[Voision and Calculation] Chapter 6 Transactions and Cities / Sheng Hong

Abstract: The main objectives of this paper are to explain the origination, development, density, scale determination, and industry positioning of cities using the concept of transactions and to discuss the impacts of institutional changes and policy improvements on cities. Statistically, transactions can bring about transaction benefits. Pursuing transaction benefits leads people to congregate, which may yield congestion externalities and market-net externalities, and their differences form the congregation rent. Population density may reach the optimal equilibrium when the congregation rent corresponding to the population density is at its maximum, which determines the economic density and scale of the city. The time distribution of the city’s growth process is similar to the economic income change corresponding to the change in population density because the people’s incentive to swarm into cities is proportional to the benefits that they may receive from cities. A larger economic scale results in a stronger congregative effect. Different industries may position from the center of the city to the outside according to their congregative effects from higher to lower that depend on the different optimal economic scales of different industries. Finally, the decrease in nonmarket transaction costs brought about by institutional changes may affect the density and scale of cities through an impact on the volume of transactions; policy changes may also affect transaction costs and the density and scale of cities. However, such effects may not be as obvious and sustainable as institutional changes.

Key words: city, transaction, congregation, institutions
JEL Classification: C21, R12, R29

Vision and Calculation, published by Palgrave Macmillan, 2020.

 

The research on spatial economics led by Krugman primarily names economies of scale in production as the reason for spatial agglomeration (Fujita Masahisa, Paul Krugman and Venables, 2005). However, some gaps exist between this statement and the facts. In fact, most of today’s cities are mainly finance-, trade-, commerce-, education-, and entertainment-oriented, and they house government agencies. These functions can be summed up in one word, “transaction.” Industrial production is generally located in suburbs not far from the city. Explaining the origination of cities with economies of scale in production may apply to the industrial period of the 18th century but not to today.

The purpose of this article is simple: to explain the origination, development, and spatial layout of cities with “transactions.” The “transactions” to which this article refers is a broad term in institutional economics that means the interactions between people, including transactions in the market, management and collaboration within enterprises, and interactions between the government and citizens, the government and businesses, such as taxation and paying taxes, public goods provided by the government, and enjoyment by citizens and businesses.

In particular, transactions include remote transactions, often called “trade.” However, the “trade” referred to includes only local activities and impact; that is, regardless of where goods are bought and sold by a trader, we only count his results in local transactions—we only assume that all or part of the transaction benefits fall to local places. This understanding even includes offshore trading and online transactions; that is, both producers and consumers of that product are not local. This is similar to our understanding of the fact that trade creates wealth. The purpose is only to consider the impact of trade locally to simplify the problem.

We will find that once we make “transactions” the basic unit of the research on spatial economics, we associate this theory with institutional economics because “transactions” is also the basic unit of institutional analysis (Commons, 1983, p. 73). When we use “transactions” as the “common unit” for spatial and institutional economics, we can both spatialize the institutions and add institutional and policy variables into spatial economics, which significantly expands the dimensions of the analysis.

  1. The spatial nature of transactions

Economists believe that transactions create value, which refers to not only the dynamic results—the transaction price may guide the effective allocation of resources and promote the deepening of the division of labor and specialization—but also to a static value—the increase in the present welfare attributable to different resource endowments and comparative advantages. In this article, we discuss only the static value of transactions and assume that each transaction has benefits, as indicated in Figure 1.

Figure 1 Transaction benefits

Note: The triangle represents transaction benefits and consists of two parts: consumer surplus (the white part) and producer surplus (the gray part). The benefit of consumer surplus is expressed as lower prices, and producer surplus can be expressed as money or, approximately, as value added or GDP.

Because achieving a deal creates a benefit of transaction, people have an incentive for more transactions. To achieve this goal, they must overcome the obstacles posed by transaction costs. In the broadest sense, transaction costs contain much content, one of which is distance costs. A significant change is traders moving their place of residence closer to other traders, which significantly reduces the distance costs, even approaching zero.

The phenomenon of traders coming close to each other can be described as “space congregation,” and its popular name is “city.” Compared with “fragmentation,” “congregation” creates a permanent asset. If the distance costs for A’s round trip from his residence to B’s residence is a, and the benefits that he gains from transactions with B is greater than a, this is equivalent to permanently reducing the cost of a if A moves to B’s residence, and the value of the assets is as follows:

V = A/r

where V is the value of congregation assets, A is the total distance costs for one year, and r is the discount rate.

In addition to significantly reducing traders’ distance costs, congregation also brings about the unexpected benefit that the transactions achieved are disproportionately higher than the number of traders gathered. This benefit is also referred to as the “network externalities of the market.” This term borrows from the concept of “network externality”: as the number of nodes increases, the number of relationships between the nodes increases at a faster rate. The reason for “externality” is because the benefits from the increase in the number of transactions brought by congregation is not the result of traders’ efforts but of other traders’ congregation, whereas the latter is the external factor for this trader. If we use ME to represent the network externality of the market, it can be expressed as follows:

ME = n (n–1) / 2

where n is the population density or the number of people per unit area. This formula represents in certain areas the combinations of the one-to-one relationships among n people and represents the potential market transaction volume. In practice, within a certain period, not every person can engage in one-to-one transactions, but a certain percentage of people will. Therefore, the formula can be multiplied by a coefficient of less than 1 (such as 1/100), but the trend that the formula represents remains unchanged. See Figure 2.

Figure 2 Population Density and Market Network Externality

Note: The horizontal axis is population density (100 persons per square kilometer), and the vertical axis is market network externalities (number of transactions).

If congregation only has such features, then a higher population density and larger city are preferred. However, congregation also bring opposing forces that prevent cities from expanding indefinitely. For example, as more people congregate in a city, the economy becomes similar to a large economy from which the marginal utility of a product or service decreases and its marginal costs increase as the population density increases. That is, the marginal transaction benefits decrease with an increase in population density, as shown in Figure 3.

Figure 3 Marginal Transaction Benefit

Considering this factor as within the network externalities of the market, the formula can be revised as follows:

CE ≈ ∑(a – c) n – (b + d) * n2) (for a detailed derivative process, please see Annex 1)

where CE is the network externalities of marginal transaction benefits; a and b are the intercept and slope of the marginal utility function, respectively; and c and d are the intercept and slope of the marginal cost function, respectively. We draw the following trend, as illustrated in Figure 4.

Figure 4 Population Density and Network Externality of Marginal Transaction Benefit

Note: The horizontal axis is population density (100 persons per square kilometer), and the vertical axis is the network externalities of marginal transaction benefits (100 yuan per square kilometer).

In contrast, an increase in the population density also leads to pure cost increases, such as an increase in the costs of congestion externalities. Assume that the city is in the shape of a circle and that the commuting population lives outside the city and only enters the city when going to work or shopping. If we calculate according to the city’s highest population density within one square kilometer and consider the proportion of people living inside and outside the city, we can assume that there are Nin people (100 people) entering the city center. If the transport resource is the land that is covered by roads, we assume that the circumference of any radius of the circle from the center of the city is transport resources. When people move toward the city center, the radius distance from the city center decreases, and the circumference—the transport resources—also lessens, but the number of people has not decreased, which leads to congestion. The costs of congestion cannot be attributed to a single person but, rather, to the congregation of all traders who gather. Therefore, negative “externalities” exist that can be expressed as follows:

JE = Nin / [2(Nπ / n)0.5]*nh (for a detailed derivative process, please see Annex 2)

where JE is congestion externality, Nin is the number of people entering the city center daily (per square kilometer) and includes not only the employed but also external consumers; and H is the congestion coefficient, a number greater than 1. Congestion externalities change as the population density changes, as shown in Figure 5.

Figure 5 Population Density and Congestion Externality

Note: The horizontal axis is population density (100 persons per square kilometer), and the vertical axis is congestion externalities (100 yuan per square kilometer).

  1. Equilibrium Scale and Population Density Distribution of Cities

Clearly, the equilibrium level of the population density brought by congregation, or the equilibrium level of a city’s population density, is determined by both market-network externalities of marginal transaction benefits and the costs of congestion externalities. That is, at different population density levels, market-network externalities (congregation benefits) minus congestion externalities (congregation costs) are what we call “congregation rent” (see Appendix 3 for the formulas), as shown in Figure 6.

Figure 6 Relationship between Population Density and Economic Benefits, as well as Optimal Population Density

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Note: The horizontal axis is population density (100 persons per square kilometer), and the vertical axis unit is 100 Yuan/square kilometers. The light blue line is the congestion rent curve.

Figure 6 shows that congestion rent increases with an increase in population density and begins to decline when reaching the maximum point. This relationship indicates that this maximum point is the optimum scale of urban population density.

“Optimal population density” is emphasized as not referring to the overall size of the city or the population density in all areas of the city. Instead, optimal population density refers to the population density of the city center. This model can provide both the population density in the city center but also the urban population density in any area of the city. In reality, the population density varies in different parts of the city. Generally, in a single-centered city, the population density is higher in areas closer to the city center and lower in areas closer to the edge of the city. Transforming these coordinates, with the horizontal axis as distance to the city center and the vertical axis as population density, the specific circumstance is shown in Figure 7.

Figure 7 Population Density and Distance to City Center

Note: The horizontal axis is the distance to the city center, and the vertical axis is population density. Figures in brackets are negative values.

The three-dimensional figure is shown in Figure 8.

Figure 8 Population Density and Distance to City Center (three-dimensional)

Practically, we use a city’s geographic data and our model to simulate a population density map. See Figure 9.

Figure 9 Single Center City Area Diagram

Note: This diagram is generated using ARCGIS software with data from EXCEL. Each small square represents a space of 100 meters x 100 meters. Different colors represent different population densities, with darker colors indicating higher population densities.

Given that the distribution of the population density is related to the economic variables, such as transaction benefits or congregation rent, the density distribution of these economic variables is quite similar. See Figure 10.

Figure 10 Economic Density and Distance to City Center

Note: The horizontal axis is the distance from the city center (km), and the vertical axis is economic densities (100 persons per square kilometer, yuan per square kilometer). Among them, producers’ network externalities and congregation rent and congestion externalities are set according to the left axis, whereas population density is set according to the right axis. Figures in brackets are negative values.

The distribution of population density and other economic densities presents the equilibrium density of various parts of the city and provides a possible forecast for urban planning. Meanwhile, by integrating the population density or other economic densities in various parts of the city, we obtain the aggregate data, that is, total population, total congregation rent, or total GDP. We also obtain the per capita or per area economic magnitude by dividing these total data.

In the previous analysis, we assume that a sufficient number of people exists around the city, and the supply of resources such as water is also abundant. However, in reality, this is not always the case, and we have found that some cities are large and some are very small, implying that different needs and resource constraints exist on premises with the same theoretical scale.

The so-called “demand constraint” for urban development refers to the demand of the population congregation for urban space. This constraint depends on the amount of peri-urban population as well as the city’s geographical location. In a sparsely populated area, even if urban space can be formed theoretically, it is impossible to form large cities. The scale of the city simulated by the previous analysis can be compared to a bottle, and the demand for urban space is water. The real scale of the city is determined by the water inside the bottle. Of course, if the water is beyond the space of the bottle, it will flow out to another bottle—another city.

Similarly, the resource constraint compares the city’s maximum scale at which resources around the city would be able to sustain with its theoretical scale, and selects the smaller of the two as the real “space supply.”

Therefore, if we want to determine the scale of a city in reality, we need to compare its theoretical scale subject to resource constraints, that is, the actual “space supply,” and its actual “space demand” and choose the smaller one as the actual scale.

  1. Formation of the City

The power of the formation of urban congregation comes from the agents of the market economy, that is, individuals and institutions as economic agents. Figure 11 illustrates that the maximum value of per capita congregation rent is to the left of the maximum value of congregation rent as a whole. This comparison indicates that economic individuals have more motivation to gather in urban areas and, thus, become the main driving force for the development of a city congregation. In turn, the population density increases, especially before the maximum point, further encouraging people to gather in urban centers. This process is said to be of congregation and density increase as reciprocal causation.

Figure 11 Diagram of Congregation Rent and Per Capita Congregation Rent

Note: The horizontal axis is population density, and the vertical axis is congregation rent. The congregation rent is set according to the left axis, and the per capita congregation rent is set according to the right axis.

This diagram also shows that (1) when the per capita congregation rent passes the maximum value point, people still have the incentive to enter the city center because it is more competitive than other places despite the diminishing returns; and (2) when the per capita congregation rent is reduced to a certain level that is not enough to compete with other places, people lack the motivation to enter the city center and stop entering. At this time, the population density reached its maximum equilibrium levels.

From the derivative of congregation rent, we see more clearly that the increasing “speed” of the economic benefits is different as the population density increases. It starts slowly, then speeds up, and finally slows down. See Figure 12.

Figure 12 Congregation Rent and Derivative of Congregation Rent

Note: The horizontal axis represents population density, and the vertical axis represents congregation rent and its derivative. The congregation rent for producers is set according to the left axis, and the derivative of the congregation rent for producers is set according to the right axis.

If the amount of revenue directly corresponds to the intensity of the motives, this derivative curve for congregation rent is the time distribution of motives.

In general, the greater benefit an economic activity, the greater motives people have and the faster they move. We use this relationship to derive the speed of urban congregation—the development speed—to estimate the time distribution of urban development.

Assume that di/dn is the differential of economic benefits to population density and dn/dt is the differential of population density relative to time. Generally, the growth speed of population density and the change in economic benefits relative to population density is similar in terms of direction and speed. Therefore:

dn/dt = f(di/dn)

Simply put:

dn/dt = di/dn

We directly switch the coordinates of population density (n) with coordinates of time (t) as follows:

dn/dt = di/dt

The derivative of the congregation rent reflects changes in the population density relative to the changes in the congregation rent. Therefore, this derivative directly describes the density changes per unit time.

Figure 13 is the distribution of the population density in a new urban area of a city at different distances from the city center (including downtown) according to the time frame of 10 years.

Figure 13 Changes in Population Density in Different Locations over Time (unit: 100 persons per square kilometer)

Population Density

Note: The vertical axis represents economic density, and the horizontal axis represents time. Curves of different colors represent different locations from the city center in kilometers.

Figure 14 Annual Population Density across Center Point Unit: 100 persons per square kilometer

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Note: The horizontal axis is distance from the city center (kilometer), and the vertical axis is population density.

  1. Industrial Distribution of the City

The layout of industries in the city includes the location of a certain industry and the relative position between one industry and another industry.

