good government relations vary in different localities. In
small places, it is still possible to build up relations using money. Officials are more
cautious now; they will not accept sums above Y5,000. In large cities, government
officials usually dare not accept bribes, particularly from large shareholding
companies, because of government anti-commercial-bribery campaigns and the
relative transparency of shareholding companies. ‘They might at most go out for dinner
with those companies’, an interviewee remarked. ‘Indeed, the really large companies
need not bribe government officials, since they have abundant capital.’
59
However, invisible bribery or ‘grey’ corruption (i.e. semi-legal practices) is quite
prevalent based on the observations of the interviewees.
60
One of the businessmen
said, ‘Today it is pretty stupid to send money directly to cadres. The best way to win
their support is to let their family members undertake part of the construction project,
giving them something sweet from the project’.
61
Another insider echoes this
comment:
For example, giving all the windows and doors business to their relatives would be OK,
not necessarily breaking any rules or laws. President Bush did something similar,
granting projects to his friends, right? Sometimes, even those large development
companies have to share their projects with the officials in this way.
62
56. Wu Yihuo, ‘Toushi fangdichan xiangmu yunzuo neimu shenpi huanjie cheng huilu jiedian’ [‘Examine the RE
project operation, administrative approval stages offer chances of bribery’], Jiancha ribao [Procuratorial Daily ],
(15 August 2005), available at: http://view.news.qq.com/a/20070201/000002.htm.
57. Ibid.
58. PHIN02/16/2008/JX.
59. PHIN02/23/2008/NJ.
60. For the concept of ‘grey corruption’, refer to Zengke He, ‘Corruption and anticorruption in reform China’,
Communist and Post Communist Studies 33, (2000), pp. 243 270.
61. PHIN02/16/2008/JX.
62. PHIN02/23/2008/NJ.
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Conclusion: the ineffective control of RE corruption
The preceding provides an in-depth study of how corruption enters the formal institutions
of the Chinese RE industry. In the past decade, the center has gradually determined that
an open urban land market should be established within a legal framework and it has
clarified the power distribution between the central and local governments, as well as
among various functional government agencies. In general, the central government and
the higher levels of local government, such as provincial and municipal governments, are
expected to act more as supervisors of lower level governments and to decentralize more
power to the functional departments. As an unintended consequence, RE corruption has
evolved into new forms and spilled into these lower level administrations. It has spread
from the local people’s government to various bureaucratic governmental units as these
government agencies have become empowered by the reforms, leading to greater group
corruption. One policy implication of this research is that, in order to successfully reduce
corruption, parallel reform efforts across multiple complementary industries and
government sectors are needed. For example, reform of anti-corruption agencies should
coincide with reform of the RE industry.
In addition to the increasing number of official players, it is worth pointing out that
one particular factor in the ineffective control of RE corruption lies in the incentives for
local government officials, though this is a subject for another article. Using the current
land approval and dual-management systems, local governments can easily intervene
in land management departments by determining the personnel and budgets of these
functional units. More importantly, local authorities also have strong incentives to
support RE investment and turn a blind eye in their monitoring of corruption. With the
drastic reduction in revenue flowing from the center, local governments have to look
for locally generated revenue to cover urban infrastructure, construction, welfare,
education, and other government expenditures. In this context, revenue from land is the
primary consideration—even called the ‘second public finance’ (di’er caizheng
) in some places—because of the huge contribution it has made to local
coffers within and without the formal budget.
63
In addition, the rising skyscrapers also
serve as ‘achievement projects’ for local officials in performance evaluations. Pressed
by fiscal urgency and motivated by political ambition, local governors seriously take
regional RE development into account. An interviewee said, ‘I have never seen any
local official who does not care about the RE industry’.
64
The contradiction between reform by the center and local incentives to seek rent
also intensifies the spreading reach of RE corruption. On the one hand, companies
must try to approach local administrators by all means possible to get their support
throughout the entire development procedure and to obtain land at low prices. On the
other hand, they have to pay their tribute to a multitude of officials, each in charge of
a specific issue, in all of the relevant departments, ranging from land management to
urban planning to numerous other government agencies. As a result, the costs
involved in RE corruption are extremely high.
63. See Hsing, ‘Land and territorial politics in urban China’, pp. 578 –579; land-related revenue was estimated to
occupy 30–70% of total revenue for all the sub-level governments in various municipalities in the late 1990s. See also
Tu Ya, ‘Yidi shengcai’ [‘Generating money by land’], Zhongguo gaige. nongcunban [China Reform. Rural Version],
(July 2004), p. 15.
