The Shadow of the Skyscrapers: real estate corruption in China

Abstract

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.

Notes

*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 [email protected]

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^3. Ting Gong, ‘Dangerous collusion: corruption as a collective venture in contemporary China’, Communist and Post-Communist Studies 32, (2002), pp. 85–103 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. 599–617; 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. 171–179; and Minxin Pei, China's Trapped Transition: The Limits of Developmental Autocracy (Cambridge, MA: Harvard University Press, 2006), p. 37.

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^7. Pei, China's Trapped Transition, pp. 13 and 41–42; Tomas Larsson, ‘Reform, corruption, and growth: why corruption is more devastating in Russia than in China’, Communist and Post-Communist Studies 39, (2006), pp. 265–281; and Jean-Louis Rocca, ‘Corruption and its shadow: an anthropology view of corruption in China’, The China Quarterly 130, (June 1992), pp. 402–416.

^8. Kenneth Lieberthal and Michel Oksenberg, Policy Making in China: Leaders, Structures, and Processes (Princeton, NJ: Princeton University Press, 1988), p. 137.

^9. Kenneth Lieberthal and Michel Oksenberg, Policy Making in China: Leaders, Structures, and Processes (Princeton, NJ: Princeton University Press, 1988), pp. 138–141.

^10. George Tsebelis, Veto Players: How Political Institutions Work (Princeton, NJ: Princeton University Press, 2002), pp. 17–18.

^11. Susan Rose-Ackerman, Corruption: A Study in Political Economy (New York, NY: Academic Press, INC., 1978), pp. 171–182. Sequentially organized bureaucracy means applicants of a project must approach bureaucrats in an ordered sequence (p. 171).

^12. Susan Rose-Ackerman, Corruption: A Study in Political Economy (New York, NY: Academic Press, INC., 1978), 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.

^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.

^20. Hiroshi Sato, ‘Housing inequality and housing poverty in urban China in the late 1990s’, China Economic Review 17, (2006), pp. 37–50. For more on housing reform, see Bill Adam, ‘Macroeconomic implications of China urban housing privatization, 1998–1999’, Journal of Contemporary China 18, (November 2009), pp. 881–888; 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. 175–184.

^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.

^22. Li Ling Hin, Privatization of Urban Land in Shanghai (Hong Kong: Hong Kong University Press, 1996), pp. 43–45.

^23. Li Ling Hin, Privatization of Urban Land in Shanghai (Hong Kong: Hong Kong University Press, 1996), pp. 71–77. 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.

^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 = &ID = 2800.

^31. You-tien Hsing, ‘Land and territorial politics in urban China’, The China Quarterly 187, (September 2006), pp. 575–591 at p. 580.

^32. You-tien Hsing, ‘Land and territorial politics in urban China’, The China Quarterly 187, (September 2006), 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/c5941e2eb286283448256538000d3426/01ea8b61a9517907482569ee0012076b?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.

^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.

^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.

^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.

^50. PHIN02/23/2008/NJ, conducted in East Lansing, MI, interviewee was in Nanjing

^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. Zhu Hongjun, ‘RE bosses disclose that bribes are needed to acquire land’

^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.

^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. 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

^58. PHIN02/16/2008/JX.

^59. PHIN02/23/2008/NJ.

^62. 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.

^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.