A Chinese Analogue to the Kelo Case?

This recent Chinese case has attracted a lot of attention in both China and the West, and is drawing comparisons to the famous US takings case of of Kelo v. City of New London. The Huffington Post describes the facts as follows:

In the middle of an eastern Chinese city’s new main road, rising incongruously from a huge circle in the freshly laid pavement, is a five-story row house with ragged edges. This is the home of the duck farmer who said “no.”

Luo Baogen and his wife are the lone holdouts from a neighborhood that was demolished to make way for the main thoroughfare heading to a newly built railway station on the outskirts of the city of Wenling in Zhejiang province.

Dramatic images of Luo’s home have circulated widely online in China this week, becoming the latest symbol of resistance in the frequent standoffs between Chinese homeowners and local officials accused of offering too little compensation to vacate neighborhoods for major redevelopment projects.

There’s even a name for the buildings that remain standing as their owners resist development. They are called “nail houses” because the homeowners refuse to be hammered down….

Xiayangzhang village chief Chen Xuecai said in a telephone interview Friday that city planners decided that Luo’s village of 1,600 had to be moved for a new business district anchored by the train station. Chen said most families agreed to government-offered compensation in 2007.

Luo, 67, and a handful of neighbors in other parts of the new district are holding out for more.

“We want a new house on a two-unit lot with simple interior decoration,” Luo told local reporters Thursday in video footage forwarded to The Associated Press.

Luo had just completed his house at a cost of about 600,000 yuan ($95,000) when the government first approached him with their standard offer of 220,000 ($35,000) to move out – which he refused, Chen said. The offer has since gone up to 260,000 yuan ($41,000).

Although in this case, and some others, Chinese authorities have hesitated to forcibly remove resisting property owners, in the past the Chinese government has forcibly displaced millions of people in order to make way for construction, often paying them little or no compensation. Some 1.25 million people were expelled from their homes in order to “beautify” Beijing in preparation for the 2008 Olympics.

Overall, the state of property rights protection in China is significantly worse than in the post-Kelo United States, though our performance is very far from ideal.

To try to get more insight into the “nail house” case, I contacted leading Taiwanese takings scholar Professor Yun-chien Chang of the Academia Sinica in Taipei. Chang has written extensively on eminent domain and property law in the United States, China, and Taiwan. He e-mailed the following (reprinted with his permission):

Under-compensation is by all evidence very common. On the other hand, nail houses like these are not unprecedented.
I am almost sure that the local government has the power to tear down the nail houses, but they also do not want to make a scene… The Shengzhen SEZ government has the power to tear down the “small title” properties, but they choose not to, for various reasons…

Perhaps, as [economist] Steven NS Cheung argued, juridical competition at the county/city level (in, e.g., attracting foreign direct investment) is throat-cutting. So local government considers it bad PR to blatantly use its eminent domain power. After all, nail house owners at some points will bow out “voluntarily.”

The Huffington Post story quoted above notes that Chinese authorities are not usually shy about using pressure tactics to facilitate “voluntary” capitulation by owners:

What is unusual in Luo’s case is that his house has been allowed to stand for so long. It is common for local authorities in China to take extreme measures, such as cutting off utilities or moving in to demolish when residents are out for the day.

That said, it seems possible that Chinese officials, like many American ones, hesitate to use blatant coercion in highly publicized cases like this one. That would make for bad PR, as Chang puts it. In run of the mill cases where displacing homeowners doesn’t attract much media scrutiny, they are often far more ruthless.

Finally, it’s worth noting that one potentially significant difference between this case and Kelo is that Luo is being displaced for the purpose of building a publicly owned road, whereas Susette Kelo was forced out to make way for a privately owned development project that never actually built anything. For reasons I discussed in this article, there is a stronger economic rationale for using eminent domain for public roads than for private development projects. But that doesn’t mean that all takings for roads are necessarily justified, and it certainly does not excuse the Chinese government’s practice of egregiously undercompensating displaced property owners.