Why Homes Are Being Demolished in China, Part II

Chinese authorities carry sticks as they prepare to stand guard before workers demolish houses which are claimed illegal by local government in Wuhan, central China's Hubei Province on May 7, 2010. Land seizures have been a problem for years in China and forced evictions have not been uncommon. (AFP/Getty Images)

On June 2, Sound of Hope Radio, an independent Chinese-language radio network, invited the well known economist and Chinese affairs expert Cheng Xiaonong to talk about why the Chinese regime is so eager to demolish homes and acquire land. This is the second and final part of the interview of Cheng.
Yu Shan: This part [revenue derived from land sales] is the income that does not belong to the budget. So the local governments will not make it public?
Cheng Xiaonong: They never make it public. Even the central government is not clear about it.
Generally speaking, local governments have three sources for fiscal income.
One source is the tax, which is the budget income. This one is basically made public. The information that is said to have been made public is open only to the higher levels of the government, but not to the common people. The finance of all the levels of the Chinese governments is never open to the public.
The second source is the extra-budgetary revenue, which is not open to the central government.
The third source is the small coffers, which local governments keep absolutely confidential and under wraps. It is probably only known by a few officials who deal with it. No one is sure how much it is. The central government has investigated the figure many times, but what they got were all kinds! of numb ers. None is reliable.
Yu: So this part of money becomes local governments personal savings?
Cheng: Yes! This is why the cadres in Chinese cities are able to build luxury office buildings that mimic the White House. They are able with public money to enjoy themselves every day at establishments that offer pornography, go abroad, and send their children to study abroad. All these expenses are from here.
Yu: Then why is there the phenomenon that local governments revenue is not enough? For example, when Qinghai Province made its 2010 budget, the budget revenue was about 10.3 billion yuan (approximately US$1.6 billion), while the expenditure was around 11 billion yuan (approximately US$1.7 billion). Obviously, the expenditure is more than the budget. If the local governments have local coffers, why dont they use the money?
Cheng: This question is quite good. First, we have to understand the behavior of the local governments. When they talk about whether the money is much, little, or insufficient, the small coffers, their personal savings, are not included.
When they say they are out of money and ask for money from the central government, they show the central government the first income I just mentioned, which is the budget open to the higher levels. What they talk about is that part of revenue.
According to the result of the tax reform made by Zhu Rongji in 1994, many local governments expenditures are higher than their income. So the central government should transfer part of its tax revenue to subsidize local governments.
This is a means for the central government to control and manipulate local governments. Zhu Rongji would not point this out directly. Only through this means will local governments completely obey the center.
However, when the local governments say they are poor, it doesnt mean they dont have money. You can ask the Shanghai municipal government, which will say its poor, to! o.
However, it has its own small coffer. There is an enormous amount of extra-budgetary revenue there, which is the land revenue, 50-60 percent of its total revenue.
That is, the great amount of revenue that is taken and spent by the local governments is not known to the center. They tell the central government the small part. The central government knows clearly what the local governments are doing, but it can only pretend not to know.
Yu: In fact, the central government acquiesces in it.
Cheng: Yes.
Yu: Is this part of the money only flowing among officials?
Cheng: The money is certainly not completely used for the common people, because the local officials will lose enthusiasm if it is used just for the common people. However, if they use part of the money to build a bridge or repair a road for an officials promotion, you cannot say that the money has nothing to do with the public at all.
Of course, every particular case should be analyzed specifically. Constructing the county government building, for example, uses a lot of money, part of which might be from the small coffer. This expenditure has nothing to do with the common people. It is used for improving the working conditions of the cadres, not changing peoples standard of living.
In addition, if the government spends a lot of money building a highway even though the traffic is little, and the money is wasted. But since part of the money is from the small coffer, the local government will still boast that it is of benefit to the public. Therefore, you cant say it completely has nothing to do with the common people. However, most of the money from the land finance is spent on benefits related to the local governments.
It is probably for these parts. The first part is building all kinds of mansions for the cadres of local governments. For example, the businessmen buy land at high prices to build a variety of mansions and then sell them ! to local officials at low prices.
The second case is when the local governments use the money from the small coffers to cover a variety of items which cannot be recorded on the accounts. For example, the money the local government uses to bribe the officials of the central government, and all the expenses that they spend on central officials that they cannot make public are from the small coffers.
In addition local cadres travel abroad at the public expense, including gambling overseas, and their feasts and paying for prostitution are from the small coffers. After all, they cannot let the National Audit Office (NAO) audit these expenses. So the NAO is unable to audit this part.
Yu: It seems the sale of lands indeed brings huge benefits to the local governments. No wonder they are so enthusiastic about doing it.
So, in the latest demolition ordinance, it abolished the administrative demolition, and replaced that with judiciary demolition. Can it eliminate the backroom deals among government officials? Can the people defend their rights according to the law? Whats the difference between this judiciary demolition and the previous administrative demolition?
This land business does seem to bring huge profits to the local governments. No wonder they are so keen on it. The latest demolition regulations have gotten rid of administrative routines and replaced them with judiciary ones.
Will this change prevent the blackbox operation within governmental entities and grant the general public a way to protect their rights via the law? What are the differences between administrative and judiciary regulations?
Cheng: This is a smart question. The so-called judiciary regulations are in essence, replacing the administrative commands from the government with a judiciary command. It uses law as the tool to justify forced demolition.
In the end, if anyone expresses any discontent towards the government, they will be charged with violating the law. In ! reality, it simply provides a more powerful legislative environment for the forced demolitions carried out by the local governments.
Everyone knows that in China, laws and regulations are used by the government to suppress, control, and manipulate the general public. Under such circumstances, forced demolition is backed by the laws and regulations. At any time the government can show up at your doorstep with a legal paper and carry out the demolition. If one resists, one breaks the law and will be punished by the law. This is called demolition by law.
Therefore, the new regulations legalize the forced demolitions. It legalizes the human rights violations under the protection of law. It only changes the banner and does not alter the act of ripping off personal property.
So it is actually worse than before. Because in facing the public resistance, the local government can hide behind the local law. The people who resist will be subject to heavier punishment by the law. Law in the hands of the government is always a puppet that fights the general public.
Under the Chinese Communist Partys rule, law has never been a serious matter. As weve talked about earlier, the Chinese Constitution has been amended to stipulate that the land of the Peoples Republic of China belongs to the nation.

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• Why Homes Are Being Demolished in China, Part I

In theory, the government should pay the private land owners when taking their land away, because the land has been private property for thousands of years. But just by adding one sentence in the Constitution, the land owners rights were completely taken away.But the landowners rights are not what concern the Chinese regime. Instead, they only care about robbery without consequences.
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