Country Driving [175]
Cadre Liu produced the registration papers and Boss Wang stamped them with the company chop. At the end, the official mentioned the accountant again.
“OK,” Boss Wang said. “I’ll call them. I just want things to be c-c-convenient.”
“We want things to be convenient, too,” said Cadre Liu, smiling. He left the room; the others followed; nobody shook hands. The moment the men were gone, I realized how tense I’d felt just watching the conversation, and I sank back in my chair. But Boss Wang had already picked up the office phone. He dialed the number on the card and said, “Wei, I’d like to ask you to introduce an accountant to me…”
GUANXI IS LOGICAL (“Even a schoolchild can figure it out!”), and at the individual level it clearly works. An official receives a gift; a factory receives favorable treatment—there’s no mystery to such exchanges. But it’s hard to see how this system pays off for a city as a whole. In Lishui, I drove on brand-new roads past massive construction projects, and often I wondered: Who pays for all this? By Zhejiang standards, Lishui was underdeveloped; in 2006, the annual per capita GDP was only $1,460. Nowadays, with the planned economy long gone, there was relatively little money coming from the central government. Chinese cities have to raise much of their own funds, but by law they can’t issue municipal bonds, like American cities. They also can’t charge significant property taxes, because land is still nationalized. The tax base is weak, especially for a fledgling industrial region: in Lishui’s development zone, companies received tax breaks for their initial three years of production, and after that most of them would cheat on their earnings reports anyway. It worked out well for the factories and the officials—they got favors and cash and all the Chunghwa a man could smoke—but it was impossible for the city to survive on its tax revenue.
And yet Lishui, like most Chinese cities, spent money everywhere. From 2000 to 2005, Lishui invested $8.8 billion in infrastructure, which was five times the amount for the previous half century. After that massive spending campaign, they immediately topped it: in the first half of 2006, when the bra ring factory opened, Lishui’s infrastructure investment rose by another 31.7 percent, as compared to the previous year. Real estate investment increased by 57.2 percent. This was real cash, all of it parlayed into new roads and new bridges and new buildings; it wasn’t just a matter of Chunghwa changing hands. But where did it all come from?
The answer lay beneath all that construction. It was land, or more precisely it was the way that land-use rights transfer from rural to urban regions. In the Chinese countryside, all land is collective, and farmers like Wei Ziqi have no right to sell their plots or homes on the open market. Instead, the village handles all deals, and even the village has little power to negotiate if a city decides to expand into their farmland. In these situations, the city can acquire the land at will, and they pay set prices that have been established by the government. After the sale is made, and the farmers have moved off the land, the city can build basic infrastructure and reclassify the region as urban. And urban land-use rights can be auctioned off at market rates, to the highest bidder. It’s a type of arbitrage, buying rural land and reselling it as urban, and it can be practiced only by governments from the township level up.
The profits from such exchanges are immense. Wang Lina, an economist at the Chinese Academy of Social Sciences, told me that cities in coastal regions receive roughly half their fiscal revenue from real estate transactions. She described Chinese cities as resembling corporations, with the mayor serving as the CEO. “Their goal is to make money, obviously,” she said. “But they can’t only