Factors determining the location of industries in the city include economies of scale, frequency of transactions, the nature of the face-to-face transactions, distance to the enterprises directly served, and demand for special resources (such as water, green space, and cultural resources). Among them, one of the important factors is the industry’s economies of scale. Masahisa Fujita and Krugman pointed out that people are less sensitive to economies with increasing returns of scale because its advantages mainly manifest as congregation (2005, p. 70); they also indicated that when the industry’s “fixed cost increases, the distance between cities will also increase; this indirectly reflects the amount of the fixed costs, which can be used to roughly measure the importance of economies of scale.”(2005, p. 150) In other words, higher industry economies of scale result in a higher the degree of congregation and the closer the industry should be to the city center. It should be pointed out that Masahisa Fujita and Krugman and others mainly refer to economies of scale of industrial establishments, whereas we discuss economies of scale of the transaction industry.

Specifically, the larger the average size of the enterprises in an industry, the more people it will provide services for—theoretically—and the closer it should be to the center of town. This theory is generally reflected in the bidding of the rent; that is, enterprises with greater economies of scale generate higher revenue in the city center (given the high population density); however, with the increasing distance from the city center, their revenues decline rapidly.

Economic descriptions of different industries mainly reflect the differences in the scales of their economies, demand and supply functions, market structure, and market scale.

Because demand and supply functions are difficult to obtain, this paper only does a rough estimate of these functions mainly to describe different industries with different scales of economies. The market structure is used to adjust the transaction costs; that is, the monopoly market structure has higher transaction costs than the competitive market structure. Scale is used to estimate the total size of the market.

Because the object of our study is the service industry, the supply function mainly reflects transaction costs.

The cost function for a general industry is as follows:

C(q) = F + vq

where F is fixed costs, v is variable expenses, and q is output. We can also use n to replace p, which is the number of people being served. That is:

C(n) = F + vn

More simply, we only consider the fixed costs as follows:

C(n) ≈ F

Large-scale industries have a greater F value, and the corresponding maximum number (n) of people served is also greater. Conversely, smaller-scale industries have smaller F values, and the maximum number (n) of people served that corresponds is also smaller. Specifically:

C(n) ≈ n / ñ * F

That is, when the amount of people in need of services exceeds the technical limits that a fixed asset is able to offer regarding those services, we need to invest in more of the same fixed asset.

According to Krugman and Masahisa Fujita, industries with greater economies of scale will be much more congregated. Thus, we obtain the spatial locations of different industries.

Assume that three industries exist, and their costs functions are as follows:

C1(n) ≈ n / ñ1 * F1
C2(n) ≈ n / ñ2 * F2
C3(n) ≈ n / ñ3 * F3

F1 > F2 > F3, ñ1 > ñ2 > ñ3

The congregation rent (CR) corresponding to each population density or spatial location (in this case, we assume that congregation rent and fixed costs are measured with the same time unit) separately divides the fixed costs of the three industries representing the asset scale (depreciation plus the return on the opportunity assets). We can obtain the unit asset’s return per unit area, which we refer to as return on assets or, in short:

Return on Industrial Assets (Ii) = CR / (n / ñi * Fi)

where i = 1, 2, 3,… represents industries. The unit is unit currency per unit asset per kilosquare meter.

This determines their degree of congregation and location in the city, that is, at any point where the industry with the highest return on assets should be distributed. At a certain place:

MAX(I1, I2, I3, …, Ii, …) = Ij, then Industry J should be located at this place.

See Figure 15.

Figure 15 Economies of Scale, Degree of Congregation, and Positioning of Three Industries

Note: The horizontal axis is the distance from the city center (kilometer), and the vertical axis is the return on assets of the industries. Different colors represent three different industries. At any point, industries with a higher yield (monetary unit/per unit asset/per square kilometer) should be distributed at this place.

In contrast, the relative position between industries is determined by the supply and demand relationship and the degree between them. We use the logistics, information, finance, trade, and technology services industries as examples. These industries are both suppliers and markets to each other; they are mutual penetrating, complementing, and reinforcing. According to the 2007 Chinese input-output table (National Accounts Division of the National Statistics Bureau, 2009), adjusting with the added value of 1 results in the input-output relations of five industries (the “Direct Consumption Coefficient”), as shown in Table 1.

Table 1 Direct Consumption Coefficient between Five Industries (with added value of 1)

The input-output relation in Table 1 is better reflected using the diagram in Figure 16.

Figure 16 Supply and Demand Relationship between Five Industries

In the diagram, the larger the ring with colored lines, the higher degree of interdependence this industry has with other industries. The diagram also indicates the following points:

  1. Each industry has a high input-output relation with itself; for example, the input-output ratio of the finance industry with itself is up to 12.3%, that of the information industry is 10.2%, and that of the logistics industry is 6.6%. These percents describe the high input-output relationships with segments within industries. For example, in the finance sector, the securities industry and the banking industry have a close relationship, and information providers have more business relationships with the software industry.
  2. Relative to other industries, the finance industry has a higher input-output relationship with the other industries category. In addition to its high input-output ratio with itself, the input-output ratio of the finance industry to the trade industry is 8.4%, to the information industry is 4.2%; and to logistics industry is 4.1%. Although the technology services industry does not need many financial services, its major clients—science and technology enterprises—have a very high demand for finance industry services, such as venture capital, bank loans, and issuing stocks and bonds in the securities market. Therefore, the finance industry should be in the central position according to either the economic logic or the space.
  3. In second place is the information industry.
  4. In contrast, the trade industry’s output has a relatively lower dependence on other industries, indicating that it has the characteristics of initial incentives and sources.

These analyses further strengthen the previous judgments made on economies of scale. We can use the actual data of a certain place as an example and draw up the spatial distribution of these industries, as indicated in Figure 17.

Figure 17 Industrial Distribution of an Urban Area

Given the diversification of the economic and technological characteristics of enterprises within an industry, that we can only use the average date to estimate the reasonable layout of the industry should be stressed. This statement precisely proves that this layout structure has no rigid boundaries. In practice, the business space in which most enterprises engage is in the form of an office building, which is universal and interchangeable. Therefore, overemphasizing borders between industries is not needed. Instead, enterprises should be encouraged to find their own locations based on market signals, which is more efficient.

  1. Institutions and Policies that Promote Urban Development

Because cities form and develop through transactions, and the transaction is the basic unit of institutions (Commons, 1983, p. 73), institutions themselves determine the efficiency of transactions and, thus, affect the density and scale of a city. A combination point of institutional economics and spatial economics exists. In general, we can use transaction costs—strictly, unit transaction costs—to evaluate institutions. Under the same transaction utility, institutions with lower unit transaction costs have higher efficiency and vice versa (Sheng Hong, 1992, p. 152). Conversely, institutional innovation and technological innovation will, in turn, reduce transaction costs, which will also promote transactions and contribute to the formation and development of the city.

In this paper, we discuss institutional innovation. Institutional change or innovation includes many aspects, the most important of which is the protection of property rights, the safeguarding market order, and fair adjudication of disputes. Normal market order includes the freedom to access the market, fair competition, and the elimination of monopolies. Here, the market includes both the product market and the factor market.

From a market perspective, we can divide transaction costs into two types. One is transaction costs that are market-oriented, can be measured and traded by currency and are managed by professionals or businesses; these are expressed as the incomes of those professionals and enterprises’ revenues, including also government taxes. The other type of transaction costs is the nonmarket costs that, at least for the time being, cannot be measured in monetary terms, and no professionals or businesses exist to manage these costs. The main reflection is the time and trouble of dealing, which reduces transaction volume and, thereby, reduces the economic density and scale of the city. See Figure 18.

Figure 18 Two Types of Transaction Costs

Note: In the diagram, S is the supply curve excluding transaction costs, and TC2 is the supply curve of nonmarket transaction costs added to the supply curve. When counting nonmarket transaction costs, the price increases from P0 to P0+TC2, and transaction volumes are reduced from Q0 to Q (TC2). The TC1 curve is the curve of market transaction costs, which decrease as producer surplus decreases and, eventually, confluences with supply curve S at the equilibrium point. No negative impact occurs on the price and trading volumes. When nonmarket transaction costs (TC2) are replaced by market transaction costs, transaction volumes increase from Q (TC2) to Q0.

Market-oriented transaction services can replace the time loss and trouble of nonmarket services, the unit transaction costs of which are significantly lower than those of nonmarket transaction services. Moreover, only completed transactions are charged, such as commissions. If not completed, fees are not charged. In addition, ad valorem taxes or fees are only charged after the transaction is completed in proportion to their income, such as sales tax and income tax, and the income of services personnel can also form market demand without reducing average transaction volumes. Nonmarket transaction activities have the characteristics of time and trouble, which potentially affect the realization of the transaction, thereby reducing transaction volumes. An increase in aggregate market-oriented transaction costs indicates that market-oriented transaction services replace nonmarket transactions, increasing efficiency and transaction volumes. See Figure 18.

Overall, with the development of the market system, the ratio of aggregate market-oriented transaction costs to GDP probably increases and nonmarket transaction costs decline. See Figure 19. According to the estimate from North et al., total transaction costs in the United States are increasing in the long run (Wallis and North, 1986, pp. 95–162). This increase is occurring probably because, first, institutional and technological changes in modern times reduce unit transaction costs and increase the transaction volumes. Second, more nonmarket transaction activities are improved into services provided by the market and, thus, can be incorporated into the currency calculation. The estimate of North et al. in fact refers to market-oriented transaction costs. This estimate also indicates that the market system can promote the monetization and professionalization of transactions and, meanwhile, save time and reduce problems in transactions.

Figure 19 Aggregate Transaction Costs of China, Nonmarket Transaction Costs, and Transaction Costs of Transaction Sector

Source: Jin Yuguo, Dec 2006; Da Fengyuan, Zhang Weidong, 2009.

Note: TC is the aggregate amount of transaction costs, and NTC is nonmarket transaction costs.

Conversely, we can determine whether institutional efficiency has been improved simply by examining nonmarket transaction costs, which should decline if institutional reform was conducted. This relationship has been proven by numerous facts. Since the reform and opening up of China, the ratio of nonmarket transaction costs to GDP has been declining (Da Fengyuan and Zhang Weidong, 2009). Intuitively, large nonmarket transaction costs affect the amount of transaction benefits and further exert a stronger impact on transaction volume similar to a lever, which will ultimately hinder the increase in urban economic density and equilibrium scale. Therefore, the decline in nonmarket transaction costs indicates that market-oriented services and transaction volumes increase. As a result, urban density and scale will be increased.

In particular, when calculating the balanced urban economic density and scale, the congregation rent per unit of time minus the nonmarket transaction costs are used. Changes in the latter lead to changes in the urban equilibrium economic density and scale and eventually lead to changes in the aggregate economy. In our model, we could simply simulate the results of changes to the aggregate GDP by adjusting nonmarket transaction costs.

In 2007, China’s nonmarket (nonmonetary) transaction costs accounted for 24.8% of the GDP (Da Fengyuan, Zhang Weidong, 2009), or approximately 22% of the GDP after deducting the transaction costs associated with transportation. Taking these data into account, we use the estimated development of a specific urban area as an example. Assume that under the existing system, noncommercial transaction costs are approximately 22% of the GDP. If we continue to promote market-oriented reforms and reduce the institutional barriers for factors flow, the nonmonetary transaction costs are reduced by 8% in 15 years, reaching 14% (of the GDP). In addition, the speed of institutional change in 15 years has been even. The impact on GDP simulated by our model is shown in Table 2.

Table 2 Impact of Institutional Change on GDP
GDP under Current Institution GDP under Institutional Change Institutional Impact (%)

Figure 20 Impact of Institutional Change on GDP

Figure 20 illustrates that institutional changes can result in irreversible and sustained economic growth. Compared with policies, the impact of institutional change is longer term and more stable, and accumulates. The longer it takes, the more significant the impact of institutional change will be.

Under the premise that the market system is the basic system for urban development, market failures occur in urbanization and industrial development, including the following:

  1. Lack of forecast for the vision of urban development and the final equilibrium scale;
  2. Difficulty bearing the advanced financial costs of large-scale urban infrastructure investments;
  3. Unable to generate valid intellectual property rights and protect and enforce them effectively;
  4. The investments in science and technology innovation are smaller than the investments made when the government intervenes;
  5. The congregation speed is slow when it has not reached the tipping point; and,
  6. Lack of motivation and means of implementation for collaboration between enterprises within an industry.

For some of the market failures, governments can use corresponding policies as remedies, including the following:

  1. The favored policy at start-up;
  2. The house rent allowance policy;
  3. Policies on transaction cost allowances; and,
  4. Policies promoting industrial alliances and association development.

For the content and analysis of the impact of these policies, please see Annex 4.

These policies can be implemented simultaneously and have cumulative or even integrated effects. Table 7 presents our summary and cumulative effects of various policies.

Table 7 Summary and Cumulative Effects of Policies Unit: 100 million yuan
Original GDP Initial Promoting Polices GDP Transaction Costs Allowance GDP Housing Rent GDP Transaction Costs Saved by Coalition GDP Aggregate Effects of All Policies GDP Policy Impact (%)

Figure 21 Overall Effects of Policies Unit: 100 million yuan

Overall, compared with the urban development mechanism and institutional change, the role of policy is smaller. Policy has a larger role only in the early stage of development, which has gradually declined over time. Therefore, prudent and appropriate implementation of policies and putting more effort into improving the market system and promoting businesses and residents to participate in the market is the best way for the government to promote urbanization.

  1. Conclusion

Transactions can form cities, and an analysis of transactions can help improve urban economics and spatial economics theory. On the basis of the transaction analysis, we found that constructing a theory of cities is not difficult and can better explain their formation and development.

This finding is because the economic variables and their characteristics involved in transactions, such as market-net externalities, have a more congregation nature than economies of scale in production. Put another way, these variables lead to more pronounced congregating results.

The analyses of transactions (omitting the analysis of production costs) focus only on transaction costs. The basic methods of analysis compare transaction costs and transaction utility (or transaction benefits) and identify the dynamic characteristics of which transaction utility is higher than transaction costs, thus further identifying the dynamic characteristics of urban spatial congregation.

Analyzing only transaction costs is within the field of institutional economics because institutional economics believes that the transaction is the basic unit of an institution, and transaction costs and transaction utility are important concepts in the analysis of institutions. Here, spatial economics and institutional economics overlap and generate organic links.