64. PHIN02/23/2008/NJ; also see Hsing, ‘Land and territorial politics in urban China’, p. 582.
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... One issue frequently discussed in the media and academic literature is that municipal officials feel that they can engage with impunity in increasing their personal well-being by promoting large economic development projects. Commercial bribery is prevalent in land transfers and construction (Zhu 2012), and officials may feel they can get bribes or other illegal perks by promoting real estate development. This theory suggests that developers build skyscrapers because they are incentivized to do so by private gains that public officials seek to obtain. ...
... We also have measures of the number of corruption cases brought against city officials. The data we use is discussed in Zhu (2012). The data set covers every corruption case disclosed by major Chinese newspapers between 1995 and 2007. ...
... However, we find that the number of corruption cases is positively associated with the number of skyscrapers. This result is consistent with Zhu (2012) and Chen and Kung (2018) who document that corruption is serious and prevalent in the real estate development process from land transfers to construction. In Column (6), we add a lagged dependent variable as an additional control to see if there might be omitted variable bias. ...
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Since 1978, when China instituted economic reforms, cities throughout the country have embraced skyscraper construction. Despite their importance to the domestic economy, little is understood about what has been driving skyscraper heights and frequencies in China. This work explores the degree to which skyscraper construction patterns are the result of economic fundamentals, versus political factors and intercity competition. We find a strong economic rational across China, but we also find evidence of noneconomic factors. We show that incentives for political officials, such as career promotion, are helping to contribute to the growth in China’s skylines. We also find that small cities tend to overbuild skyscrapers. Spatial autoregression results further suggest some intercity competition, especially for those within the same tier.
... These changes in sub-national government incentives and latitude encouraged land development in both China and India. The lack of public scrutiny of land transactions, more so in China than in India, also created opportunities for local officials to line their own pockets, often in collusion with real estate developers (Zhu 2012). ...
... 5 Unregulated by higher-level governments, land conveyance fees are highly susceptible to corruption. Corruption in the real estate industry is a widespread problem that involves local governments and their various local functional units engaged in approval and implementation of projects (Zhu 2012). The lack of transparency in land transactions grants relatively unfettered power to local officials to decide how land proceeds are to be shared among villagers. ...
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Both China and India have witnessed extensive land expropriation by the state from farmers for use in industrialisation and urbanisation projects. Land conflicts have ensued from these developments. This article poses two questions: (i) Why do we see a similar escalation of land dispossession in both countries, despite their distinctively dissimilar political systems, one being a one-party authoritarian regime, the other being a multi-party democracy?; and (ii) How does the different regime type affect the politics of dispossession? Despite their diverse political institutions, government officials have been given similar incentives to chase growth by developing land, but the institutions create diverging environments for aggrieved citizens to mobilise for collective action. While it is unsurprising that the interests of the poor and weak are not protected in an autocracy, democracy provides no automatic safety valve in defending marginalised citizens either.
... On the other hand, from the local government's perspective (on behalf of public interests), it wants to lower the transaction cost and facilitate urban redevelopment progress in response to the city's changing economic and social demands. They also care about whether a redevelopment project can be completed in time, given that the delay of the project leads to land resources waste (Singh, 2010;Walker and Hin, 1994;Zhu, 2012) and even incurs social instability due to the involvement of numerous relocated households (Yu et al., 2017). In brief, the LRAD of the redevelopment project concerns the private and public interests the most. ...
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Urban redevelopment is a crucial prescription in response to the problems associated with limited land, urban decay, and fading buildings, especially for China’s megacities. Given that state-dominated urban redevelopment is slow and limited, the Chinese government has proposed a pioneering market-oriented approach to drive urban redevelopment in Shenzhen. This study seeks to examine the impacts of market-oriented institutional arrangements on land redevelopment approval duration (LRAD) in China from the perspective of public and private interests. Various institutional arrangements are observed under the institutional change of urban redevelopment in Shenzhen, and they are differed by the nature of the applicants, including the original property owners (old factory owner (OFO)), their representatives (e.g., village committees (VC) and the government agency involved in redevelopment (URB)), and developers (DP, second-hand property owner). A number of hypotheses are developed, and empirical tests are conducted to verify or dismiss our hypotheses with the data in Shenzhen. The empirical findings indicate that (1) The LRAD is the shortest when the applicant is the OFO and the longest if the applicant is the local government officials such as URB. (2) Compared with the URB, the LRAD is shorter if the VC is the applicant. (3) The LRAD is longer for the projects with a larger redevelopment scale and the projects with more dedicated public facilities. The findings shed new insights into the design and practical effects of market-oriented institutional arrangements on the progress performance of urban redevelopment, which can give the local government a timely reminder that they should examine and approve urban redevelopment schemes in a soundly planned and socially sustainable fashion.
