Work-in-Progress, please don’t circulate without permission.Fragmented Laws, Contingent ChoicesThe Tragicomedy of the Village Commons in ChinaShitong QiaoJ.S.D, Yale Law SchoolAssistant Professor, University of Hong Kong Faculty of LawEmail: [email protected] on an eleven-month fieldwork of an informal real estate market in Shenzhen,China, this paper focuses on how property norms interact with the fragmented andlayered property laws. It also serves as a case study of the mixture of tragedies andcomedies of collective land governance in China, defining the direct conflict between lawand social norms as a tragedy and their reconciliation as a comedy. The termtragicomedy captures such a mixture. This paper reveals that the different identities thatvillage leaders simultaneously assume under different social control systems are key tounderstanding the co-evolution of property law and norms. It also highlights the essentialroles of the laws and communities’ legal strategies in governing the commons.Introduction1I. Two Legal Destinies of the Commons5II. Layering and Fragmentation of Law31III. Village Leaders’ Three Identities and an Integrated Explanation39IV. Conclusion: Law in the Drama of the Commons?51IntroductionThree decades of property law reform in China have consolidated thegovernment’s monopoly over land; in particular, urban use of rural land can only beachieved through government requisition and sales. Mass protests by Chinese farmers

against the government’s land-grabs under this system have made headlines, but anarguably more significant everyday form of Chinese farmers’ resistance – the evasion ofthe legal prohibition on rural land development and sales – has received scant attention.According to the Chinese Ministry of Land and Resources, by 2007, Chinesefarmers had built over 6.6 billion square meters of houses in evasion of the legalprohibition on private rural land development and transfer, resulting in a huge market ofillegal houses. By way of comparison, in 2007, the total floor space of housing sold onthe legal housing market was 0.76 billion square meters.1 People in China call theseillegal buildings “small-property houses” (xiaochanquan) because their property rightsare “smaller” (weaker) than those on the urban/formal housing market, which have “big”property rights protected by the government. The market has developed in step withChina’s ongoing struggle for a formal property regime.This research is based on my eleven-month fieldwork in Shenzhen, the firstexperimental site of China's market reforms. In the city of Shenzhen, which experiencedexponential population growth from 300,000 to over 10 million from 1978-2010, almosthalf of the buildings are small-property constructions.2 These illegal buildings, withoutlegal titles and concentrated in 320 intra-city villages, host most of the 8 million migrantworkers in Shenzhen and are the main livelihood of the more than 300,000 localvillagers.3 There has formed a huge impersonal small-property market that is supportedby a network of institutional innovators, including local villagers and their co-ops, localgovernment officials, real estate developers and brokers, lawyers, etc. Both the risks of1小产权房存量 66 erty Houses total 6.6 Billion Square Meters,almost the same amount of Legal Housing Transactions within a /content 16779899.htm (last visited May 6, 2014).2Shenzhen is the city with the highest ratio of small-property houses, which make up 47.57% of the city’stotal floor space, compared to 30% in Xi’An and 20% in Beijing. 区”》,《人民论坛》2012 年 7 月 4 日[Song, Linfei, NoSpecial Economic Zone for Legalization of Small-Property Houses, PEOPLE’S FORUM, July 4, 851-18443279.html (last visited Feb. 15, 2013).3Shitong Qiao, Planting Houses in Shenzhen: A Real Estate Market without Legal Titles, CANADIANJOURNAL OF LAW AND SOCIETY, VOL. 29, 253-272 (2014).2