The conclusions of this paper are as follows:

  1. The underlying cause of urban congregation is the growth in market network externality benefits, which is caused by the growth in population density but is faster than the latter.
  2. Two main factors counteract congregation. One is the diminishing marginal utility and increasing marginal costs resulting from the increase in the scale of the market, and the other is the increase in congestion externalities costs.
  3. Congregation rent is the difference in (by diminishing marginal transaction benefits) the market’s corrected network externalities and congestion externalities costs. When the congregation rent reaches the maximum point given an increase in population density, in theory, the city’s population density reaches its maximum balance.
  4. Other constraints on the scale of the city are the demand for urban space and resources.
  5. The subjects of urban congregation are individuals or enterprises; because the per capita congregation rent has a variation feature that it arrives sooner than the aggregate congregation rent to the maximum points, first, economic individuals have at least an early motivation to promote congregation, namely, to promote urbanization; second, the congregation rent of individuals declines after the maximum point, indicating that economic subjects represent the major force that brings the city automatically to the stable equilibrium points.
  6. Because the individual’s motivation is proportional to how much he earns, the speed of action is also proportional to the motivation. We can simply use a derivative of congregation rent to approximately estimate the congregation process and the economic density distribution.
  7. Industries with larger economies of scale have higher degrees of congregation; therefore, by comparing the return on assets of different industries at the same place, we will be able to identify the most suitable industry for the location.
  8. Urban development has a close relationship with transactions and transaction costs and a very close relationship with institutional innovation. Therefore, to promote institutional change, particularly centrally planned economies promoting market-oriented reform, market-oriented reform should be further promoted. Institutional change has an increasingly significant impact on urban development.
  9. Because market failures occur during the process of urbanization, policies implemented by the government to address these market failures will also promote urbanization. However, on the one hand, the influence is notable in the early stages but decrease later. On the other hand, compared with institutional change, the impact of policy is not very significant.

Appendix 1 Derivation of Market-Network Externalities Considering Diminishing Marginal Transaction Benefits

The aggregate demand function of the entire society relative to the population density: Marginal Utility = a – b * n

The aggregate supply function of the entire society relative to the population density: Marginal Costs = c + d * n

Marginal Transaction Dividends = Marginal Utility – Marginal Costs = (a – b *n) – (c + d * n) = (a – c) – (b + d) * n

Network Externalities of Marginal Transaction Benefits (CE) = ∑Marginal Transaction Benefits * (ME(n) – ME(n – 1))
= ∑((a – c) – (b + d) * n) * [n(n – 1) / 2 – (n – 1)(n – 2)/2]
=∑((a – c) – (b + d) * n) * (n – 1)
≈∑((a – c) – (b + d) * n) * n
=∑((a – c) n – (b + d) * n2)

n = 1, 2, 3, …

Appendix 2 Derivation of Congestion Externalities Formula

Assume that the city is a circle, and the commuting population lives outside the city and enters the city when going to work or shopping. According to the city’s highest population density per square kilometer and considering the proportion of people living in and outside the city, we assume that Nin (100 people) enter the city center from outside. The transport resources are the areas covered by roads, and transport resources are assumed to be the circumference of the circle of any radius from the center of the city. When people move from outside to the city center, the radius to the center is smaller, and the circumference (transport resources) is decreasing, but the number of people is not reduced, which leads to congestion. See the following figure.

Assume that the number of people entering the city to the total number of people in a square kilometer of the city center is a ratio (Nt); then, the number of commuting people entering the city is as follows:

Nin = Nt * N (per square kilometer)

Unit Transport Resources Capacity = Nin / [2π (N / πn)0.5] = Nin / [2(Nπ/n)0.5]

In fact, obtaining the population per square meter in a downtown area is very difficult because, in the absence of data for congestion externalities, we cannot determine the city center at equilibrium and its population density. Nonetheless, in the end, multiple iterations can achieve this information.

However, the congestion has not only linear proportional relations to the reduction in the number of transport resources per capita but also nonlinear reduction relations. Therefore, we need to add an index associated with population density, which we call the congestion coefficient, and it is represented by h:

Congestion Externalities = Nin / [2(Nπ / n)0.5] * nh

Appendix 3 Formula for Congregation Rent

Congregation Rent(CR) = CE – JE = [(a – c) – (b + d) * n / 2](n * (n – 1)/2) – Nin / [2(Nπ / n)0.5] * nh

Appendix 4 Analyses of Policy Effects

  1. Policy Promotion at Startup

As previously mentioned, when the economic density is low, the market-led congregation speed is slow; only when the density reaches a certain point will the effects of the market increase. Therefore, if during the startup stage the government promotes urban districts to cross the tipping point earlier through policy and other operations, such as utilizing its influence to attract direct investments and to move in public institutions, doing so would also develop the city. However, this governmental role should not be overestimated. Table 1 assumes that, through government policies and operations, an urban district reaches 3000 people per square kilometer at the outset of economic development, and the contrast situation is one without these promotional procedures.

Table 1 Policy Effects by the Government’s Initial Promotion Unit: 100 million yuan
Original GDP Initial Promoting Policies GDP Policy Impact (%)

Figure 1 Policy Effects by the Government’s Initial Promotion Unit: 100 million yuan

This chart shows that the government’s initial push has an obvious impact in the first years, reaching up to a maximum of 55% of the GDP (2013). However, it decreases later and has almost no effect after 10 years. Additionally, in this model, we do not count the cost of government promotion in industrial congregation policy.

  1. Housing Rent Subsidy Policy

To facilitate the industrial congregation planned, the government can adopt policies to subsidize housing rents or prices. Beijing Financial Street subsidies 1000 Yuan/square meter to attract financial firms.

We will consider a 10% subsidy of the housing rates, which is also equivalent to a permanent 10% rental subsidy. Table 2 and Figure 2 represent the effect of the housing rent subsidy policy.

Table 2 Effects of Housing Rent Subsidy Policy Unit: 100 million yuan
Original GDP Housing Rent Subsidy GDP Policy Impact (%)

Figure 2 Effects of Housing Rent Subsidy Policy Unit: 100 million yuan

Figure 2 shows that, although the impact of subsidizing rent is not very significant—usually at approximately 4%~5%—its effects last long and eventually bring a certain increase in total GDP.

  1. Policies Subsidizing Transaction Costs

Administrative departments may establish related funds to subsidize transaction costs, namely, by providing subsidies to each transaction procedures, including the following:
Applications for intellectual property rights;
Technical standards;
Venture capital investment;
Open of the laboratory;
Incubation;
Credit rating;
Loan;
Mediation services;
Public offerings;
Purchasing information products;
Bringing up intellectual property litigation;
Establishment of information system; and
Others.

We assume that the policy on subsidizing transaction costs is implemented for 10 years. The government stops the policy’s implementation after the incubation of mature intermediary service institutions and intermediary service markets have grown up. The effect of the policy is as follows.

Table 3 Effects of Policy Subsidizing Transaction Costs Unit: 100 million yuan
Original GDP Subsidizing Transaction Costs GDP Policy Impact (%)

Figure 3 Effects of Policy Subsidizing Transaction Costs Unit: 100 million yuan

Figure 3 shows that, during the first few years, the effect of policies subsidizing transaction costs is significant, at up to 57% in 2013 and 30% in 2014. It then gradually decreases but still maintains a relatively significant influence. The effect is significantly higher than the government inputs of subsidies for transaction costs (2% of the GDP). Until 2021, the effect undergoes minor fluctuations after the subsidy policy is stopped.

  1. Policies Promoting Industrial Alliance and Association Development

The administrative departments may lead or support enterprises or civil organizations to establish industrial alliances or associations or to support these industries by purchasing their products. The supporting policy can be implemented for 10 years. After that, industry alliances and associations develop and operate by themselves. The assumption is that the results of this policy reduce transaction costs (1% of total value added).

The effects of policies are as follows.

Table 4 Effects of Policies Promoting Industrial Alliances Unit: 100 million yuan
Original GDP Transaction Costs Saved by Industrial Alliances GDP Policy Impact (%)

Figure 4 Effects of Policies Promoting Industrial Alliances Unit: 100 million

Figure 4 shows that this policy has played a role; however, relative to other policies, the effect is not significant but is very efficient compared with the input. Furthermore, this result is only a static analysis. From a dynamic perspective, if this policy develops relatively mature industry associations and industry alliances, it will bring long-term benefits.

References

笪凤媛和张卫东,“我国 1978~2007 年间非市场交易费用的变化及其估算”,《数量经济技术经济研究》2009 年第 8 期。(Da Fengyuan and Zhang Weidong, Changes of Non-market Transaction Costs and its Estimation in China from 1978 to 2007, the Journal of Quantitative and Technical Economics, 2009 (8))

国家统计局国民经济核算司,《中国投入产出表(2007年)》,中国统计出版社,2009。(Department of National Accounts of the National Bureau of Statistics, China Input-Output Table (2007), China Statistics Press, 2009.)

金玉国,“中国交易费用变动的动态机制和传导路径——一个基于VAR方法的实证研究”,《财经研究》,2006 年第12期。(Jin Yuguo, Dynamic Mechanism and Pathway of Change of Transaction Costs in China–an Empirical study based on VAR method, Journal of Finance and Economics, 2006(12))

康芒斯,《制度经济学》,商务印书馆,1983。(Translated from: Commons, Institutional Economics: Its Place in Political Economy, Macmillan Company, 1934.)

盛洪,《分工与交易》,上海三联书店,1992。(Sheng Hong, Division of Labor and Transactions, Shanghai Sanlian Publishing company, 1992.)

藤田昌久,克鲁格曼和维纳布尔斯,《空间经济学——城市、区域与国际贸易》,中国人民大学出版社,2005。(Translated from: Masahisa Fujita, Krugman, Paul and Venables, Anthony J., The Spatial Economy–Cities, Regions and International Trade, The MIT Press, 1999)

Wallis, John and North, Douglass, Measuring the Transaction Sector in the American Economy, Chapter 3 in Long-Term Factors in American Economic Growth, edited by Stanley L. Engerman and Robert E. Gallman, University of Chicago Press,1986.

Triple False of “Judgement” / Sheng Hong

We exposed that the Jiuduhe town government of Huairou District forged the “administrative ruling” of Huairou Court (Sheng Hong, “The Legality Forged”, July 31, 2020), broke the wall in the early morning of July 28 to invade the Old Beijing courtyard in Water Great Wall, and restricted the personal freedom of residents. On July 31, the government of Jiuduhe town sent several people to a resident’s home in the Courtyard and showed them a “administrative ruling of Huairou court”, but the residents were not allowed to take photos. The residents had to read it themselves and record the sound (see the attachment for preliminary transformed text). However, the government of Jiuduhe town was self-defeating, which further proved that their so-called “administrative ruling” was forged.

If we want to tell the authenticity of an antique, and the seller shakes the antique in front of the buyer and does not let the buyer take photos, who believes that the antique is real? A proper procedure for distinguishing the truth from the false should be to let the buyer look at it carefully in person, take the photos and videos back, and ask some experts to express their opinions. If they have different opinions, they should adopt the majority opinion. If the Jiuduhe town government wants to prove that the “administrative ruling” on which it acts is true, it has to produce the original of the document, the on-site video, and provide a copy to each owner. This should have the seal of Huairou court and the signature of the chief judge. Owners can ask relevant experts to identify whether the “ruling” is true. The Jiuduhe town government’s doing so shows that it is in a double panic. On the one hand, if it cannot prove that there is such an “administrative ruling”, it will commit the “crime of forging official documents of state organs”, and bear all the criminal responsibilities since July 28; on the other hand, it will further commit its “crime of forging official documents of state organs” if it knows that the “administrative ruling” does not exist and wants to prove the existence of the document. If it is exposed, it can deny that it has provided a forged “administrative ruling”. However, it further proves that the “administrative ruling” is forged.

Let’s step back and assume that there is a text of the “administrative ruling” that they brought, which is also a forgery. This is because there is a fatal flaw in the content. That is, fake laws, or outdated and invalid laws are cited here. It said, “in accordance with Article 43, paragraph 1, of the land administration act …” The old Land Management Law is used here, which says that if land is needed for construction, “state owned land must be applied for according to law.”. However, the new “land management law” in 2020 has made major amendments, one of which is that rural collective land can enter the construction land market. Therefore, the first paragraph of Article 43 in the old land management law is deleted. The Jiuduhe town government also said that the Huairou court’s ruling was made on July 27, 2020, and the new land management law of 2020 should of course be applied. According to the legislative law, “laws made by the same organ if the new provision is inconsistent with the old one, the new one shall apply.” (art. 92) this is the basic common sense of a judge. The forged “administrative ruling” finally said that the chief judge was Wu Jun, which should be an insult to the judge, because she could not have such poor professional quality. Unexpectedly, she did not know that the land management law, which is crucial to this case, had been amended, and its important basis, article 43, paragraph 1, of the old Land Management Law was deleted.

The second hard injury of the so-called “administrative ruling” is that it has quoted another article of the old land management law, the first paragraph of Article 76. Although this clause is still retained in Article 78 of the new land management law, it cannot be concluded that the old Beijing courtyard house of the Great Wall should be demolished. It said, “Rural villagers have not been approved in case of illegal occupation of land, the land administrative department of the people’s government at or above the county level shall order the return of the land illegally occupied. Where agricultural land is converted into construction land without authorization in violation of the general plan for the utilization of land, the newly-built buildings and other facilities on the land illegally transferred shall be demolished within a time limit. “The so-called construction and use of agricultural land should be “approved” by the higher authorities, which was put forward in the “urban and rural planning law” which was implemented in 2008. However, the old Beijing courtyard of the great wall of water was built in 2006, so it cannot be “retroactive”. Not to mention, the land used by the community of Old Beijing Courtyard is wasteland, not agricultural land. What’s more, what is said to be demolished within a time limit is “building newly”. It is clear that houses built 14 years ago should not be considered “new”. Therefore, the forged “administrative ruling” refers to two legal articles as legal basis, one is outdated and invalid false law, the other is obviously distorted use of law.

Let’s step back and assume that there is a text of the “administrative ruling” that they brought, which is also a forgery. This is because there is a fatal flaw in the content. That is, fake laws, or outdated and invalid laws are cited here. It said, “in accordance with Article 43, paragraph 1, of the land administration act …” The old Land Management Law” is used here, which says that if land is needed for construction, “state owned land must be applied for according to law.”. However, the new “land management law” in 2020 has made major amendments, one of which is that rural collective land can enter the construction land market. Therefore, the first paragraph of Article 43 in the old land management law is deleted. The Jiuduhe town government also said that the Huairou court’s ruling was made on July 27, 2020, and the new land management law of 2020 should of course be applied. According to the legislative law, “laws made by the same organ If the new provision is inconsistent with the old one, the new one shall apply.” (art. 92) this is the basic common sense of a judge. The forged “administrative ruling” finally said that the chief judge was Wu Jun, which should be an insult to the judge, because she could not have such poor professional quality. Unexpectedly, she did not know that the land management law, which is crucial to this case, had been amended, and its important basis, article 43, paragraph 1, of the old Land Management Law was deleted.