... However, the actual situation is far worse on the ground. "Cementification" offers the opportunity for massive corruption [19][20][21]. The power game of who gets to build large projects and what typology will be applied is decided by political factors outside architecture. ...
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The world can learn two key lessons from spontaneous settlements: (i) design so as to adapt to human biology; and (ii) design to save energy. Timeless processes of urban growth and sustainability have forced societies to conserve energy. Yet, nowadays, a profession focused on design ideology and short-term profit discredits many economical and effective long-term design methods. Decision-makers, politicians, and urbanists talk of energy conservation while continuing to use failed notions of industrial urbanity in place of documented solutions that work. Most damaging is the myopic academic elite’s fixation on an unsustainable industrial-modernist visual vocabulary of minimalist forms. By promoting typologies based on images dating from the 1920s, instead of using scientific analysis, the industry serves extractive global imperialism rather than satisfying the world’s population needs. We should instead learn from how self-builders adapt form, geometry, materials, surfaces, and ornament to maximize the user’s emotional experience in an otherwise extremely challenging environment.
... In China, when the public land-leasing system was established in 1988, land could be leased for private use either by one-on-one negotiations or by the bid, auction and listing process. However, until 2002, most land was leased following one-on-one negotiations, which was less competitive and left substantial room for rent-seeking (Tao et al., 2010;Zhu, 2012). To address this problem, the central government since 2002 has required all commercial, residential, leisure and tourism land to be leased by the bid, auction and listing process, and since 2007, it has required industrial land to be leased in the same manner. ...
Article
Value capture in urban renewal is a controversial issue. The equality and efficiency of value capture in urban renewal is influenced not only by the percentage of value capture but also by transaction costs. A framework analyzing the transaction costs of value capture in the urban renewal process helps us understand how value capture mechanisms influence the outcomes of industrial land renewal. Our study found a new type of value capture mechanism in addition to active value capture under a public leasehold system: the value constraint mechanism. In the policy innovation of industrial land renewal in China, the government has used diversified active value capture tools in self-renewal to replace land-banking mechanism and have greatly reduced negotiation costs, but they have also increased the costs of maintaining the government’s legitimacy. As a result, the government introduced value constraint mechanisms to reduce legitimacy costs by putting constraints on land user, planning conditions and transactions to limit the land holders’ profit space and ensure industrial renewal generates the expected outcomes (for example, upgrading industry, stimulating technology R&D, providing jobs and taxation). However, these constraint mechanisms may once again increase information and enforcement costs and become the new main hindrance to renewal. A comparison of the policies of Shanghai and Shenzhen illustrate the government’s tradeoff between maintaining political legitimacy and reducing other transaction costs through combining different value capture mechanisms in industrial land renewal policies.
... Although no physical dispossession of land took place and villagers still held nominal property rights, the value extracted from their land was in reality seized by other claimants through non-transparent deals. The prevalence of under-the-table transactions in land resources has been widely reported in the literature (Yeh and Wu, 1996;Wong and Zhao, 1999;Lin and Ho, 2005;Zhu, 2012), and the PRNC case was by no means an isolated incident. ...
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The urbanization of rural China is increasingly achieved not through physical land grabs but the strategic enrolment of rural communities in the commodification of land via speculative rentiership. This article critically examines this shift in approach from the deployment of extra‐economic force in state‐led land expropriations toward an increasing reliance on market mechanisms in land development. A case study, the construction of a financial district in peri‐urban Guangzhou, shows that the enrolment of village communities is achieved through their cooptation as corporatist market players in regimes of rent‐based accumulation. While the apparent use of voluntaristic market exchange has reduced the need for coercion, however, the commodification process has at the same time created new terrain for dispossessory practices whereby value is illicitly extracted and seized by elites through rent relations. The shift from overt land grabbing to more covert mechanisms of value appropriation has important implications for rural class relations and contentious politics.
Article
The allocation of land resources is a crucial issue in sustainable urban development, but it is subject to the vagaries of public governance. By using the prosecution of corrupt local leaders as the shock event, and exploring the data on sacked officials and land transfers in prefecture-level cities in China from 2006 to 2016, we analyse the changes in the supply of land in response to the ousting of key local officials for corruption. The estimations derived through the identification strategy of the DID framework show that both the volume and value of land sales dropped significantly after the local officials’ ousting, with the value of total land sales reacting to a much greater extent. We also found the reduction of land supply was mainly from commercial and residential land but a greater supply of land for public use following the local leaders’ ousting, accompanied with an increase in the level of marketisation in the supply of land and a reduction in cheap transfers of industrial land. In addition, the heterogeneity of the effect across the rank and type of official was investigated, and the long-term persistence of this effect was confirmed. By showing that anti-corruption measures have a persistent disciplinary effect on officials’ subsequent land supply strategy, this paper underscores that the quality of public governance profoundly influences the functioning of the land market.