contract breach and of government demolition are greatly reduced because of the implicitconsensus on rural land development and transfer.4Chinese use color to distinguish the legality of organizations and their activities:“black” means totally illegal and often involves mafia5 activities marked by violence andcrime; “white” means totally legal and official recognition. On most occasions, smallproperty is “grey,” i.e., between black and white. However, as land available fordevelopment decreases, the Shenzhen city government has adopted various policies onsmall property, ranging from legal enforcement of the prohibition to legalization.6 Thesevarying and changing policies, together with the tensions and conflicts within the Chineselegal system, have led to different interpretations and applications across time and indifferent villages, resulting in the diverging destinies of small property.This paper focuses on how the small-property norms interact with the fragmentedand layered Chinese property laws. Further, defining the direct conflict between law andsocial norms as a tragedy and their reconciliation as a comedy, this paper also serves as acase study of the mixture of tragedies and comedies of collective land governance inChina. The term tragicomedy is to capture such a mixture.7Some villages successfully gain government recognition of their real estatebusiness by making use of various government policies. There are also villages that havegone the opposite route, i.e., giving up any legal dialogue with the official system, and4Shitong Qiao, Small Property, Big Market: A Focal Point Explanation, AMERICAN JOURNAL OFCOMPARATIVE LAW, VOL. 63, NO. 1, 2015, forthcoming, available at id 2399675.5Mafia is a vague term with no consensus definition. But generally speaking, their primary activitiesinvolve the use of violent intimidation to manipulate local economic activity, in particular illegaltransactions. As Milhaupt and West argue, mafia, or organized crime, is “an entrepreneurial response toinefficiencies in the property rights and enforcement framework supplied by the state.” Curtis J. Milhaupt& Mark D. West, The Dark Side of Private Ordering: An Institutional and Empirical Analysis of OrganizedCrime, 67 U. CHI. L. REV. 41, 43 (2000).6Shitong Qiao, Small Property, Adverse Possession and Optional Law, in LAW AND ECONOMICS OFPOSSESSION (Yunchien Chang ed., Cambridge University Press 2015), forthcoming, available at id 2437639.7Donald Elliott used this term to reflect that human beings sometimes solve their environmental problemsand live in harmony with nature, but in other instances, they fail to solve them and destroy the naturalworld upon which their own survival depends. Elliott, E. Donald. “The Tragi-Comedy of the Commons:Evolutionary Biology, Economics and Environmental Law.” 20 Virginia Environmental Law Journal 17(2001).19-203

resorting to bribes most often and sometimes to violence. Both the ‘whitening’ and‘blackening’ of small property exist in Shenzhen. This paper presents two oppositestories of small property: one village co-op is captured by a mafia and the consequentmafia-style small property business is maintained through violence and the bribing ofgovernment officials; the other is a village co-op that from time to time takes actions “inthe name of law” in their bargaining for legal property rights with the government andwith a hold-out couple who refused to submit their “nailhouse” (the Chinese term forsuch buildings because they stick out and are difficult to remove, like a stubborn nail)8 tothe village co-op for redevelopment.The central question to the commons is why some result in a tragedy while othersresult in a comedy. A typical Demsetzian story that focuses on market incentives wouldbe that there should be no difference in the development of small property acrossdifferent villages, though there might be a difference in the degrees of marketdevelopment.9 Clearly, the resolution to the central question cannot be achieved byfocusing on a single level of analysis such as market incentives. The key is that the threesocial-control systems, the market, the community, and the formal legal and policysystem, are co-evolving and mutually influencing. How is institutional change to beunderstood from such a co-evolving and dynamic perspective? Social scientists haveprovided us with some clues. John Padgett and Walter Powell provide a theory of the coevolution of social networks through their infrastructural work of synthesizing socialscience with biochemistry.10 They focus on the multiple roles of actors in different arenas,which according to them, are the channels through which mutual interactions and coevolution is achieved. Elinor Ostrom argued that “individuals who have self-organizingcapabilities switch back and forth between operational-, collective-, and constitutionalchoice arenas, just as managers of production firms switch back and forth betweenproducing products within a set of technology, introducing new technology, and investing8Stubborn as a Nail: China Residents Who Refuse to Move, ABC mage19828396. For a scholarly discussion of such a case, see Shitong Qiao, Preventing Land Grabbing byPrivatization: Illusion or Reality? (May 2010, unpublished manuscript) (on file with author).9Harold Demsetz, Toward a Theory of Property Rights, 57 AM. ECON. REV. PAPERS & PROC. 347 (1967)10JOHN F. PADGETT & WALTER W. POWELL, THE EMERGENCE OF ORGANIZATIONS AND MARKETS (2012).(I am grateful to Xiaohong Xu for recommending this literature.)4