The second hard injury of the so-called “administrative ruling” is that it has quoted another article of the old land management law, the first paragraph of Article 76. Although this clause is still retained in Article 78 of the new land management law, it cannot be concluded that the old Beijing courtyard house of the Great Wall should be demolished. It said, “Rural villagers have not been approved In case of illegal occupation of land, the land administrative department of the people’s government at or above the county level shall order the return of the land illegally occupied. Where agricultural land is converted into construction land without authorization in violation of the general plan for the utilization of land, the newly-built buildings and other facilities on the land illegally transferred shall be demolished within a time limit.” The so-called construction and use of agricultural land should be “approved” by the higher authorities, which was put forward in the “Urban and Rural Planning Law” which was implemented in 2008. However, the Old Beijing Courtyard in Water Great Wall was built in 2006, so it cannot be “retroactive”. Not to mention, the land used by the community of the Old Beijing Courtyard is wasteland, not agricultural land. What’s more, what is said to be demolished within a time limit is “building newly”. It is clear that houses built 14 years ago should not be considered “new”. Therefore, the forged “administrative ruling” refers to two legal articles as legal basis, one is outdated and invalid false law, the other is obviously distorted use of law.

The real law has authority because of its inherent justice, and “authority”, as Hannah Arendt said, is “the force to make people obey automatically”. “Governance of the country does not depend primarily on the law, let alone on strength”, Burke said, “No matter how much law or strength is considered to be the driving force, fundamentally speaking, the role of both is complementary. ” This is very similar to Confucius. Confucius said, “Custom is the first thing for public governance.” And “custom” is a non-compulsory social rule. I once commented that “the Confucian ideal government is that it has the right to use coercive means, but its whole effort is to minimize the use of coercive means through the implementation of customs.” On the contrary, if we do not abide by the constitutional principles, an administrative decision does not contain the natural law and justice, it will not have the force to make people obey automatically, and it will inevitably be rejected and resisted. If we want to “carry out” such an evil order, we must use more violence. Therefore, how much violence is used is a yardstick to measure the illegality of a government order.

After the invasion of the Old Beijing Courtyard, Huairou district government used various illegal means to force the residents to yield. The first is to limit personal freedom. I was twice blocked from walking by illegal people in black. The most serious one was that on July 29, there were at most 30-40 people blocking my door. The leader of the men in black behind them pushed them towards us, so that they completely squeezed into us. I called 110 twice, but I didn’t see the police. It took a long time for a policeman to come and say that according to the order of the superior, he could not let the man in black disperse. Please let me understand. The next day, they used a fence to block the ends of the alley outside my house. I called 110 again. The police were not sent out at all. I had to do morning exercises in the Hutong. Then there are cars from the Public Security Bureau broadcasting repeatedly in the community to “demand persons who resisted in the mid night of July 28 to surrender to the police.” They took away a brave man who defended his home, and made all kinds of threats on him. This is really a reversal of black and white. Without any legal basis, illegal invasion and forced demolition are regarded as “legal”, while those who defend their homes are called “illegal”. Although it is extremely absurd, it has played a certain role of intimidation.

Huairou district government completely blocked the Old Beijing Courtyard community. According to the visitor’s description, there are five checkpoints outside the community, surround by people in black. Residents of the courtyard outside are also unable to enter. They are coerced into signing an agreement with the town government to transfer the property to the town government without the promised amount of compensation. If the owners don’t agree, they won’t be allowed in. Through the blockade of the community, they block the channels for residents to buy food. Even if it is online shopping, express delivery is not allowed to send food in. Residents want to send administrative reconsideration materials by express, but the courier is blocked from entering the community. They lock the owner’s car and only with their consent can the owner drive. There was an owner who wanted to drive into the community to carry things, but was stopped by the man in black at the door of the community, and asked her to take things out of her home and put them in the car. However, it was still hundreds of meters away from the gate. The owner was extremely indignant and said that if she was not allowed to drive in, “I would kill myself here.” They illegally infringe on the freedom of expression and communication of the owners. The messages and videos sent by the owners are quickly deleted, and the three WeChat groups of the owners are forced to disband.

In addition, there are about 500 people in black station in the community, and each family is surrounded by 5-6 people. During the day and night, they chat and talk. In the middle of the night, they still line up, shout commands and changed their duties. The noise makes the residents unable to rest normally and affect their living environment. Later, they deliberately make water and electricity accidents, saying that the electric switch jump down, and the water pump is broken. In the past fourteen years, there has been no such accident. What’s more, they has begun to demolish the public houses and screen walls of the community, and several houses that furniture of which has been moved out. The demolition process not only has a lot of noise, but also is a kind of destructive and violent scene, which will cause mental harm to normal people and has the psychological effect of intimidating residents. More specifically, they also called friends of the residents and asked them to convey threats that their jobs would be affected if they did not move away. All in all, these are the “dexterity” that local governments teach and learn from each other across the country. All these means are illegal. Because the purpose of Huairou district government is illegal. It is impossible to achieve illegal purposes by legal means and peaceful means. Therefore, it is proved once again that the legality of the night attack by Huairou district government is forged.

So, what should Huairou district government do? First, all illegal activities since the night attack on July 28 should be stopped immediately, including restricting the personal freedom of residents, illegally demolishing, destroying the normal supply of water and electricity by creating hydropower accidents, withdrawing all the people who are occupying the community, lifting the blockade of the Old Beijing Courtyard in Water Great Wall, and allowing residents to enter and leave freely. What if it doesn’t? It may further cover up the truth and carry out the “forgery” to the end. But it will be more difficult. Because it’s very difficult to make lies around. This needs to compile the information that connects the front, back, left and right, so that it can’t have flaws. In addition, it would be illegal if the “administrative ruling” of Huairou court could not be obtained in the first time, that is, before July 28. It is practically impossible to make up an administrative ruling at that time in the future. Because it is necessary to make up a “decision on administrative punishment” issued by Beijing Municipal Commission of planning and natural resources in 2019. But in 2019, all the information on the agency’s website has been fixed, and any addition or modification has to leave a flaw, and more forged evidence will be provided. What’s more, if there will be an “administrative ruling” without all the hard injuries and forgery marks I pointed out earlier, it must also be forged, because it deliberately avoided mistakes after reading my article.

Finally, we assume that the Huairou district government has made a perfect forgery, so that it does not reveal all the flaws, but it cannot avoid its hasty and clumsy forgery. This is the final failure of this forged “administrative ruling”. It does not mention “Jiuduhe town government”, but only says that the judgment is “organized and implemented by the people’s Government of Huairou District, Beijing”. Some people will say that Jiuduhe town is not a subordinate unit of Huairou District? Can’t Huairou District entrust Jiuduhe town government to do this? We already know that town level governments have no right to enforce demolition unless authorized by the court. This authorization must be direct, not indirect; otherwise, the lower level government will be tacitly authorized by the higher level government. Even if the Huairou district government entrusts the Jiuduhe government to demolish houses, there must be a formal written authorization in the name of Huairou district government, not in the name of Jiuduhe town government. We now know that the “notification letter of the people’s Government of Jiuduhe Town, Huairou District, Beijing” presented by the Jiuduhe town government is in the name of the town government, not in the name of Huairou district government. It has not obtained any authorization from its forged “court administrative ruling”. This is a complete failure of forgery. This town government’s “notification” is illegal from beginning to end.

August 4, 2020 in Fivewoods Studio

[ Vision and Calculation] Chapter 1 On Familism / Sheng Hong

Abstract: In the term of economics, so-called Familism is that family is as the basic unit to calculate costs and benefits. The fundamental difference between traditional Chinese society and modern western society is that the former is a familist society, while the latter is an individualist one. A familist approach to economics has two important differences from the individualist approach: (1) familism regards lifetimes as unlimited, while individualism regards life as limited; (2) familism regards individuals as members of a family who are not independent and equal with each other, while individualism describes individuals who are independent and equal with each other. Most conclusions change a lot if we do not accept individualist assumptions. Calculating costs and benefits of each family as a unit, the maximization of family benefit is not only the sum of the benefits of the members of the family as individuals; and the preservation of a family over time plays a more important role in raising family utility, which aggregates as time passing. Familism explains many distinctive features of Chinese traditional society, including aspects of its unique economic, political, and cultural structures. Such a familist approach will expand the territory of economics and provide new accounts of Chinese, even world, history.

Vision and Calculation, published by Palgrave Macmillan, 2020.

Legality Forged / Sheng Hong

四合院强拆3

About 2:30 am of July 28, 2020, the Huairou district government illegally broke the wall, and with the advantage of up to 2700 people to less than 100 people, the Huairou district government captured the Old Beijing Courtyard in Water Great Wall, and stationed about 500 people in the community courtyard. There are five to six people at each door; it is said that AnSi road in the east of the community has been blocked for several kilometers with five checkpoints. There are more than 1600 people on two shifts. Until the morning, someone knocked at the door, and a person who looked like a town government official said he would come in and deliver the notice. We refused. Because this kind of person who broke down the wall in the middle of the night is not our guest. However, he put a “notification of the people’s government of Jiuduhe town, Huairou District, Beijing” on our door.

九渡河镇告知书

Our personal freedom is restricted. I went out of the door of the courtyard, immediately there were several people in black around to say, “can’t go out.”. I immediately called 110. When the police came, and said that my personal freedom could not be restricted, so these people dispersed. In the afternoon, I went to the community yard and visited a family. When I came out, someone stopped me from coming out. I told him that I came to visit and told him that he had no right to restrict my personal freedom. Walking in the evening is a daily reserved program. When walking, a group of about 30 people in black came around from both sides and said that we could not walk. I said again that they have no right to infringe on my personal freedom. They have tightened their siege on me and my wife, which was about 5 meters recently. This is probably a deterrent strategy. I called 110 again, but no police showed up for twice calls. But when I called, their leader let them spread on both sides. The police asked me on the phone why they didn’t let me take a walk. I told them to tell the police, but they all refused to answer.

I later walked to one side and asked a young man why he was blocking my walk. He shook his head and I said, “do you want to do something you don’t know why?” he said with a smile, “for money.”. The older man next to him tugged at him. I said, “Someone gives you money to do bad things. Do you do them?” He laughed and said nothing. I said, “isn’t it a bad thing that you stop me from walking and interfere with my health?” After a while, the young man loosed his hand with another man next to him and let us pass. When I was walking, I asked some people in black casually. Many of them were recruited temporarily from Daxing, Fangshan, Hebei, Northeast China and other places. The next morning, I continued my daily morning exercise. Although there were people in black all over the community yard, I still ran more than 4000 steps. But in the evening to go for a walk, this time the man in black at the door called the leader. The head was very fat and rude. He immediately called 20-30 men in black to surround us. I called 110, but there was no police for a long time. I had to go back to the yard and not walk.

In the afternoon, one leader of the town, Zhang called. I told him to withdraw the man in black and not to continue to violate our personal freedom. “Because your house is illegal, we have the power to limit your personal freedom,” he said Of course, this is not right. Even if it is “illegal construction”, it cannot limit our personal freedom. Later in the evening, the police also said that this was the order of the district government. He could not stop the man in black immediately. I said to him, “you should obey the constitution first.” “No matter how big the government is, so must the State Council.” “It’s not the government’s order that should always be carried out. What you should do if the government’s leadership wrong?” Of course, I don’t think our yard is an illegal building. I accused vice mayor Zhang and said, “What you did last night was illegal. Because the town government has no power to demolish. “The deputy mayor said, “Did you see our notice? It says we have ‘court administrative ruling’.” I said, “Why don’t you show that court administrative ruling file?” He vowed to have this “court administrative ruling file” and asked me to ask Huairou court. I said that I don’t need to ask. The person who would be worried about is you. If you want to prove that your action last night is legal, you have to show this “court administrative ruling file.”

This issue is very important, concerning the legality of this unprecedentedly evil demolition. “Administrative Enforcement Law” stipulates that “administrative organs without administrative enforcement power” should “apply to the people’s court for compulsory execution.” The town government is “the administrative organ without the power of administrative enforcement.” On July 27,the Supreme Court stressed that the administrative bodies have no power to forcibly demolish before obtaining the court’s permission to enforce the ruling. It is said that in the early morning of July 28, an official of Jiuduhe town went to the gate of the Old Beijing Courtyard in Water Great Wall to shake the above-mentioned “notification of the people’s Government of Jiuduhe Town, Huairou District, Beijing”. Does the town government have no power to demolish? If forced demolition is carried out in the name of the town government, it is illegal. However, will the notification of the town government be legal, as vice mayor Zhang said, if there is a sentence, “the court has made an administrative ruling” in it? Of course not. From the procedure, they should first submit or post the “court administrative ruling” to let the stakeholders, the owner of the Old Beijing Courtyard in Water Great Wall, know it, and then obtain the court’s enforcement authorization before the demolition can be carried out. At least, the “notification” should be submitted or posted together with the “court administrative ruling”.

It is not legal if only mentioned such a “court administrative ruling” in the “notification”. Because there may not be such a file. In my letter “To Dai Binbin on the invasion by breaking wall”, I said that the “notification” did not produce the “administrative ruling” of Huairou court cited by it, so it could not prove to the residents that the “administrative ruling” existed, and might even commit the crime of falsely claiming the court ruling. “Even if there are, it is still a problem whether the quotation or paraphrase is accurate. Therefore, if the “administrative ruling” is not produced, the “notification” of the town government will certainly have no legal effect. Therefore, Jiuduhe Town, Huairou District, in the early morning of July 28, was illegal to carry out an invasion by wall breaking.

