State Council issues regulations on urban takings and compensation

On January 21, the State Council promulgated new regulations on takings and compensation involving state-owned land. This basically means urban land; rural land, with some exceptions, is formally under a regime of “collective ownership” (I use quotation marks because it’s a term of art more than an inherently informative term). If you’re wondering how the state can take land it already owns, the answer is that individuals and other non-state entities can have quite substantial rights—for example, a 70-year transferable term of use for residential purposes—in land formally deemed “state-owned”. It’s those sub-ownership rights that the state is really taking when it condemns a plot of land, evicts the residents, and tears down the buildings on it.

Urban land takings, like rural takings, have been a source of controversy both in print and on the ground for several years. Often those who are losing their residences – like the famous Chongqing nail household – are unhappy both at having to move and at the amount of compensation offered, and there have been some tragic instances of violence and death (e.g., in Yihuang and in Chengdu) surrounding these takings. But the fact that people feel aggrieved, even monstrously so, doesn’t mean they are necessarily right; in the Chengdu case, for example, it seems pretty clear that the building that was to be torn down was an illegal structure that should never have gone up in the first place. Finally, I should add that in some cases people are happy to have their interests in real estate condemned, and indeed will hurry to build on land they believe will be condemned, because apparently the compensation offered is more than they would get on the market. In any case, I hope this is enough to make the case that takings are a sensitive and complex issue.

The new regulations, effective immediately, should be welcomed by homeowner advocates. They go a long way toward addressing problems in the existing regime. Here are some highlights:

• The regulations define, for the first time, the concept of “public interest” that’s required for a taking to take place. Of course, no definition is ever going to be perfect, but this one at least offers more detail than we had before. After the list of specific examples, there is the usual “and other needs of public interest” clause, but its elasticity is circumscribed by the requirement that such needs be defined by laws (rules issued by the National People’s Congress or its Standing Committee) or administrative regulations (rules issued by the State Council). One problem with the definition is that it includes a concept similar to blight in US takings law as a justification for condemnation. As Prof. Ilya Somin has frequently pointed out in postings on the Volokh Conspiracy blog, “blight” is an easily abused concept – just ask the New Yorkers who recently lost their property so that Columbia University (a private institution the last time I checked) could expand.
• Those expropriated are to receive the market value of what they lost. Of course, calculating the market value of some kinds of properties is going to be very difficult, but at least this establishes the general principle. The rule before now was backward-looking: if you had paid for a 70-year use right and were expropriated after 35 years, then you would in principle get half your money back (presumably after appropriate  adjustments for the time value of money, inflation, etc.). It made no difference if in the meantime right next door someone had built (a) a classy shopping mall or (b) an abbatoir. That has now changed.
• A current problem is that people can be evicted before any final decision has been reached on how much compensation is due and before compensation has actually been paid. The regulations attempt to deal with this by stating that compensation must be paid before people move, and that those dissatisfied with the compensation offered may initiate administrative reconsideration proceedings (these are non-litigious proceedings whereby a bureaucracy reviews its own decision) or administrative litigation in court. The regulations don’t specifically say that all such proceedings must have reached a final conclusion before the taking may proceed, but that may be the intent. Interestingly, the regulations state categorically that violence may not be used to move people out. Given the history of developers using thugs to move recalcitrant people out of their homes, one can understand this rule. But what about cases where people refuse to move even though the project serves a bona fide public interest and fair compensation has been offered? Can a government really give up its right to use force in those circumstances? Shall the determined and thick-skinned really have a veto power? Perhaps it depends on how one defines “violence”.
• Where a taking is planned in order to redevelop a blighted urban area, if over half of those whose property is to be taken believe the compensation is inadequate under the regulations, then a hearing is to be organized and the compensation plan revised “in accordance with the situation of the hearing” (根据听证会情况). This is pretty vague. First, how do you count those whose property is to be taken? Does a family of five in one residence have five times the voice of a single person in another otherwise identical residence? Second, what does “in accordance with the situation of the hearing” mean? I don’t see how this provision adds anything by way of remedies to what’s already in the regulations.

The regulations don’t cover takings of rural land, which are equally—perhaps even more—sensitive and controversial. But the principles they contain may find expression in whatever reforms we end up seeing in the rural takings regime.