I was hit by developers' corruption

Whether or not the real estate market can develop in a healthy way has become a cause for public concern. To look at what is happening behind the frequent corruption cases in the real estate industry, "Xinhua View Point" went to Shandong provincial prison and talked with Wang Yan, former deputy mayor of Qingdao and party secretary of Laoshan District, whose real estate corruption case shocked the nation in 2005.

Wang Yan's own story reveals to us how some real estate developers put pressure on local officials in the course of developing real estate projects, including in such as areas as land procurement, planning, approval, and coordination. His story should be a warning about the real estate business.

Power seeks rent wherever official approval is required
Wang Yan became bureau chief at 36, and was known as a "political star," one of the "top ten young people in Qingdao," and "leading cadre with outstanding contributions," in Qingdao. It has been discovered that among the over RMB4.9m in bribes he took, most came from real estate developers. The Shandong Supreme Court on Feb. 28, 2005 approved the criminal sentence handed down by Jinan Intermediary Court and sentenced Wang Yan to death with two years probation for taking bribes.

Apart from Wang Yan, former chief of the Qingdao Planning Bureau Zhang Zhiguang and former chief of the Laoshan District State Resource Bureau Yu Zhijun also received strict sentences for their involvement. The two took over RMB8.6m and RMB5.39m in bribes respectively. Their case involved the different parts of the land approval, planning approval, and building approval process, this case is seen as typical of real estate market corruption cases.

Looking back on the real estate boom in Qingdao, Wang Yan has much to say. He says, since the 1990s, all kinds of high-end residential buildings named "something Coast," "something Century," popped up in Qingdao, and a many developers became billionaires by encroaching on state-owned land. Naturally, local officials with the power to allot land became the primary target of developers.

"On the surface, procedures for land development are extremely complicated, but in reality, the chief official in charge of every procedure has the final say." Wan Yan says, "If I am the boss of the entire district, what I say gets done."

It has been discovered that Wang Yan helped over ten developers and accepted bribes from them. The things he did to help them mainly included accelerating the process of giving them the right to use state-owned land; allowing them to take part in urban renovation projects; coordinating urban facilities for development zones; and settling accounts for construction projects on time.

Take for example Huanyu Real Estate Development Co. in Qingdao. Its chairman of the board was the first to launch a plan to gain Wang Yan's help with land lease approval. In order to "get the right to use state-owned land as quickly as possible" and to "take part in upgrade projects for old villages", he gave Wang Yan "substantial gifts" three times, worth over RMB3.34m!

After the "land hurdle" is crossed, there is the "planning hurdle." In order to get construction plans for Qingdao "Century Huating," "Furun Hill Villas," and "Mingguwu," approved, this same chairman gave Zhang Zhiguang a total of $60,000 on three occasions.

Because Zhang Zhiguang was once in charge of planning for a real estate development in Qingdao, over 30 developers gave him presents. Using his power, he brought billions of yuan in profit to these developers, and his own gains from this approached RMB9m.

We can see from Zhang Zhiguang's case that "problems" developers have to solve in the approval process include: getting approval for building and planning commodity housing projects; getting approval for illegal increases in the capacity of buildings; getting approval to turn hotels into business centers or high-end apartment buildings; getting approval for the upgrading of old villages; getting approval for construction projects that are finished; getting approval for the construction company's dormitories; and obtaining new projects through official help.

Wang Yan tells the reporter frankly that since the government supplies land and approves building projects, it is very simple for leaders to obtain money from land approvals, planning approvals, and building approvals. To obtain approval for a piece of land, to go through the procedures, and then to transfer the land to someone to develop, it is not hard to pocket RMB100m from one project.

"Sometime it is difficult to avoid giving bribes and taking bribes." Wang Yan says, "In about 2002, many developers saw the system void and room for profit in upgrading suburban villages in Laoshan district. Within just two months, 28 villages signed agreements with developers. During this period, all kinds of profiteering surfaced, and rent-seeking, rent-creating took place. At that time, district land authorities put piles of documents for approval on my desk. It was hard for me to make any judgment. Since they were all preliminary agreements and various levels of leaders had already signed giving their approval, I just signed them all. Thus I was used."

Procedures for real estate development seem to have many steps, but this implies that there are many places where power could find rent.

Developers can make you and can break you

When Wang Yan was in office, he was used by developers and he made illegal profits for them. Ironically, his ruin was because he tried to fight the developers. Sadly, he did not win.