This issue is very important, concerning the legality of this unprecedentedly evil demolition. “Administrative Enforcement Law” stipulates that “administrative organs without administrative enforcement power” should “apply to the people’s court for compulsory execution.” The town government is “the administrative organ without the power of administrative enforcement.” On July 27, the Supreme Court stressed that the administrative bodies have no power to forcibly demolish before obtaining the court’s permission to enforce the ruling. It is said that in the early morning of July 28, an official of Jiuduhe town went to the gate of the Old Beijing Courtyard in Water Great Wall to shake the above-mentioned “notification of the people’s Government of Jiuduhe Town, Huairou District, Beijing”. Doesn’t the town government have no power to demolish? If forced demolition is carried out in the name of the town government, it is illegal. However, will the notification of the town government be legal, as Vice Mayor Zhang said, if there is a sentence, “the court has made an administrative ruling” in it? Of course not. From the procedure, they should first submit or post the “court administrative ruling” to let the stakeholders, the owner of the Old Beijing Courtyard in Water Great Wall, know it, and then obtain the court’s enforcement authorization before the demolition can be carried out. At least, the “notification” should be submitted or posted together with the “court administrative ruling”.

It is not legal if only mentioned such a “court administrative ruling” in the “notification”. Because there may not be such a file. In my letter “To Dai Binbin on the invasion by breaking wall”, I said that the “notification” did not produce the “administrative ruling” of Huairou court cited by it, so it could not prove to the residents that the “administrative ruling” existed, and might even commit the crime of falsely claiming the court ruling. “Even if there are, it is still a problem whether the quotation or paraphrase is accurate. Therefore, if it didn’t show the “administrative ruling”, the “notification” of the town government will certainly have no legal effect. Therefore, Jiuduhe Town, Huairou District, was illegal to carry out an invasion by breaking the wall in the early morning of July 28.

Now we can go further and explore whether there is such a “court administrative ruling”. Take a closer look at the “notification” issued by the Jiuduhe town government, which states that “the people’s Court of Huairou District of Beijing has made an administrative ruling No. (2020) Jing 0116 Xing Shen No. 35, ruling that the person subjected to execution shall be punished in accordance with the decision on administrative punishment (Jingguizi (Huai) punishment Zi (2019) No. 053) made by Beijing Municipal Commission of planning and natural resources. I first searched the Huairou District Court website and the “China judicial document website” for this “administrative ruling”, but I couldn’t find it. Then I went to the website of Beijing Municipal Natural Resources and Planning Commission to look for the “administrative punishment decision”, and found a “statistical table of administrative punishment cases in Huairou District in 2019” (see Annex 1 for details). There are 29 “administrative punishment decisions” with the words “Jingguizi (Huai) punishment zi (2019)”. The largest number is “No. 040”, and there is no “No. 053” of “administrative punishment decision”. That is to say, the “administrative punishment decision” of Beijing natural resources and Planning Commission quoted in the notification of Jiuduhe Town People’s Government of Huairou District, Beijing does not exist.

Is that true? Other signs are also proving that the “administrative punishment decision” cited by the Jiuduhe town government does not exist. On March 23, March 26, and March 29, 2020, Jiuduhe town government posted “notice of ordering demolition within a time limit”, “notice of urging” and “notice of decision on compulsory demolition” to residents of Old Beijing Courtyard in Water Great Wall for three consecutive times. None of them mentioned the “decision on Administrative punishment” made by Beijing natural resources and Planning Commission in 2019. If this “administrative punishment decision” has been made in 2019 and is above a town government in terms of administrative level, department nature and authority, it cannot be explained why the town government has not cited it in the above three notices.

强拆通知书

催告书

强拆决定书

Even the Beijing Municipal Natural Resources and Planning Commission did not mention a word on February 17, 2020 when answering the petition from the residents of the Old Beijing Courtyard in Water Great Wall, about It once made an “administrative punishment decision ” with the number of “Jingguizi (Huai)fazi (2019) No. 053” (see Annex 2 for details). It only says “in accordance with the spirit of the Ministry of natural resources documents.”. Although the so-called “document spirit” has no legal effect at all, the Beijing natural resources and Planning Commission used it to prevaricate, which also showed that it had not made and could not again make the “administrative punishment decision” of “Jingguizi (Huai) fazi. (2019) No. 053”.

In the letter sent to me by Jiuduhe town government of Huairou District on June 11, 2020, there was no mention of the so-called “administrative punishment decision” (Jingguizi (Huai) fazi (2019) No. 053). See Annex 3 for details.

Therefore, it can be considered that the “administrative punishment decision” (Jinggzi (Huai) fazi (2019) No. 053) mentioned in the notification of Jiuduhe Town People’s Government of Huairou District, Beijing does not exist at all. If this “administrative punishment decision” does not exist, then the “Jing 0116 Xingshen No. 35 administrative ruling” made by Huairou District Court will not exist at all. No reason, how is there a result? It’s like wheat seedlings without seeds and bread without flour.

If there is no such “administrative ruling” issued by the Huairou District Court, the “notification letter of the people’s Government of Jiuduhe Town, Huairou District, Beijing” will lose the last straw. That is, it has no legitimacy at all. If this “notification” does not have any legitimacy, then before dawn of July 28, the town government launched the wall breaking infringement on the Old Beijing Courtyard in Water Great Wall, without any legal basis, but a very bad criminal act.

Moreover, the Jiuduhe town government fabricated a “court administrative ruling” out of thin air and was suspected of “forging the official documents of state organs”. According to Article 280 of the criminal law, it was sentenced to “fixed-term imprisonment of not less than three years but not more than 10 years”. Because of the forgery of the “court administrative ruling”, the evil purpose of the Jiuduhe town government has the surface “legitimacy”, and can carry out illegal actions, that is, illegally using administrative resources and financial funds, at the labor of 2700 people, at night infringes citizens’ housing rights, property rights and personal freedom, and carries out large-scale illegal demolition in violation of the constitution. As a result, more than 130 households lost their homes, lost a huge amount of property, and suffered serious physical and mental trauma. It seems that the celling of penalty to “forging the official documents of state organs” is too low. For this incident, the superior government or the court should immediately order it to stop the illegal demolition in the name of forged “court administrative ruling” and stop the infringement on the personal freedom of the owner of the forced demolition. The longer the invasion is, the more homes will be demolished, and the greater the criminal level will be.

This kind of forgery of “court ruling” or even “law” occurs from time to time. As early as 2009, when the government of Yangfang town in Changping District of Beijing forcibly demolished an ecological greenhouse, it quoted “Article 73” of the Administrative Punishment Law in its “decision on compulsory demolition”, but there were only 70 articles in the law. Although judged illegal by administrative reconsideration, the actual damage has been caused, and the forger has not been punished (Tu Ming, Zhou Ning, “there are no legal provisions cited by the town government for forcibly demolishing and quoting”, Xinhua, January 16, 2012). In the large-scale demolition of the tile kiln in Changping last month, although some court rulings are true, there are also some so-called “court rulings” that are questionable. If Jiuduhe town and Huairou District and its main responsible persons are not severely punished by law, an evil “tradition” will be formed in the local government. Will not the whole legal system be forged, will not the rights of citizens be deprived at any time? Who can rest assured that their own community will not be “invaded by breaking walls” at night?

Annex 1: Statistical table of administrative punishment cases in Huairou District in 2019

http://ghzrzyw.beijing.gov.cn/zhengwuxinxi/xzcfjg/tdzf/201912/t20191213_1156991.html

怀柔行政处罚统计表

怀柔行政处罚统计表2

怀柔行政处罚统计表3

怀柔行政处罚统计表4

怀柔行政处罚统计表5

怀柔行政处罚统计表6

Annex 2: reply to letters and visits issued by Huairou branch of Beijing Municipal Commission of planning and natural resources

信访答复

信访答复2

信访答复3

信访答复4

信访答复5

信访答复6

Appendix 3 Reply of Jiuduhe town government to Sheng Hong

九渡河镇回信

九渡河镇回信2

九渡河镇回信信封2

July 31, 2020; Forget-talk Hill Study

A Letter to Dai Binbin about His Invasion by Breaking the Wall  / Sheng Hong

四合院强拆3

Mr. Dai Binbin:

At the end of the night yesterday, the persons you sent were so brave, that they broke down the south wall of our community in spite of the risk to crime. It is said that as many as 1500 people invaded the private territory of our community. Of course, you are braver than them, because although it is they who actually commit crimes, I have told you many times that the primary responsibility for these illegal acts will not fall on others. I’m still worried about you. What are you doing for?

  1. “Administrative Enforcement law,” the “illegal building If it is necessary to demolish them compulsorily, the administrative organ shall make a public announcement and order the parties concerned to demolish them by themselves within a time limit. If the party concerned does not apply for administrative reconsideration or bring an administrative lawsuit within the statutory time limit, and does not dismantle it, the administrative organ may force the demolition according to law. ” (Article 44) its meaning is obviously that it can not be forcibly removed before the administrative reconsideration and administrative litigation procedures are completed.
  2. “Administrative Enforcement law” stipulates that “administrative organs shall not implement administrative enforcement at night or on statutory holidays.” (Article 43) the wall breaking invasion was at night.
  3. The demolition personnel used excavator to damage the wall, which commited the “crime of infringing upon the property rights of citizens”. Without the consent of the residents of the community, they broke into the community from the broken wall and committed the crime of illegal invasion.
  4. After the demolition personnel enter the community, block the community and forbid residents to go in and out, which is the “crime of illegal detention”.
  5. The “notice from the people’s Government of Jiuduhe Town, Huairou District, Beijing” is invalid because the town government has no right to enforce the demolition.
  6. The “notification” did not produce the “administrative ruling” of Huairou court, so it could not prove the existence of the “administrative ruling” to the residents, and might even commit the crime of falsely claiming the court judgment.
  7. It also did not produce the “decision on administrative penalty” issued by the Beijing Municipal Commission of planning and natural resources, so it could not prove the existence of the “decision on administrative penalty”.
  8. The “notification” is based on the “administrative ruling” of Huairou District Court in Beijing. It is made before the administrative reconsideration and administrative litigation procedures of the owners of the residential area are completed, which violates the legal procedures and is invalid.
  9. The above ruling of Huairou District Court is made in response to the “decision on administrative punishment” issued by Beijing Municipal Commission of planning and natural resources, which is in the case of concealing the actual major stakeholders – the owners of the community, and only informs Beijing Zhongtian Hengshi Investment Co., Ltd. and Xitai village Co., Ltd. of Jiuduhe Town, Huairou District, Beijing, violates legal due procedure.
  10. The the owners who purchased real estate from Beijing Zhongtian Hengshi Investment Co., Ltd. and Xitai village Co., Ltd. of Jiuduhe Town, Huairou District, Beijing, is a bona fide third party. Even if the residential area is really “illegal construction”, it must be fully compensated by the seller before it can be removed. However, in the case of no compensation for the owner as a bona fide third party, the broken wall invasion did not punish the real fault Party (seller), but imposed the fault loss on the owner, which violated the basic principle of the civil law to protect the bona fide third party.
  11. You spend the taxpayer’s money to hire illegal demolition personnel, which violates the reasonable scope of the Budget Law on the use of financial funds.

I repeat, even if you invade our community, you can’t prove that you are legal. It can only prove that you have the technical ability and administrative resources of illegal invasion and illegal demolition. These resources were originally given to you temporarily by us, so that you can protect our houses and properties. But you use this delegated power to do something that seriously hurts us.

I called 110 police in the middle of the night yesterday, but no police arrived at the scene and didn’t contact me. So far, your people are still illegally detaining us. They didn’t give any reason, just because they are so numerous that they threaten the residents. I also called the police 110 on “illegal detention”. Although the police came, they still did not act.

I hope you can correct these mistakes in time. Repair the south wall of my community. Withdrew those unknown illegal demolition personnel out of the community. And criticizing the police who did nothing about crime yesterday and today.

Don’t think once upon you make a unilateral court ruling learned from Changping, you become “legal”. Any judgment is invalid without the participation of important stakeholders.

You should not think that it is legal to force the owners to agree to sign and forcibly demolish by this illegal detention method. If you look at all times and all over the world, who will recognize the forced contract? Even if some owners are forced to sign their consent under pressure, they can be overturned at any time as long as they prove that the signature is forced. Isn’t it easy to prove that you sent so many people to block and intimidate the owners? You should be smarter than Yu Changhui, do you believe in such a poor method?

Although you are much worse than I expected, you are neither moral nor intelligent, but I have to catch up with Wang Yangming, and still believe that everyone has conscience. Conscience is not only morality, but also wisdom. Don’t you still want to be the most unconscionable person?

Sheng Hong

July 28, 2020, Forget-talk Hill Study

Note: Dai Binbin is the secretary of Huairou District Committee  of CCP

To Mandela / Sheng Hong

曼德拉

July 18th is the Nelson Mandela International Day. It is a day set up by the UN convention in 2009 to celebrate the achievements of a great African leader, Nelson Mandela. This year’s Mandela Day also marks his 100th birthday. He is probably the only person that received so much honor in the International community. He deserves it. We can say, he is one of the greatest statesman, or the greatest man in the 20th century.

Why so? There are great thinkers in the world who instilled the essential values of the human society but never turn such values into human actions; there are great statesmen in the world who act on their moral values but with sacrifices of blood and fire; there are some big power leaders who influenced the prospect of the world but are only able to do so on the foundation laid by forebears’ efforts in establishing the institutional structure and state; there are some great leaders from transitional countries that succeeded in shifting from a planned economy to a market economy, but only managed to do so by starting from centuries of hatred.

South Africa is a land filled with centuries of hatred regarding race. Early as the 17th century, the Dutch East India Company started colonizing South Africa. Later, its expansion was met with resistance from the locals. Multiple battles were witnessed, resulting in the defeat of the locals and the loss of their land. The British joined the grabbing of colonial interest, finding themselves fighting the South African Dutch(the Boer) , and eventually forming a white state jointly governed by the Boer and the British colonists. In the white man’s rule, the blacks were discriminated and abused. What’s more irritating is that such discrimination was inscribed in the so-called “laws”, which is a state run institution undertaking oppression and discrimination on the basis of race. Such oppression and discrimination include limit on the personal freedom of the blacks, limit on their acquiring land and other properties, limit on entering into certain professions, and limited access to certain areas.

For example, if a black man wished to leave his residential area, he would need a pass issued by a local official; a black man were not allowed to buy land beyond his original residential area; a black man was restricted from taking a certain technical profession; and a black man was not allowed to enter certain public places. The South African blacks took years of fight and struggle against this racial oppression and discrimination. Such struggles were met with brutal suppression. In the 1960 Sharpeville massacre where the blacks demonstrated before the police station in order to fight against the pass laws, resulting in 69 casualties and 180 wounded as the police opened fire. In the 1976 Soweto uprising where black residents protested against the Afrikaans Medium Decree of 1974, the police opened fire and killed some 500~1000 men. Mandela chose to fight with arms before the white man government and its brutality. In the arms fights, there were also cases where the blacks killed innocent white people for pure revenge.