resources in technology development.”11Following such a path, I discovered that different identities of village leaders arethe key to understanding the co-evolution of property law and norms in Shenzhen. Forexample, a village leader in Shenzhen has three identities: operator of the village co-opcorporation and thus responsible for maximizing its economic performance; villagers’elected representative that should take care of villagers’ interests; and implementer ofgovernmental laws and policies. How a village leader plays these three roles bothinfluences and is influenced by the three co-evolving systems (market, community, andthe law and policies). This paper is structured as following: Part I presents thetragicomedy of small property in detail. Part II introduces the concept of layering andfragmentation of law and discusses its challenge to law and social norms, and exploreshow choice of rules needs to consider the co-evolving and mutually-influencing nature ofdifferent social control systems. Part III applies the multiple-network evolution model toexplain the tragicomedy and investigates how the three identities of village leadersinfluence each other and the systems in which they are embedded. Part IV concludes.I. Two Legal Destinies of the CommonsThe emergence of a small-property market accompanied three decades of rapidurbanization in Shenzhen. Even when facing the same market demand and the sameformal institutional structure, however, villages have different destinies. Some villagesmade their members millionaires and even billionaires. Their rights to develop their landwere recognized by the city government and cashed out through village redevelopmentprojects.12 Some villages’ development of rural land was strictly restricted by the citygovernment for environmental and other kinds of considerations.13 In this case, villagers’rights to develop their land were not recognized, and these villagers remain poor. Some11Elinor Ostrom, GOVERNING THE COMMONS: THE EVOLUTION OF INSTITUTIONS FOR COLLECTIVE ACTION50 (1990).12See Shitong Qiao, Small Property, Adverse Possession, and Optional Law, in Law and Economics ofPossession (Cambridge University Press, 2015), available at id 2437639.13Id.5

villages’ small-property businesses were warned and fined by the government and evenbecame a target of criminal prosecution, as in the Wanfeng village case discussed in thefollowing sections. Many other villages are still on their way to gaining governmentrecognized rights to develop and sell their land.14Sometimes, even between villages sitting on opposite sides of a small river,completely different outcomes occurred. On one side is a village full of small-propertyconstructions where villagers have shown no respect for the legal prohibition on ruralland development and transfer and have “planted” as many houses as possible in eachvacant plot.15 On the other side is a village in which construction has been restricted bythe village co-ops, which in turn has devoted time and resources to applying for legalrights to develop and sell their land under the adaptive institutional openings. Thesedisparities are possible due to the fragmentation and layering of laws.From a long-term perspective, with officially recognized rights, villages can getaccess to capital, strategic investors, business ideas and technology available to the legalreal estate business, and can make much more money from their land. This bright butuncertain future involves substantial costs. Many in such “legal” villages complain that,“We’re losing money every day by not developing our land—the cost of complying withlaw is too high!”16Violation of the legal prohibition usually does not lead to serious penalties,although villagers pay government officials bribes regularly to reduce the risk of legal14See [Southern Metropolis Daily ed., No Intra-City Village inthe Future (2011)].15See Qiao, Planting Houses in Shenzhen, supra note 制创新研究报告》[NAT’L SCHOOL OF DEV., INVESTIGATION REPORT OF LAND REFORM IN SHENZHEN 18 (2013)]6

enforcement. But the “gray” small-property business could also go black and totally floutthe law. This involves “flagrant forms of criminal activity”17 which often incursimmediate social costs—in such cases, the government often cracks down by lawenforcement.One must then wonder why and how some villages have stuck to the legalapproach, despite the high costs of wandering “before the law.” One must also wonderwhy and how some villages have been swamped by illegal activities such as bribery andorganized crime. Later I will discuss two cases in detail to investigate the above questions.In one case, Wanfeng village and its leader were prosecuted for bribinggovernment officials to cover up their small-property business, and the leader was alsoconvicted for participating in a mafia, of which the main business was small property inrecent years. In the other case, Zhangshubu village co-op has acquired legal rights toredevelop the village land and has even resolved the hold-out problem by the majorityvote of the villagers’ assembly and suing a nailhouse holder in court.A. Wanfeng: The Mafia-Style Small-Property BusinessWanfeng is a village in the Shajing sub-district of Bao’An district. It has an areaof 6.8 square kilometers with a total population of 60,000, only 2,067 of whom areofficial residents of the village. Most of them share the family name Pan. It used to becalled one of the top four super-villages in China in the 1990s because of its wealth,which was accumulated mainly through building factories to rent to outside investors.18 It17See Kellee S. Tsai, Adaptive Informal Institutions and Endogenous Institutional Change in China, 59WORLD POL. 116, 126-7 超级村庄”的社会变迁》[ZHE XIAOYE, THE VILLAGE REMAKING(1997) (a classic book on Chinese super villages based on the case of Wanfeng.)]7

