Beatings, evictions reveal ugly side of China's local debt pile

Reuters News
Posted: Sep 02, 2013 5:19 PM
Beatings, evictions reveal ugly side of China's local debt pile

By Koh Gui Qing

WUXI, China (Reuters) - When Xu Haifeng's home was razed three years ago, she went to China's capital Beijing to complain about the city and county governments that ordered the demolition.

Since then, she says family members have been kidnapped at least 18 times, typically having black bags thrust over their heads before being taken to a hotel-turned-illegal jail in the eastern city of Wuxi and locked for weeks in a tiny, windowless room.

Xu's story is shocking even in a country that has become used to tales of arbitrary and sometimes violent land expropriations. It illustrates how the stresses from the deep indebtedness of China's local governments extend beyond banks into the lives of ordinary Chinese, as hard-up authorities resort to any means they can in a desperate scramble for funds.

"Our Wuxi is now steep in debt," said Xu. "The Wuxi city today relies on drawing from residents' financial wealth and stealing residents' land to survive."

Her 74-year-old mother, she says, has been abducted nearly a dozen times and held illegally for almost a year in a campaign to silence the family's demands for proper compensation.

Land seizures rank as among the biggest causes of social tension in China, spotlighting an ugly side of the urbanization drive that has raised it to the world's second-biggest economy.

Amnesty International said in a report last year that land grabs have increased as the economy slows and local governments have sought cash to pay off debt, though other experts dispute the finding. There is no official data on land grabs.


Wuxi lies in the coastal province of Jiangsu, home to China's most indebted local government.

Public records show provincial, city and county governments in Jiangsu have borrowed heavily from banks and investors to fund big construction projects and investments.

Pressured finances may be capping land payouts and fuelling state-sanctioned violence, said Li Guoxiang, deputy director of rural development research at the Chinese Academy of Social Sciences, a top government think-tank.

"The logic is simple: if there is no fiscal health, how can the government hand out fair compensation?" Li said.

Residents of the Binhu district of Wuxi, where Xu's family owned several properties, say authorities took their land on the cheap, accompanied by threats, beatings and illegal detention of those who did not acquiesce.

The allegations, which included claims that the harsh treatment had caused deaths, could not be independently verified.

The government of Binhu, a county overseen by Wuxi city authorities, could not be reached for comment. The Wuxi government also could not be reached for comment, with repeated telephone calls over several days going unanswered.

Although the allegations in Binhu are extreme, land grabs are not uncommon. According to Li, local authorities across China derive between 20 and 90 percent of their income from selling expropriated land.

Land disputes are one of the main causes of the tens of thousands of protests across China each year. Most go unreported, although some, like a revolt in the southern village of Wukan in 2011, have attracted a high profile and prompted promises of action by Beijing.

Just last Thursday, a four-year-old girl was killed by a bulldozer that was razing her home during a land grab in the southeastern province of Fujian, local media reported.


Following 30 years of stellar double-digit growth, China's economy in maturing.

But policymakers are struggling to shift gears and allow consumption, not investment, to power activity at a time when strong economic expansion is needed to repay some 9.7 trillion yuan ($1.6 trillion) that local governments borrowed from banks.

Much of China's massive fiscal stimulus after the 2008/09 financial crisis was funded by these bank loans, and investors worry that a hefty chunk of them may sour, having mostly paid for non-lucrative public works such as sewage systems.

A 30-minute train ride north of Shanghai, Jiangsu is China's wealthiest province and an exemplar of the country's old export-led growth model. Investment was worth 59 percent of Jiangsu's economy in 2012.

The local authorities envision turning Wuxi into a center for information and technology, a Chinese answer to Silicon Valley that will move its factories up the value chain.

Yet that dream of a new economy, built around a vast software park the size of 3,500 football fields in south Binhu, still hinges on large state investment.

Authorities have not revealed the cost, but Wuxi Taihu International Technology Park Investment Development, a firm belonging to the Wuxi government and the main financier of "T-Park", is in financial throes.

Public records show it suffered negative operating cash flows every year in the last four years, with outflows hitting 762 million yuan in 2012. It has total debt of 5.9 billion yuan - or a 10th of Wuxi's 2012 fiscal revenues - and has been hit by cash shortfalls, analysts from Chinese rating agency CCXI said.

"The firm has a strong public service element and a weak earning power," CCXI said in a note, noting that its ability to repay investors depends on how much cash the government raises from selling land.

Public records show the Wuxi government has at least three other financing firms that raise debt on its behalf. Two of these firms had negative net operating cash flows of between 0.4 billion yuan and 4.8 billion yuan every year from 2009 to 2011.

Investments by the Wuxi and Jiangsu governments have ended badly before. They led a rapid expansion in the province's shipbuilding and solar panel industries into some of the world's biggest over the last decade. But over-zealous investment created excess capacity, and both sectors now nurse huge losses.


To make way for T-Park, the Binhu government cleared farms and relocated residents, who were given new housing. To pay for the homes, authorities sold 1 billion yuan worth of bonds last year through Wuxi Taihu International.

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But the cost of mass relocation has taken its toll, just as governments' tax income is also sliding. Officials in a town in Binhu tried to dock the salaries of some civil servants last year but quickly retracted the plan, residents said.

An online copy of the notice announcing the plan to dock wages said the government faced "arduous and heavy" relocation work and was under "huge financial pressure".

Xu, whose demolished home lay to the west of T-Park, said the government had offered to buy her house and land for 2.4 million yuan, or around 4,140 yuan per square meter. An online search showed new houses in the area are currently selling for between 10,100 yuan to 17,840 yuan per square meter.

Things turned ugly, Xu said, when she rejected the offer. Officials cut her water and electricity supply and Xu and her husband were threatened and beaten.

"One of them called and he claimed to be Hu Jintao," Xu said, referring to a man harassing her family. Hu is China's former president. "He said 'I am Hu Jintao'. So what if we are demolishing your home? What can you do?'"

Xu said her husband eventually signed the deal under threat, but the family has only received 1 million yuan in compensation. Their house was torn down by a work crew hired by the government for 200 yuan and a pack of cigarettes each, her husband said.

The family owned several houses in their village before they were relocated and have received eight smaller apartments from the government in compensation.

But Xu said the apartments did not come with property deeds, and the 580-square-metre (6,240 sq ft) house that was their family home and most valuable asset has not been properly accounted for.

Elsewhere in Binhu, similar accusations abound. A group of five residents in the next village said authorities refused to recognize property deeds dated before 1979, when China's modern economy was created, and those homes were razed without compensation. Some said the government told them they own too many homes and that it cannot afford to pay for them all.

At least 41 Chinese have set themselves on fire to protest land grabs since 2009, Amnesty said in a report last year.

"You have to generate growth if you are a local government official," said Nicholas Bequelin, a senior researcher at Human Rights Watch in Hong Kong. "The easiest way of doing that is flipping land."

(Editing by Alex Richardson)