In such a country, it seemed that whoever took office might use the state machine to crush the other race. However, Mandela has maintained that his fight was not to establish a country for the blacks, but a society where all races and ethnicities could live equally and harmoniously. At his inauguration ceremony, he invited three prison guards who treated him the most brutally, and gave them hugs in front of the audience. This is a ceremony of reconciliation. Mandela kept the white guards that were set up to protect his white predecessors. He also insisted keeping the national soccer team that was mainly made up by white players. When a white terrorist murdered an outstanding black statesman Chris Hani, Mandela emphasized that the person who reported this murder to the police was a white female, thus avoiding labeling it as a racial conflict but a personal one.

Most importantly, along with Desmond Tutu and Alex Boraine, Mandela created the Truth and Reconciliation Commission that was dedicated to condemning crimes, avoiding revenge, amending the past, and escorting in the future. There are three tasks, they are: 1) The Human Rights Violations Committee investigated human rights abuses that occurred between 1960 and 1994; 2) The Reparation and Rehabilitation Committee was charged with restoring victims’ dignity and formulating proposals to assist with rehabilitation; and 3) The Amnesty Committee considered applications from individuals who applied for amnesty in accordance with the provisions of the Act. By doing so, the human rights violations were corrected, and justice was restored while guaranteeing that no revenge against white people would occur. Reconciliation is, therefore, achieved. The advance towards harmony among multiple races in South Africa does not get due attention from the world. It is worth watching and studying.

On the other hand, it is very difficult for areas where there are multiple races and ethnicities to solve their accumulated feud, even in a democratic society. As Professor Buchanan pointed out before, when there was multiple ethnic groups with distinct cultural features in a society, the vote in the majority rule could not solve the problem of the tyranny of the majority. The reason is, it is obvious who would win when there’s a simple majority of a certain race; it does not make any sense when the majority wins according to the voting rules. In some countries and regions, ethnic cleansing happens sometimes in order to get the majority vote. Once the majority took power, the state machine will be utilized to impose violence and oppress the minorities. Back in ancient Greece, such problem existed. When the poor took power by their majority, the properties of the rich, even their life, were deprived by the state coercive power.

When Mandela was first released from the prison, he worried that the voting system of the white people was necessary to maintain in order for the white people not to be bullied by the black residents. He said he understood such a mentality, and he finally found a solution that would work for both the white and black citizens. This is a great triumph. Why? Compared to other parts of the world where ethnic wars and conflicts claimed millions of lives, such as the former Yugoslavia, the former Soviet Union, the hatred between India and Pakistan, and the everlasting conflict between Israel and Palestine, what Mandela did in South Africa is beyond comparison. Now we know that peace is often neglected, but it is more difficult to start than wars.

Mandela was President of South Africa for only five years. It was in this five years time that the South African society gradually got rid of ethnical hatred, the society transformed, and the cultural convergence was set into motion. A new South Africa emerged. During the white people rule, South Africa was resisted and sanctioned by many other major countries in the world. When Mandela was in office, he adopted many liberal economic policies. These policies were criticized, and the most severe criticism condemned Mandela for opening the country for foreign capital invasion that crushed the national industries. An act of betraying the economic interest of South Africa in nature. This criticism was apparently based on an obsolete development economics footing that overestimated the negative factor of external capital and underestimated the wisdom and diligence of the people. It was proven later that the economy of South Africa has grown steadily since 1994, inspire of some short term fluctuations.

Economic growth rate of South Africa (1995-2017)

向曼德拉致敬

Ever since 1995, South Africa’s economy has been growing steadily. The fluctuation or recession in the middle of that period was due to the fact that mining accounted for a big proportion to the economy and it was influenced by price fluctuations. If we take a closer look at the period between 1995 and 2000, the economy grew even better than later periods. Let’s not forget that this society was going through a grand transition. If we put it in comparison with the negative growth of many transitional economies of the former Soviet Union bloc, we would understand how much South Africa has achieved.

Of course, South Africa is far from a perfect society after the transition. There are still many problems. There is room for improvement for the management by black people; thanks to the unfair order imposed on them by the white people, they have inherited a tradition of looking down upon order; some white people have chosen to migrate; needless to say that the African National Congress is flawed, which leads to dictatorial rulers, etc.. However, such problems are understandable and solvable if we put them in the context of a country that went through peaceful reconciliation, democratization, and economic liberalization that guaranteed the positive growth of South Africa.  Till this day, policemen gunning down blacks regularly takes place in the US, while we seldom see it in South Africa. We have also seen that the African National Congress forced the scandalous and long time occupant of the presidency, Zuma. It shows that the African National Congress is still an organization that can act effectively on constraining power. This is the Mandela’s legacy.

Mandela told us that a person who have suffered so much from racial hatred, abuse, and incarceration is still capable of embracing his perpetrators; a society that was buried deep in centuries of hatred is still capable of marching towards reconciliation without the seemingly unavoidable war; a society that goes through such profound transitions is still capable of maintaining steady economic growth with our falling into recession; and an economy that is of such small scale is still capable of bringing about prosperity by undertaking liberal and opening-up policies towards the world economic giants and capital tycoons. Mandela said he was no saint. We see his as a common man. To err is human, the the greatest human is the one that errs the least.

I wrote this to commemorate Mandela’s 100th birthday.

Translated by Mr. MA Junjie

First published by FT Chinese on July 20th

Preface to Vision and Calculation / Sheng Hong

视野与计算封面

As an author who has published several books, I have always felt that publishing books is amazing. Suddenly one day, a person will say to you, “I read a book of yours many years ago, and it had a great impact on me.” In reality, this situation is very rare. More often, you do not know who reads your book and what impact it had on him or her. For instance, I have read the books of the human sages. They have passed away and do not know what kind of impact they have had on me, how they have inspired my thinking, and how I wrote out those inspired thoughts and shared them with others. However, this is the mysterious mechanism of the development of human culture.

This book, Vision and Calculation is a collection of my papers. The papers were originally written in Chinese, and now they have been collected and published in English. Although I have published several books in English, they have all been research reports for the Unirule Institute of Economics. It is only because I am the leader of the research team and the main writer that I use my name and the name of the collaborator as the authors’ names for those reports. However, this book is composed of all of my own papers. This gives me the feeling of facing my English readers directly. I will not know who reads my book or what magical results it will have for them. However, I feel obliged to make it easier for my English readers. Therefore, herein, I’d like to introduce my own academic and cultural background and explain what I think ordinary English readers may find difficult.

The title of this book, taken from one of the articles, is called “Vision and Calculation”. Economics has always posited that people are rational economic people and that they will make rational judgments through cost-benefit comparisons. However, we often see irrational behavior. In 2010, a sensational event occurred in China. A young man, Yao Jiaxin, hurt a woman while he was driving. Instead of saving her, he killed her with a knife. This, of course, was morally reprehensible. Nevertheless, from an economic point of view, it was also wrong according to rational calculation. Yao Jiaxin’s reason for killing the woman was that the injured women would pester him. Nonetheless, there was a high probability of his crime being uncovered by police and of him being sentenced to death.

There have been many explanations given in psychology and economics about calculation errors. My explanation is that the calculation is wrong because of the limited field of vision. A person’s calculations depend on the information that he or she obtains. The more comprehensive the information, the more accurate the calculation. Additionally, the amount or comprehensiveness of the information depends on the field of vision. The larger the field of vision of space and time, the more abundant and comprehensive the information and the more accurate the calculation. In this regard, I quote a Chinese idiom that says, “The mantis stalks the cicada, unaware of the oriole behind”. This idiom comes from a story from the Spring and Autumn period (770-221 BC). The story tells that the King of Wu wanted to attack the state of Chu and refused to listen to criticism. At this time, a young man went several times to the garden behind the palace with a slingshot. The King of Wu asked him curiously what he was doing. The boy said, “I saw a cicada chirping in the tree, but it did not know that there was a mantis behind it; the mantis wanted to catch the cicada, but it did not know that there was an oriole behind it; and the oriole wanted to eat the mantis, but it did not know that I wanted to shoot it down with a slingshot.” After hearing this, King of Wu decided not to attack Chu. This story vividly illustrates the importance of vision to calculation.

Therefore, why are people (let alone other creatures) limited in their field of vision? The first reason is it takes attention resources to observe and pay attention to external things, and natural evolution makes creatures save their resources as much as possible. For most of the millions of years of evolution, humans were hunter-gatherers. They only needed to pay attention to the range of a few hundreds of meters and the current time. Beyond this range, the direct threat to their survival was greatly diminished. Thus, applying more observation and attention was a waste of scarce attention resources. Thus, nature automatically limits human attention to a smaller area. The second reason that people are limited in their field of visions is that when people and other creatures find a beneficial target (such as prey), they are more likely to focus on this target and automatically ignore other targets. This is what I call a “win a little game, lose a big game” mistake. However, with the rapid development of human civilization in the most recent thousands of years, the cooperation between human beings has made the factors that affect a person’s costs or benefits far beyond his or her physiological field of vision, which may be at the other end of the earth or in another period of time. This requires that people’s vision extend beyond the past. Nevertheless, when the psychological structure cannot be quickly evolved and adjusted, overcoming the mistakes of having too small of a vision depends on learning, education, religion and other cultural traditions.

The subtitle of this book is Economics from China’s Perspective. I think there are two difficulties for ordinary English readers. The first is “economics”, and the second is “China”. Regarding the difficulty of understanding “economics”, my book can be regarded as a collection of economics papers. Because my academic major is economics, I am myself an economist. Generally, economics is not hard to read, but I have included some papers herein that contain many mathematical formulas and geometric charts. Their interpretation will not be a problem for readers with an economics background, but they may bring difficulties to ordinary readers. However, I would like to say that these formulas and charts are not the most important part of these papers. If you find it difficult to interpret them, you can skip them and only look at nonmathematical parts and conclusions. I included mathematics in this book mainly because I was influenced by some examples of neoclassical economics and because my research at the Unirule Institute of Economics required the inclusions of some numbers to express judgment and persuade readers; thus, I developed a slight habit of using mathematics.

As an economist, I can be regarded as an economic liberalist. My academic background is mainly in new institutional economics. I think that I inherited the tradition ranging from Adam Smith to Friedrich Hayek. I can still remember the excitement of reading Hayek for the first time. To date, I am still studying Hayek’s Law, Legislation and Liberty. Obviously, there is no mathematical formula in Hayek’s book. The so-called new institutional economics refer to the economics tradition created by Ronald Coase. In the late 1980s, I read Coase’s “The Nature of the Firm” and “The Problem of Social Cost”. I not only applauded his theoretical insights but also clearly realized how powerful his theory is in explaining and the practical value of the market-oriented reform in China at that time. I later corresponded with Professor Coase and edited and organized the translation of his selected work The Firm, the Market and the Law. When we heard that Professor Coase had won the Nobel Prize in economics in 1991, the Chinese version of the selected work had just been published.

In 1993, I was invited by Professor Coase to be a visiting scholar at the University of Chicago Law School. For half a year, I had discussions with Professor Coase almost every week. I had read Professor Coase’s main articles before I went to Chicago, so what I learned while I was there was more about his thinking methods and academic style. Regarding his thinking methods, he urged me to pay attention to experience and oppose “blackboard economics”. He once took me to the Chicago Board of Trade to see trading scenes and told me to “learn the real world”. Regarding his academic style, he encouraged me to form academic concepts and theories by using communication and argument. For example, when I asked him to define “institutions”, he said that the definition should be formed by the interaction and competition of different definitions. Additionally, he had excellent intuition and the proper judgment of unfamiliar things. He did not come to China, but when we talked about China’s rural reform, he said that China’s success was due to the fact that there were still families remaining after the dissolution of the people’s communes, while Russia’s failure in a similar reform was due to there being only individuals left after the dissolution of the collective farms.

Then, I did not see Professor Coase for 14 years. In 2008, he proposed to hold an academic conference on China’s 30 years of reform and opening up at the University of Chicago. He used his Nobel Prize to fund the conference attendance of dozens of Chinese economists, entrepreneurs and officials, and he invited me to attend. “To struggle for China is to struggle for the world,” he said in his closing speech. In 2010, Professor Coase organized another academic conference in Chicago. This time, he did not need to fund the travel of the Chinese attendants. On December 29, 2010, to celebrate his 100th birthday, we held a large-scale academic conference in Beijing called “Coase and China” and invited Professor Coase to give a speech via the Internet. “Just as China has Confucius, Britain has Adam Smith”, he said. In 2013, while he was planning to visit China, he unfortunately fell ill and died. I cannot help but feel sorry for him when I think that he once said, “I intend to set sail once again to find the route to China, and if this time all I do is to discover America, I won’t be disappointed.”

Professor Coase founded two schools of thought by himself. In the field of law, it is called “law and economics”, while in the field of economics, it is called “new institutional economics”. I am an economist, so I am closer to the new institutional economists, such as Professor Douglas North. His Structure and Change in Economic History helped me to understand Coase’s theory. Professor North visited China many times, and he also attended the Chicago conferences organized by Professor Coase in 2008 and 2010. Therefore, I have had many opportunities to meet and discuss with Professor North. The other new institutional economist to whom I am close is Professor Harold Demsez, who, either together with Professor Armen Alchian or independently, published papers on property rights, which are important classics through which we can understand the theory of property rights. When I met Professor Demsez in Chicago in 2008, he was a humorous old man. In addition, I heard Oliver Williamson’s lecture on “transaction cost economics” at the Institute of Industrial Economics at the Chinese Academy of Social Sciences in 1988. Another person I should mention is Steven Cheung. Compared to Coase, in terms of age, he is a next-generation scholar. However, his contributions and influence are so great that he could inspire Coase himself, as well as North and others. More importantly, he is Chinese. Cheung introduced new institutional economics to China and attracted the attention of new institutional economists to China. I first read his paper “The Contractual Nature of the Firm”, and then later, I read his doctoral dissertation The Theory of Share Tenancy and his other early papers. I increasingly feel that his theory is one that can explain the Chinese phenomenon better by using new institutional economics.