was also the first village in Shenzhen that experimented with village co-ops, a form ofcollective economic organization that has since been adopted by all other villages inShenzhen. Under the village co-ops, the board is in charge of the management ofcollective-owned land and responsible for issuing dividends to villagers each year.19 Itwas also one of the earliest villages that conducted large-scale commercial residentialhousing development under the name of building residential housing for their ownvillagers, most of which were actually put onto the small-property market.With the rise and growth of a mafia of local villagers, the small-property marketin Wanfeng, and in the Shajing sub-district in general, became a partnership betweencorrupt government officials, the mafia, and village co-op leaders, resulting in criminalprosecution and a crisis of the market.1. Brother Dragon and His XinyianXinyian, considered “the biggest mafia in the history of Shenzhen,” was createdby a local villager of Haosi village, located in the Shajing sub-district and close toWanfeng village. Its leader, Brother Dragon (“BD”) became a member of a local mafia inthe 1980s, during which time various mafias fought for territory and resources. BDgradually made himself the ultimate leader and mediator of all mafias in the Shajing subdistrict and united them under a single name, Xinyian, a famous Hong Kong mafia inwhich BD’s uncle was a leader.To be a “little brother” (mazai) of BD means there are rules to follow, the mostimportant three of which include:19See Part III for more details.8

(1) No fighting within the mafia; territories are divided according to theboundaries of villages and crossing the boundaries to “develop business” isforbidden;(2) Mutual support should be offered whenever it is needed; outsiders people mustbe informed that the little brothers were “Brother Dragon’s man”; and(3) BD’s orders must be followed absolutely.20Little brothers who violated any of the above rules were beaten. In the case ofinfighting, prices were clearly set: RMB 3000 for one punch; RMB 30,000 for one cut;the initiator pays.21 However, the real threat is the loss of BD’s support, in which casethis “little brother’s” business would be subject to others’ encroachment without anyremedies.22Eventually, Brother Dragon controlled all of Shajing. Almost all of the garbagecollection stations, gas stations, strip clubs, and real estate businesses were eithermanaged or owned by his men. It is said that he was “the emperor of Shajing.”What is more surprising is BD’s influence in village elections and grassrootsgovernment operations. BD intentionally chose the most influential men (as determinedby wealth or connections) in each village to be little brothers.23 It is said that almost everyelected village official had to get support from BD to different degrees and that BD couldcontrol at least one-half of the votes in each village.24 In some cases, BD’s men would bepresent in village elections to deter any 一初字第 227 号[ShenzhenIntermediate Court Criminal Case First Trial No. 227, at 193 (2012)].(hereinafter Shenzhen CourtDecision).21Id. at 198-9.22Id. at 219.23Id. at 145.24Id. at 328.25Id.9

A party secretary of a villagers’ group disclosed a case to government officialsduring the investigation of BD’s mafia:Two or three years ago in our village election, one person was not obedient; the nextmorning when he got up, his car was smashed. It is the big brothers of Xinyian thatdecided our elections, even party-secretary Liu of the Shajing sub-district government didnot matter. I feel that is not the country of the Communist Party, but the mafia’s.26BD also had good connections with the Shajing sub-district government. It isrumored that even party-secretary Liu would follow BD’s orders. Liu was prosecuted as a“protection umbrella” (baohusan) for BD’s mafia: he received over 12 million RMB intotal from BD for various conveniences he provided for BD’s businesses. For example, in2008, BD bought about 20,000 square meters of land from Bogang village. In 2009 theShajing subdistrict government planned to requisition the same plot: BD invited Liu todinner and gave him a bag of HKD 2 million in cash afterwards. The plot has still notbeen requisitioned.27Meanwhile, it is interesting to note that Liu confessed that he had to rely on BD togovern Shajing. Liu was not from Shajing. He had been appointed as the party secretaryof the Shajing sub-district in 2003 and was introduced to BD by a subordinate, who wasfrom Shajing and was BD’s friend. Liu was told that “he can displease anybody inShajing but not BD.” It turned out Liu had to seek help from BD for official andlegitimate government affairs. For example, in 2008, when a little brother of BDorganized over 30 villagers to disturb the party branch election in his village, Liu had toask BD to call this man off.2826Id. at 307-8.Id. at 31.28Id. at 733-4, 741-5.2710