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This chapter explores the geography of corruption across Asia (minus the Middle East). It begins by exploring its spatiality, noting the enormous range, including some of the world’s most and least corrupt countries. It maps corruption scores, summarizes public perceptions, bribery rates, and summarizes correlations. The third part turns to national variations, including severely corrupt states such as North Korea, Bangladesh, Central Asia, and the intermittent role of the resource curse. It then offers case studies of Pakistan, India, China, South Korea, the Philippines, and Indonesia, noting that the drivers of corruption vary widely. The conclusion notes that while Asian anti-corruption campaigns have had mixed successes and failures, the long-term remedy involves structural changes in societies and governance.
Article
China and Russia have both experienced unprecedented corruption during their transitions to the market, but there is an important difference between them. While Russia's economy has faltered amid rampant corruption, China has one of the better reformed economies, despite a level of corruption that once gave rise to the Tiananmen protests. Corruption has a somewhat less destructive impact on growth in China than in Russia. This divergence is linked to larger differences in the type of transition and the nature of the state in the two countries.
Article
Journal of Democracy 14.1 (2003) 6-17 After the Tiananmen crisis in June, 1989, many observers thought that the rule of the Chinese Communist Party (CCP) would collapse. Instead, the regime brought inflation under control, restarted economic growth, expanded foreign trade, and increased its absorption of foreign direct investment. It restored normal relations with the G-7 countries that had imposed sanctions, resumed the exchange of summits with the United States, presided over the retrocession of Hong Kong to Chinese sovereignty, and won the right to hold the 2008 Olympics in Beijing. It arrested or exiled political dissidents, crushed the fledgling China Democratic Party, and seems to have largely suppressed the Falun Gong spiritual movement. Many China specialists and democracy theorists—myself among them—expected the regime to fall to democratization's "third wave." Instead, the regime has reconsolidated itself. Regime theory holds that authoritarian systems are inherently fragile because of weak legitimacy, overreliance on coercion, overcentralization of decision making, and the predominance of personal power over institutional norms. This particular authoritarian system, however, has proven resilient. The causes of its resilience are complex. But many of them can be summed up in the concept of institutionalization—understood either in the currently fashionable sense of behavior that is constrained by formal and informal rules, or in the older sense summarized by Samuel P. Huntington as consisting of the adaptability, complexity, autonomy, and coherence of state organizations. This article focuses on four aspects of the CCP regime's institutionalization: 1) the increasingly norm-bound nature of its succession politics; 2) the increase in meritocratic as opposed to factional considerations in the promotion of political elites; 3) the differentiation and functional specialization of institutions within the regime; and 4) the establishment of institutions for political participation and appeal that strengthen the CCP's legitimacy among the public at large. While these developments do not guarantee that the regime will be able to solve all the challenges that it faces, they do caution against too-hasty arguments that it cannot adapt and survive. As this article is published, the Chinese regime is in the middle of a historic demonstration of institutional stability: its peaceful, orderly transition from the so-called third generation of leadership, headed by Jiang Zemin, to the fourth, headed by Hu Jintao. Few authoritarian regimes—be they communist, fascist, corporatist, or personalist—have managed to conduct orderly, peaceful, timely, and stable successions. Instead, the moment of transfer has almost always been a moment of crisis—breaking out ahead of or behind the nominal schedule, involving purges or arrests, factionalism, sometimes violence, and opening the door to the chaotic intrusion into the political process of the masses or the military. China's current succession displays attributes of institutionalization unusual in the history of authoritarianism and unprecedented in the history of the PRC. It is the most orderly, peaceful, deliberate, and rule-bound succession in the history of modern China outside of the recent institutionalization of electoral democracy in Taiwan. Hu Jintao, the new general secretary of the CCP as of the Sixteenth Party Congress in November 2002, has held the position of successor-apparent for ten years. Four of the other eight top-ranking appointments (Wu Bangguo, Wen Jiabao, Zeng Qinghong, and Luo Gan) had been decided a year or two in advance. The remaining four members of the Politburo Standing Committee (PBSC) were simply elevated from the outgoing Politburo. Barring a major crisis, the transition will continue to an orderly conclusion in March 2003, leading to the election of Hu Jintao as state president and chairman of the Central Military Commission, Wu Bangguo as chair of the National People's Congress (NPC), and Wen Jiabao as premier. Outgoing officials President Jiang Zemin, NPC Chair Li Peng, and Premier Zhu Rongji will leave their state offices, having already left their Party offices in the fall, and will cease to have any direct role in politics. It takes some historical perspective to appreciate this outcome for the achievement that it is. During the Mao years, Party congresses and National People's Congresses seldom met, and when they did it was rarely on schedule. There have never before...