Therefore, it can also be said that my economics papers are mainly those of new institutional economics. For example, “When can Public Goods become Private Goods” is a paper that further studies the theory of property rights. In 2002, when I was commissioned by the Ministry of Water Resources to study water rights, I found that the default allocation principle of river water resources in traditional China is that whoever has the ability to dig the canal has the right to the water. However, in modern society, the cost of digging canals has greatly decreased, and there is no water distribution rule established for rivers. In fact, all regions compete for water resources by digging canals, which is known as the “upstream first” principle; this approach resulted in the total reservoir capacity of the middle and upper reaches of the Yellow River exceeding the annual runoff of the Yellow River, which, in turn, resulted in the scarcity of water resources in the Yellow River Basin as a whole. Thus, the Yellow River was cut off for several years. I think that when the cost of obtaining a certain resource is quite high, it may not be a scarce resource because scarcity means that the demand is greater than the supply. What determines demand is not only the scarcity of resources themselves but also the cost of their acquisition. Thus, when the cost of obtaining resources is lower than a certain extent, the resources that are not scarce will become scarce. Only when resources are scarce is it necessary to establish property rights. Therefore, with the development of technology, it seems necessary to establish water rights for water resources without original property rights.

The institution of property-rights is related to the physical characteristics of resources. Water is a liquid that flows and is boundary-changeable. To establish property rights, it is more difficult to define the physical boundaries of water than it is those of solid objects. From solid to liquid to gas, to sound, to landscape, and to intangible assets, such as digitality and creativity, they can be considered as a continuous pedigree. An effective property right, first of all, must be “held” by its owner and then must be “exclusive”. However, if you want to hold this right, you have to pay the cost or the “exclusive cost”. The physical characteristics of a resource will affect its exclusive cost. A liquid is more difficult to hold than a solid, and a gas is more difficult to hold than a liquid. Only when a solid container, such as a reservoir, a bottle or a balloon, has been created can a liquid or gas be effectively held. Regarding idea-related products, due to the development of printing and the Internet, it is difficult to define their physical boundaries, which can only be protected by an artificial property right system, i.e., the intellectual property system. Thus, the concrete form of the institution of property rights, in a dimension, is related to the physical characteristics of resources.

Regarding the difficulty of understanding “China”, I include several aspects. The first aspect is China’s reform and opening up. This is the field in which I have invested much energy in the past years, and I think it is also the focus of my English readers. The second aspect is the history of China, especially the economic history. Understanding this is necessary to understanding China, including modern China. The third aspect is Chinese culture. This is an important aspect of understanding why Chinese people think in the ways that they do and why China is different from the English-speaking world. The fourth aspect focuses on the problems present in China, which is an important reason why Chinese scholars put forward such problems. The fifth aspect is looking at what has happened in foreign countries from the perspective of China and to give an explanation for these events from the perspective of China.

Let us talk about my cultural background first. Although I am a Chinese, in the early years of my education, I basically did not touch the traditional Chinese culture, which herein mainly refers to the Confucian and Taoist culture. In the middle and late periods of the Cultural Revolution (1966-1976), I worked as a worker in a factory. What I know about “Confucian culture” is a few words of Confucius that were criticized in the movement of “criticizing Lin and criticizing Confucius”. After I was admitted to the People’s University of China in 1979, I mainly studied economics. In addition to Marxist economics, I also studied Western economics. I think that culturally, I am a citizen of the world. However, ironically, it was my first visit to the United States in 1987 that made me feel connected to Chinese culture, because the United States is not a country without cultural color. At the same time, Chinese in the United States also respect Confucius. After returning to China from the United States, I began to read many books about Chinese culture, including Feng Youlan’s History of Chinese Philosophy, which was recommended by Mr. Li Shenzhi, and Hou Jiaju’s Free Economic Thought of Confucianism in the Pre Qin Period. Of course, the most important thing was to read the original scriptures, including The Great Learning, The Doctrine of the Mean, The Analects of Confucius, Works of Mencius and Tao Te Ching.

In the tradition of Confucianism and Taoism, what I first agree with is a thought similar to those found in economic liberalism. Confucius said, “Does heaven speak? Yet the four seasons run their course and all things come into being. Heaven does not speak!” Lao Tzu said, “Tao often does nothing but does everything.” This kind of expression of natural order philosophy seems more wonderful than Smith’s “invisible hand”. There are still “hands” in Smith’s theory, but there is no “mouth” in Confucius’s theory. When I was at the University of Chicago, I borrowed Lewis Maverick’s China A Model for Europe from the library. This book includes an English translation of Quesnay’s Despotism of China and the author’s own description of how European missionaries’ letters about Confucianism affected Quesnay and Smith. Later, I read Zhu Xi’s collection of Confucian maxims in the Song Dynasty, Jinsilu ( Reflections on Things of Hand), and Wang Yangming’s Chuanxilu ( Instructions for Practical Living) with conscience as the core value; influenced by Jiang Qing’s Introduction to Gongyang Theory, I paid attention to the political system of traditional China. Because of the consideration of the problems after the rise of China, I also paid attention to the thought resources about cosmopolitanism in the Confucian literature and to the Confucian ideas and traditions about family, including the Book of Filial Piety. Having comprehensively combed the Confucian literature, I thought that I could use economics to give a reasonable explanation of them, and I began to teach a course called “Economic Explanation of Confucianism” at Shandong University in 2008, and I published the revised lecture notes in 2015. I can call myself a Confucian.

Understanding Chinese history and culture, it is easy to find the key differences between China and the West, such as the attitude towards the family. There are families in the West, but there is “familism” in China. In my article “On Familism”, I put forward that familism mainly refers to the economic calculations based on the family. This is very different from calculations based on individuals. There are at least two differences between the family and the individual. The first difference is that the individual has a limited life, while the family has an unlimited life, in theory. The second difference is that individualistic individuals are independent of each other, while familial individuals are dependent on each other. Once economics changes the basic research unit, the conclusion may be quite different. For example, a family-oriented society is more inclined to sustainable development because the family life is infinite and its discount rate is zero. If we start from the maximization of family welfare, then succession is more important than the current interests because, if the family is terminated, no matter how great the current interests, the family’s utility is zero. As Mencius said, “There are three ways of being unfilial, and the worst one among them is having no descendant.” Moreover, because the interests of family members depend on each other, their individual decision-making cannot be independent. However, if we look at the Chinese family tradition from the perspective of individualism, we will mistakenly think that the individual’s behavior in the family is very irrational.

Another misunderstanding is about the institution of property rights in traditional China. Among the foreign scholars whom I have contacted, some believe that China has no property rights tradition at all. Many Chinese scholars agree. This belief is caused by the long-term misunderstanding of Chinese intellectuals. Since modern times, especially after the Opium War between China and Britain, China’s military failure has led to the extreme emotions of many Chinese intellectuals. When they criticize the Chinese tradition, they believe that nothing is right in China, i.e., “everything is inferior to other nations”. This naturally includes the institution of land property-rights. In my article “How Should the Institutions Change”, I noted that China has had a formed institution of land-free sale since at least the Han Dynasty. After the Song Dynasty, and until the Ming and Qing Dynasties and the Republic of China, the land property-rights institution became increasingly mature, forming permanent tenancy. Regarding the permanent tenancy, I made a more detailed discussion of this concept in another paper, “The Economic Nature of Permanent Tenancy”. The right of permanent tenancy not only refers to the forever tenancy right but also includes some property rights. This is the inevitable result of permanent tenancy and fixed land rent. Therefore, the land property right can be divided into two levels, namely, the surface land right and the undersurface land right. Moreover, these two types of rights are both independent and complete property rights. When either of them is sold to a third party, the consent of the other party is not required.

It is strange that this kind of perfect land system, which is close to textbook, has been the object of Chinese revolution since modern times. Why is this so? I have made a preliminary discussion in the article “How Should the Institutions Change”. Advocates of the Agrarian Revolution believed that the land was too concentrated at that time. For example, Mao Zedong thought that approximately 70-80% of the land was concentrated in the hands of landlords. However, later researchers posited that he also regarded public land as land owned by the landlords, so he thus overestimated the land concentration. Du Runsheng, another Communist, thinks that the land concentration is only 40%. Zhao Gang’s research notes that the Gini coefficient of the land distribution in the period of the Republic of China is only 0.3-0.5. If the surface land right is also regarded as a property land right, then the land distribution is more average. The second accusation of the advocates of the Agrarian Revolution is that the landlords seriously exploited the peasants. However, this was also denied by later research. For example, Gao Wangling’s research notes that since the Ming and Qing Dynasties, the paid-in-rent ratio had been continuously reduced from 80-90% to 50-60% in 250 years because the landlords did not have the compulsory means to collect the land rent, and the government did not intend to help the landlords collect the rent. Therefore, the nominal rent rate had been adjusted downwards several times.

In “How Should the Institutions Change”, I also compared the land institutions and their changes in England. In the period of the Industrial Revolution, Britain’s land system was still the land tenure system established by William the Conqueror. If a person wanted to buy a piece of land from a peasant, he had to replace the peasant’s serfdom status and be loyal to the Lord when he received the land; thus, a land transaction cost 3-5 years of land revenue. Therefore, the land resource reallocation at that time mainly depended on land leasing with convenient procedures, thus completing the transfer of land resources to industries and cities during the Industrial Revolution. In China, the Agrarian Revolution deprived landlords of their land by violence. After land was distributed to the peasants, it was then concentrated in the hands of the government through collectivization. The Agrarian Revolution destroyed the better allocation between the land and the farmers, and because the people’s communes were allocated agricultural resources by the government; thus, there was no incentive. Consequently, from 1952 to 1978, China’s agricultural labor productivity never exceeded that of the 13th year of Guangxu (1887), and the year of the most severe famine in three years (1961) was only 67% as productive of that of the 13th year of Guangxu; additionally, this period did not promote industrialization or urbanization. This comparison tells us that China’s mistake was not only the wrong judgment regarding the nature of the land institutions but also the mistake of the format of the institutional change, that is, the institutional change promoted by violence.

Thus, even if the direction of a reform is correct, the key factor for the success of that reform is whether it can take a peaceful form. This is exactly what happened when China began its reform and opening up in 1978. After three years of famine, Mao Zedong made a small concession, that is, he allowed farmers to have a small amount of private land. Later, it was found that the yield per mu of the private plots was four, five or even ten times that of the collective lands. This was clearly the result of the incentive. This message was brought to the top of the Communist Party by Du Runsheng, who later became known as the father of China’s rural reform. The choice the officials faced at that time was whether they could change the so-called collective land into private land. If the property-rights institution should be changed, then the law should be changed. The ideological inertia formed in the Mao era made China not have the political conditions to change the law at that time. Later, the actual choice made was a “land household contract system”. The implementation results were obvious to all. From 1978 to 1988, China’s agricultural output value increased by an average of 15% per year. Interestingly, the success of this institutional change can be explained by the Coase Theorem and other institutional economics theories. In my article “Contracts Matter: Towards a More Developed Explanation of History”, I discussed this issue in detail.

The Coase Theorem states that if a judge makes an arbitrary decision regarding property rights, then as long as the transaction cost is zero, the parties can optimize the allocation of resources through free transaction. An extension of this theorem that is close to the fact is that “even if the mistakes of government intervention cannot be corrected temporarily due to political or ideological factors, people have a way to correct them. This is the way of contract, which avoids the difficulty or cost of correcting the mistakes of government at present.” This suggests replacing property-rights reform with contract reform. The contract theory is Steven Cheung’s greatest contribution to the new institutional economics. In his Theory of Share Tenancy, he noted that different contracts would bring different efficiencies in the same situation under the same property-rights institution. Changing contracts changes efficiency. The institution of property rights can be resolved into contractual rights, that is, the right of use, the right of income and the right of transfer. The key to the success of China’s rural reform is the changing of the contract between the farmers and the state and the collective from fixed wages to fixed taxes and fixed rent without changing the land property-rights institution. The former means that, no matter how hard they try, the income of the farmers will remain unchanged; the latter means that as long as farmers pay a fixed amount of tax and of rent, the output increased by their efforts will belong to the farmers themselves.

Another explanation for the success of China’s reform made by Professor Steven Cheung is described in his paper entitled “The Economic System of China” presented at the 2008 Chicago conference. He noted that the success of China’s reform mainly depends on competition among county governments. The object of competition is capital and human resources. The means of this competition is the reduction of the price of land. To win firms’ investment in locality, land price can be reduced to zero or even negative values. The county government’s revenue depends on taxes. In 2011, Steven Cheung held a conference on the “Economic System of China” in Shenzhen. My paper “On the Homology, Separation and Substitution of Tax and Rent” was written for this conference. I appreciate Professor Steven Cheung’s deep understanding of the relationship between rent and tax. I think this understanding is probably related to his permanent residence in Hong Kong, because Hong Kong is a zero tariff-low tax-high land price area. The local government’s finance mainly depends on the income from land leases. If an economic agent is both the landowner and the tax collector, there will be some substitution made between rent and tax. A low tax rate means a high rent rate. If the county governments in mainland China have both land rights and tax power, it is a reasonable choice for them to reduce the land price and seek taxes. However, Professor Steven Cheung has made a small mistake here, that is, according to the constitution, rural land is not owned by the government, and the low-cost land provided by the county government to enterprises has been seized from the hands of farmers by force. When the property-rights institution is destroyed, the price of land is distorted, and his theory appears as a miscalculation.

The other two important phenomena leading to China’s miracle are the emergence of specialized markets and urbanization. I have discussed these phenomena in two papers, “Economic Logic of Specialized Market” and “Transactions and City”. The specialized market is especially developed in Zhejiang Province. I have been to Haining’s leather clothing market, Taizhou’s plastic small furniture market, Yongjia’s bridgehead button market, Liushi’s electrical appliance market, etc., which are all specialized markets covering the whole country of China; the market radius of Yiwu’s small commodity market extends beyond China’s borders. Why can specialized markets exist? It is because a specialized market is specialized in selling a certain kind of good, so that various designs, styles, varieties and brands of this kind of good can be sold in one market. This will bring consumers the utility of variety, that is to say, the selection range of commodities will be increased so that they can be closer to the consumers’ own preferences. For this extra utility, consumers are willing to go further to visit markets. This is the main reason for the existence and development of specialized markets. Due to the huge demand brought about by the specialized market, enterprises gather around the market for production so that the specialized market drives the industrial development of the surrounding areas. This is one of the important characteristics of the economic development in Zhejiang Province.