"When I became the leader of Laoshan district, the land approval and building market was already very chaotic." Wang Yan says that around that time all coast-line land and land with development value were being grabbed up for lease.

"Given the circumstances, I started to straighten out the market and as a result I offended some developers." Wang Yan says, "Of course, it was because I was not clean that in the end they were able to get me."

"The real estate developer that took me to court obtained a vast amount of land in 1993 at a very low price. For many years the company hoarded land, laid land to waste, took loans from banks, and sat on IOUs, created many contract disputes and half-finished projects. Once I went to a conference in Taiwan, and this developer followed me to Taiwan and shoved $10,000 in my pocket. He said it was pocket money for shopping in Taiwan. I refused. He said it was a temporary loan. So I took it and brought it back."

"After I came back, the developer came to me and said he wanted his original land blocks re-evaluated and after the new appraisal, he wanted the government to buy them back. He promised if I approved f this, he would share the 10% profit with me." Wang Yan explained that the so-called re-evaluation meant reselling the land to other developers. The so-called government purchase meant he wanted his undeveloped land priced at RMB1.6b and resold to the government." I refused his request right away.

This developer got angry and hired two lawyers from Beijing. "They came to me pretending to be cooperating partners and threatened me: either I agreed with him and got several billion yuan in profit, or they would completely ruin me. When I returned the $10,000 they gave me in Taiwan, the second day they took this as evidence and filed a suit against me with the Qingdao municipal procuratorate. At the same time they threatened me saying: if I "cooperated" they would withdraw the charges, otherwise they would have me hanged."

After this, they secretly signed a new development contract with another developer on an unfinished project which the provincial court seized and blocked off, and they took a huge amount of guarantee money from their partner and started to sell the building. "After this commercial fraud was reported, the district politics and law committee asked me how to handle it. I said it should be punished according to the law. The court immediately sent people to the site to stop any dismantling. The construction bureau canceled their original construction license, and the police started to freeze their bank accounts. The angry developer came to my office with his lawyers. When I arranged with the government, the politics and law committee, the court, and public security, and construction authority to explain the laws to them, I realized that personally I was already stuck." As I expected, very soon they reported me for illegally leasing the land.

Wang Yan reflected: "Developers sought profits by influencing the government administration. Behind the suspicious modesty of illegal businessmen, I can see the sneer between their teeth."

Wandering between "pushing housing prices up" and "regulating housing prices"

What is the true thinking of regional leaders concerning real estate prices and land prices? Wang Yan says frankly: higher real estate prices imply even higher land prices, also increased local revenue. Furthermore, it implies accelerated urban construction which is considered an achievement by central government officials.

"When I just came to work in Laoshan district, I felt the land price was too low. I needed to raise the land price by straightening out the land market, getting people interested and pushing forward urban construction. Thus, by leasing previously frozen land blocks and implementing whole village upgrades and reallocating the population, in less than three months, the land price in Laoshan shot up, the price hike in suburbs and coastal areas reached 100% or even 150%.

"Laoshan district has a Maidao development project which occupied over 1100-mu of land. It involves three coastal fishing villages. Because of its good geographic location, it attracted 58 developers, and competition became very fierce. In this battle, district leaders, as decision-makers, naturally became the targets. Suitors came one after another, and proposals for development piled up. Land prices in Laoshan got propped up. According to statistics, during the same period, commodity housing prices in Laoshan were 11% higher than in downtown Qingdao."

Wang Yan says frankly that apart from financial reasons, another reason he got involved in land leasing was the pursuit of administrative achievements. As a local leader, to obtain "visible" achievements his time in office, the best and fastest thing to do is urban upgrades and real estate development. The government calls this "city business operation." They make money with land, the city becomes prettier, and individual officials gain both politically and financially.

Wang Yan also says developers put pressure on officials by first getting to know you through another person, asking you out to eat, making friends, and thus laying a foundation. "Very seldom does a leader conduct power-money transactions with a developer directly without getting to know him." Wang Yan says, this is a gradual process: first you go from being strangers to being known to each other, and finally you become close friends for whom you are willing to sacrifice your principles. Looking back on it, developers who think about costs all the time, even after they become your friend, will not throw their money "in the water".

Wang Yan admits that driven by the need to create achievements, driven by personal favors, and the desire for money, it is easy for some regional leaders to become "captives," and then they form an interest group with developers.