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This paper presents evidence on the context, magnitude, and probable macroeconomic impacts of the privatization of Chinese urban housing in the 1998–1999 period. Various sources suggest that approximately one half of urban housing stocks were sold by work units to their residents at prices likely between one-fifth and four-fifths of their fair value during the period in question. This transaction significantly increased the wealth of urban Chinese households and improved the cash flows of state-owned enterprises. The case demonstrates the reaction of Chinese economic policymaking to economic stresses, and the capacity of the Chinese state to manage the business cycle.
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The privatization of urban housing and the subsequent development of a mortgage market have played a major role in the development of China's financial system. This paper explores the history and development of China's urban housing market, its impact on the financial system, and the government's efforts to grapple with new issues that have surfaced alongside these reforms. This paper concludes that although housing privatization has helped strengthen the financial standing of state-owned enterprises, urban residents, and commercial banks alike, systematic weaknesses must be addressed in order to promote sustainable economic growth.
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Based on an evaluation of three methods adopted by current empirical analysis of corruption, this article argues for a statistical analysis method of studying corruption cases. It adopts three new indicators: the latency period of corruption, the number of newly occurring corruption cases and the cumulative number of cases. By applying these indicators to an analysis of 594 major corruption cases, the article develops a new method to describe the position of corruption in transitional China, and presents new evidence on characteristics and trends of corruption and its relation with China's economic transition.
Article
In this article I examine the politics of urban land development in large Chinese municipalities in the 1990s and 2000s. I find that under the state land tenure and socialist legacy, China's urban land lease markets have evolved around two sets of state players: municipal governments and socialist land masters. In their competition for urban land control, municipal leaders' success depends on their political capacity to deal with socialist land masters from above, their organizational capacity to discipline the fragmented sub-municipal units from within to achieve accumulation, and their moral capacity as social protectors and market regulators to maintain legitimacy. In this process, municipal leaders face the challenges and opportunities to define and defend the boundaries of their territorial power, which is not predetermined by the grand scheme of decentralization policies.
Article
There has been little systematic research on corruption in China. Analyses so far often only reveal various cases of corruption and conclude by commenting on the retrograde aspect of the Chinese state. Work of this nature also tends to be too static – not considering the historical and cultural dimensions of politics – and too superficial – just concentrating on anecdotal aspects of corruption. As a result, one could quite simply conclude that what is required is a Weberian bureaucracy, which would be both rational and efficient, though without explaining how this should come about. However, in the light of works dealing with the shifting role of the state in societies which are undergoing change, the causes and nature of the phenomenon of “corruption” in China can be reassessed.
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Echoing changing social environments, corruption has grown in sophistication and complexity. This paper focuses on the phenomenon of collective corruption. Collective corruption, a distinctive form of social interaction among people dominated by individual calculations and unorganized interests, takes place when collaboration becomes a powerful, necessary weapon in pursuing private gains. The danger of collusion in corrupt ventures is that as corruption gets well planned and skillfully coordinated in its collective form, it may become less forthright and therefore more difficult to detect, or more overt and increasingly legitimized as an appropriate form of economic intercourse. © 2002 The Regents of the University of California. Published by Elsevier Science Ltd. All rights reserved.
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This article explains why massive political corruption appears to be incompatible with economic growth in Russia but compatible with very rapid economic growth in China. The common assumption is that corruption is bad for economic performance. So how can we explain the puzzling contrast between Russia and China? Is Russia being more severely “punished” for its corruption than China? If so, why? This article demonstrates that three intervening factors—comparative advantage, the organization of corruption, and the nature of rents—determines the impact of corruption on economic performance, and that these factors can explain the divergent outcomes. The article thereby offers an alternative to statist explanations of the Russia-China paradox.
Article
This paper discusses housing inequality and housing poverty in urban China in the late 1990s, using original household surveys. Focuses are on the distributive implications of the privatization of public-owned housing and the wave of rural–urban migration. Estimates of the imputed rent function for owned housing purchased at discount prices indicates that meritocracy and political credentialism work differently as determinants of housing inequality. The paper confirms that there has been a large disparity in housing conditions between urban and migrant households, and that a new type of housing poverty has been emerging among migrant households.