Overall, BD’s Xinyian functions like a government. Villagers describe BD asencompassing both the black and the white societies (“hei bai liang dao tong chi”). Thefollowing is an example:Five years ago, our company’s elevator was found in violation of the safetyguidelines by the safety inspection department of the Shajing government, whichrequired us to uninstall it within a month. At the expiration of the one-monthdeadline, the safety inspection department came to uninstall it on site. Somebodyin our company called one of BD’s little brothers, who came in less than 15minutes and told the safety inspection department that it was BD’s business. As aresult the officials gave us two-month extension. From this we know that BD iswell connected with the government. Moreover, whenever our employees werebeaten or things in our factory were stolen, we would notify BD’s men, whowould come and check. Then our factory would be more peaceful for awhile. We outside investors all hope to have a good work environment and darenot offend BD’s black society.29In the early 2000s, BD saw huge profits in the real estate business and found Chen,a real estate developer, to do business with him.30 BD bought a lot of land from villagesat low prices. BD had little brothers in each village of Shajing, some of whom werevillage co-op board members, village party branch members, or villagers’ committeemembers. Even in villages where BD’s men did not have official positions, they still hadinfluence in the village governance due to their violence, wealth and connections.Moreover, these deals were often opaque. Usually BD only had to deal with one or twovillage leaders, though legally, transactions involving village assets had to be approvedby the village co-op board or at the shareholders’ meeting of the village co-op.31 Forexample, in 2003, BD bought an industrial plot of 30,000 square meters from SL villageat 6 million RMB. The price was 200 RMB for 50-year use rights per square meters. BDsold this plot to Haoyi village for 55.2 million RMB in 2007. The 2003 transaction was29Id. at 315.Id. at 282.31Id. at 546.3011

made after BD’s private conversation with the village’s party secretary.32 As for the 2007transaction, according to the director of the Haoyi villagers’ committee, “We werewilling to sign the contract because it was BD’s company.”33BD made quick profits from such resales. A more significant case occurred in2007. On September 11, 2007, BD and Chen bought 70-year use rights of 41,549 squaremeters of land at a price of 30 million RMB from the Shangxing village co-op. After alittle over one month, they sold it to the Haosi village co-op at 158 million RMB onOctober 26, 2007.34In some cases BD and Chen also developed real estate programs with otherpartners. Violence was used in their pursuit of profits. At the end of 2008, Li, an outsideinvestor, bought three floors of Yufuyuan, a small-property building from Chen. The totalamount agreed to was 140 million RMB. Li paid five million RMB as front money andagreed to pay the remaining amount from future sales income. Li very successfullyintroduced a shopping mall with the three floors; the income from selling the first 25% ofthe units alone amounted to 70 million RMB. That meant the total amount would beabout 280 million RMB. Chen had not expected the three floors to be so profitable, andhe asked Li to withdraw from the project. BD brought Li to Chen’s office and told him:“Boss Li, Yufuyuan is not a big deal; Chen told you not to do it—you should notcontinue; if you withdraw, I can give you several million RMB and another project to do.”BD sat for a while and then left. Chen ordered Li to stay for a whole night and forced himto sign a contract and submit relevant documents, including the project license to them,32Id. at 545Id.34Id. at 34.3312

but Li kept the original contract from them, which prevented Chen from finishing theofficial transfer procedure. As the result, in October 2009, BD’s men kidnapped Li for awhole week and forced him to sign other contracts and submit the original contract andother remaining documents to finish the official transfer procedure.35It was not rare for violence to be used as the last resort to maintain BD’s business.It is said that most of the fighting in Shajing in the past years was related to BD; BD’smafia members committed quite a few murders.36 Villagers in Shajing can be horrified atthe mention of BD’s name. Nobody dared resist what BD planned to do. For example,BD seized some villagers’ land to build a club to treat his men and clients, and thevillagers dared not complain until he was arrested.37 A village cadre told another story tothe police after BD’s arrest, saying “Don’t like the 24-hour operation of the laundromatnear your home? It was BD’s business – keep an eye on your home window during thenight (if you complained)!”382. Criminal Prosecution, Wanfeng’s Fall, and A Crisis of the MarketWanfeng is a village in Shajing that has been heavily influenced by the XinyianMafia. The village co-op board chairman, Pan, became a little brother of BD. Pan’sdefense disputed this by arguing that Pan had no motivation to participate in BD’sXinyian mafia, since he was the party secretary and village co-op board chairman. In35Id. at 383-4. Here it means the change of the owner of the company at the business administration bureau.See Chapter Two: though small-property houses are not recognized, business based in small-propertyconstructions are legally recognized.36Id. at 307.37Id.38Id.13

other words, his defense claimed, Pan would not profit economically, socially, orpolitically from joining a mafia.39This seemingly plausible argument was contradicted by Pan’s own testimony andthe facts. Pan confessed, “I devoted myself to BD with all my heart. Upon BD’s call, Iwould drop anything at hand and run to his office and call him boss. Their real intentionin controlling me was to force me to sell land cheaply to them at the expense of ourvillagers’ interests, but I cannot control my own fate and have to follow their control.”40Pan did keep close ties with BD and sold him village land at low prices. Pan solda lot of land to BD and even cooperated with BD in small-property development in thename of building concentrated residential apartments for villagers, a plan that was notapproved by the village co-op board and was unknown even to many ordinary villagers.Much of the land has been transferred to BD. Wanfeng is located at the central area of theShajing subdistrict, where land is very valuable. But Wanfeng village co-op has not paiddividends to villagers since 2002 due to bank debt, which amounted to over 1 billionRMB.41 On the other hand, villagers saw village land developed into small-propertybuildings one plot after another without any benefits for villagers. In reality, most of thebuildings were controlled by BD’s companies, even some constructed under the pretenseof being “unified buildings for villagers.”As powerful as BD and his mafia were, they eventually became targets ofcriminal prosecution. In February 2012, the Guangdong provincial government launched39Id. at 69.Id. at 神话”17 2006 年 2 月 12 日[Jiagang Tian & Jianfeng Jing, The Mystery of Wanfeng Fell into Quandary after 17 Years, DEM. & RULEOF L. NEWS, Feb. 12, 2006], html.4014

a campaign called “three strikes and two build-ups.” The three strikes were striking the“monopolization of the market through violence,” striking the “making and selling ofcounterfeit products,” and striking “commercial bribes”; the build-ups were building up“a social reputation system,” and building up “a market supervision system.”42 BD’smonopoly of the small-property market in Shajing and his bribery of government officialsbecame prime targets under the campaign. In early 2012, the police rooted out theXinyian mafia; 102 mafia members were arrested, leading to over one hundred criminalprosecutions.43BD was prosecuted for organized crime, murder, kidnapping, bribery, etc. Mostinterestingly, however, he was also prosecuted for “illegal transfer of land use rights”despite the fact that village leaders who sold the land to his company were not prosecutedfor the same crime. Pan, the village head of Wanfeng, was prosecuted for participating ina mafia and bribing government officials but not for “illegal transfer of land use rights.”The crime of “illegal transfer of land use rights” is set forth in Article 228 of theChinese Criminal Code, which defines it as “with the purpose of making profits and inviolation of land administration laws, transferring land use rights illegally, in a serioussituation.” Such “serious situations,” as defined by the Chinese Supreme Court, include“making more than 500,000 RMB profits,” “transferring more than five mu of 三打两建”[Symposium: Guangdong Fully Implements “ThreeStrikes” and “Two Build-Ups, XINHUA NEWS GUANGDONG CHANNEL], This campaign was initiated by Wang Yang, then governor ofGuangdong province and currently Vice Premier of the State Council of China. As stated, the main pur

farmers had built over 6.6 billion square meters of houses in evasion of the legal prohibition on private rural land development and transfer, resulting in a huge market of illegal houses. By way of comparison, in 2007, the total floor space of housing sold on the legal housing market wa