The development of China as a whole is an enlarged version of this specialized market model. Large cities along the coast and in mainland China are formed by the aggregation of many specialized markets, whose market radius is as large as the world. The huge demand flowing into the huge cities attracts a large number of Chinese and foreign enterprises to invest in these cities and their surrounding areas, which in turn drives the expansion of these cities. Therefore, with China’s decades of economic take-off, this is a rapid urbanization process. The urbanization rate (the proportion of urban population to the total population) has increased from 30% in 1996 to 60% in 2018, with an average of 17 million farmers entering the cities every year. According to William Lewis, urbanization is one of the two main driving forces of modern economic development, and the other is industrialization. Urbanization brings a huge demand for municipal infrastructure investment and housing investment; it also brings a substantial increase in the income of rural residents after they become urban residents, and it brings important changes in their consumption habits to form a new permanent consumption demand. According to my estimation, in recent years, China’s annual investment in the municipal infrastructure has been approximately 2.5 trillion yuan. If the target of China’s urbanization rate is 80%, then the promotion of urbanization to China’s economic growth will still last for more than ten years.

In 2010, the Qianhai Cooperation Zone of Shenzhen invited us to develop urban industrial planning, which enabled me to think more deeply about this issue. In this regard, Krugman and Masahisa Fujita are pioneers. They believe that the scale economy of production makes people gather into cities. However, there seems to be a gap. In my opinion, cities are based on transactions. Because the trade brings the trade dividend, people will gather for the trade and then bring the market network externality; that is, the growth of the trade opportunity is faster than that of the population density, which will bring more trade dividends and further promote the agglomeration of people. Therefore, the process circles and repeats in this manner. At the same time, agglomeration will also bring the external costs of congestion. The trade dividends minus the external costs of congestion is considered the “agglomeration rent”. When the population density reaches a certain degree, the agglomeration rent reaches the maximum value, and the size of the city is also determined. Here, the transaction is the basic unit of research. Coincidentally, institutional economics is also based on using transactions as the basic unit of research; thus, here, spatial economics and institutional economics connect with each other. According to this principle, I have developed a planning model that combines spatial economics and institutional economics, which is a general equilibrium model considering spatial and institutional factors. It can not only help local governments plan but also test institutions and policies.

This kind of city-based research model can also be used in research on the Internet. The two aspects have a common feature, that is, the gathering of people. On the Internet, this is seen as virtual agglomeration. The rise of Internet giants such as Alibaba and Tencent after 2000 is the continuation of the Chinese miracle on the Internet. However, their business models have some puzzling points. Specifically, the marginal cost of online transactions or social platforms is zero, so according to the microeconomics doctrine, the price of their services should be zero; however, according to this method, they will have no money to earn. This is very similar to the “utility pricing problem” discussed by Coase many years ago, which stated that the marginal cost of public utilities with the nature of natural monopoly is lower than the average fixed cost. Thus, if such goods are priced according to the marginal cost, they will bring losses. Harold Hotelling advocated that the government should subsidize the loss, while Coase proposed two-part pricing, that is, consumers should pay both the marginal cost and the average fixed cost. Still, there is no subsidy from the government, and the ordinary consumers of Taobao or WeChat have not paid a cent for their services. Thus, how can Alibaba and Tencent make money?

I explain this in the article “Zero Marginal Cost and Virtual Rent”. When Alibaba and Tencent provide free services to consumers, then these consumers gather, of course, within the virtual space of the Internet. However, that is enough. As long as they can communicate with each other’s willingness to buy and sell and actually close deals, then they have an experience similar to meeting in the real market, but the congestion externalities are almost gone. The previous discussion has noted that as long as people gather, there will be agglomeration rent. Because the agglomeration is created by Alibaba and Tencent’s free services, they have reason to collect rent. The objects of rent collection are those who want to occupy a more central position in the virtual space; the formats of rent collection can be platform royalties, transaction commissions, bidding for a more central position, etc. As it turns out, the rents they receive not only offset the costs but also generate surpluses. This is their business model.

There are some additional papers that I think also think are very valuable. However, I think the preface should not be too long, so I would like to talk about them briefly. Not counting the recent trade war, in the process of China’s marketization, there are two relatively large external influences: the Asian financial crisis and the American financial crisis. In my two papers, “Hedge Funds, Financial Markets and Nation States” and “The Institutional Factors of the Financial Crisis in U. S”, I discussed these crises from the perspective of China. It is worth emphasizing that I put forward “loss equilibrium” in my later paper to describe the situation in which people are willing to accept losses to obtain the possibility of huge profits. In my article “A Generalized Rent-seeking Theory”, I mainly discussed the rent brought about by government regulation in China and the various ways that people, enterprises or government officials try to retain rent when they see that the rent values may dissipate. Another paper, “Medical Insurance Paradox: the Hypothesis that the Price of Medicine is Inversely Proportional to the Copay Rate and its Verification in China”, is a byproduct of my research at the Unirule Institute of Economics. We found that the rapid growth of medical expenses in China seems to be closely related to the popularity of medical insurance; thus, we put forward a hypothesis that the price of medicine is inversely proportional to the copay rate. Our research generally supports this hypothesis.

The last two papers, “Religious Man and its Meaning of Institutions” and “Theological Coordinate of Economics”, are two papers that go beyond the scope of economics. The real world must be beyond the scope of economic explanation. In the past two decades, some masters of economics have also paid attention to this problem. For example, when discussing the constitution, James Buchanan proposed that the term of the rational economic person alone could not explain why the US Constitution drafters would consider the interests of future generations, and he explained it with “ethics of constitutional citizenship”. The Santa Fe School proposed that a society would collapse if there were only economic persons and no strong reciprocators. Compared with economic men, religious men do not care about interests; thus, they are either strong reciprocators of society or they have ethics of constitutional citizenship. By God’s measure, even if human beings no longer existed , He would still be doing something towards the rebirth of human beings or intelligent creatures similar to human beings hundreds of millions of years later. This is a matter that can only be understood if we get rid of the current utilitarian computing. If we only see the immediate utility, then human beings could have neither become human beings nor developed today’s civilizations. In contemporary China, familism has disintegrated, but most of the people we see are individuals without faith. Only when a group of elites has emerged consisting of those who have transcended utilitarianism and who firmly believe that the natural order is good under any circumstances can Chinese civilization be truly revived.

November 16, 2019 in Fivewoods Studio

Vision and Calculation , bublished by Palgrave Macmillan, 2020

Alerting the Restoration of Planned Economy in the Field of Land Allocation / Sheng Hong

DSC_7880

My eyes are surprised by Spring's coming,
There is no perfume left when she goes;
The nest of Spring in my wish only,
Will attract Spring back years and years.

Recently, we have seen the regulations on the implementation of the land management law (Revised Draft) issued by the Ministry of natural resources. After a rough look, it is found that this is another typical example of “departmental legislation”. The core issue is to use the emphasis on planning right and land use management, fight for and increase the power of administrative departments, weaken citizens’ land rights and related housing rights and property rights, and weaken the decisive role of market in land resource allocation.

The so-called “land planning” is the government’s plan for the allocation of land resources. This is the same as the planned economy, assuming that the government or its appointed “experts” are fully aware of all the information about land allocation, they can make a perfect land layout arrangement. This is the philosophical logic as the same as that of the planning authority in the period of planned economy, that is to say, its members are supposed to be some people with infinite rationality, farsightedness and insight, who can formulate a perfect production plan that can provide timely supply for hundreds of millions of people’s needs at a specific time and place. We know that the history of planned economy tells us that it is impossible at all. In my article “Plan and Market under Epidemic in Wuhan”, I have made the following discussion on how the planned economy survived.

“By reducing the variety, rationing and shortage of commodities, the planning authorities have managed to keep the general public on the edge of food and clothing. In the early stage of the formation of the planned economic system, including the transformation of industry and commerce, the number of commodity varieties in China continued to decrease. According to the data of Tianjin quoted in the new China business history draft, the commodity varieties of Tianjin Culture Station decreased from more than 600 in 1957 to more than 300 in 1960; Tianjin Department Store reduced from more than 300 varieties with 3700 design-and-color to more than 200 varieties with 1300 design-and-color (compiled by the Institute of commercial economy of the Ministry of commerce, 1984, P. 159). In 1957, a large number of commodity varieties were reduced on the original basis. People who have experienced this period are most impressed by the fact that the color of our clothes is mainly blue, so they are called “blue ants”. In the ten years of the Cultural Revolution, people in the North could not see bananas and oranges. The great reduction of commodity varieties and designs is obviously far away from the complex utility needs of consumers, which greatly reduces the quality of life of the people, but it can reduce the complexity of distribution of commodities to close to the ability of planners.

Even so, the planning authorities could not meet the needs of consumers, so they took a further step, namely, rationing. For example, food stamps, oil stamps, meat stamps, non-staple food quotas, quotas for peanuts and melon seeds, radio, sewing machines, watches, bicycles and other so-called “four big pieces” also need to be purchased by tickets, and so on. At the peak of the planned economy, around the time of the Cultural Revolution, there were more than 100 kinds of commodity quota tickets. Even so, it is often unable to reach the balance of supply and demand, so we often have to line up. For example, every year, people line up to buy rationed cabbage. In the fields of investment goods, raw materials and intermediate products, there are more shortages, so that Hungarian economist J’anos Kornai wrote a book “Shortage Economics” to analyze the planned economy. ” (Sheng Hong, 2020)

China’s reform and opening up is to abandon the planning authority’s national production plan, let the market play a basic role in allocating resources, and let all people make their own decisions about producing how much, what and for whom, based on market prices, the market forms a dynamic structure of production and consumption, then we can have the Chinese miracle and our income and wealth today. It cannot be ignored that in the process of market-oriented reform, in addition to the market’s allocation of resources for production commodities, there is the market’s allocation of land resources, the rapid growth of China’s economy has been jointly formed. In this regard, I also discussed in the article “Why Can’t the Xiangtang be demolished?”

“In fact, if we think that only government approval can build houses, there will be no miracle in China since the reform and opening up. The rapid economic growth brought about by the market-oriented reform is reflected in the rapid urban growth in space. But its speed far exceeds the foresight of the government, the construction of urban infrastructure and the growth of planned housing. A large number of migrant workers entering the city cause excessive demand for housing. The rural collective in or on the edge of the city respond quickly, build a large number of housing to meet the demand, provide housing for the “out of plan” influx of population, and silently solve the urban expansion Can’t keep up with the demand for cities. This is the so-called “village in the city”. The houses above are all so-called “small property houses”. Although there are such and such problems in urban villages, and the main reason is that the government does not provide public services for them. If there is no urban village, just waiting for the government’s “planning” and “approval”, the city will not be able to accommodate so many labor force from other places, nor can it talk about rapid economic development. Because of the common existence of villages in the city and the low rent, the wage cost is also greatly reduced. This is particularly important at the beginning of China’s economic takeoff, and it cannot be ignored now. “My conclusion is that “the institutional reason for China’s miracle is that the market plays a decisive role in allocating both commodity production and land”. (Sheng Hong, 2019)

The advantage of market system to allocate land resources is not only to provide a large number of migrant workers with “small property houses” and “villages in the city”, but also to provide conditions for urbanization. Urbanization is one of the two pillars of modern economy that Lewis, the Nobel Prize winner, said. The other is industrialization. From 1996 to 2017, the urbanization rate of Chinese mainland increased from 30.5% to 58.5%, and about 20000000 rural residents entered the city every year. This has brought a huge investment demand for urban infrastructure and municipal public utilities. I have estimated that in 2015, the investment in municipal construction, including counties and towns, is about 2.3 trillion Yuan; if we consider infrastructure in a broad sense, including transportation, communication, health, education and culture, the investment in urbanization in 2014 is about 13 trillion Yuan. More in the future. Investment in any industry is far from that scale. Therefore, the investment demand of urbanization is the important driving force of modern economic development. In addition to investment, every year more than 20 million rural residents entering the city will increase their income substantially due to the transfer from the primary industry to the secondary industry or the tertiary industry, and because of the dense commerce in the city and the convenience of purchase, they will also increase their permanent demand substantially due to the change of purchase habits.

Market-oriented urbanization is not only the main driver of economic development, but also brings about land conservation and optimization of land resource allocation. The definition of town is that the population density is significantly higher than that of rural areas; for example, the definition of the United States is more than 386 people per square kilometer. Urbanization means that the population flows from the place with low population density to the place with high population density. High population density means that the per capita land area will be less, so it is equal to saving land. In addition to the military fortress or political center, the core function of the town is trading, and the city is the tangible form of the market system. As long as the market system is implemented, more businessmen will gather at the trade nodes, and the transactions between them create transaction dividends, so as to attract more people to gather in this place. The aggregation of population will bring about the so-called “market network externalities”, that is, the growth of trading opportunities and trading dividends is faster than the growth of population. So the process repeats again and again. The more important nodes will attract more people, the less important nodes will attract less people, and the regions not on the trade nodes may also have population outflow. This is a market-oriented process of optimizing the allocation of land resources.

The allocation of land resources is a complex system. Towns, in particular, are more complex organisms. The process of urbanization is the evolution of complex system. In fact, human beings with limited rationality can’t fully understand complex systems, let alone “plan” complex systems. If they really think it can, it’s what Hayek called “Fatal Conceit”. People who have done “planning work” in the period of planned economy all know how ridiculous their so-called “planning” is. At that time, there were only 400 kinds of products managed by the central government (Cheng Liansheng, 2016, P. 231), while in 2019, there were more than 100 million kinds of green goods in Jingdong alone (Jingdong Big Data Research Institute, 2019), which was much less than Taobao. In the period of planned economy, the varieties of commodities are less than one hundred thousandth of today’s varieties, with low quality, high price and frequent shortage. Do they really think their “plan” is superior to the market? Land planning is more difficult than commodity production planning. Not only is the allocation of land, especially the allocation of urban land, far more complicated than the allocation of production system, but also because the production plan is generally only formulated for one year, while the land plan is formulated for the next ten to twenty years. For the future, there is a large gap in human rationality. They are not clear about the current complex system, let alone the future.

Because technology, institution and natural environment will change in the future, people can’t predict how to allocate land in the future. For example, the dry and cold climate led to the southward shift of farming society; the implementing of market rules across Eurasian Continent  led to the emergence of the Silk Road and surrounding cities; the development of navigation technology will lead to the rise of coastal cities; the improvement of transportation and communication technology will form and develop the network city system; the popularization of private cars will bring the suburbanization; the emergence of Internet and e-commerce is reshaping the urban pattern. But these environmental changes, institutional and technological innovations could not be foreseen ten or twenty years ago. “Innovation” means “unforeseeable”. Therefore, there is absolutely no perfect land planning. The land planning we can see now is actually one with serious problems. Needless to say, there are still problems in the preparation process of land planning, the legal participation of the public has not been implemented, and the compilers themselves still have motivation problems. Some studies have pointed out that “the will of the chief governs the urban planning” (Baidu knows, 2017); in the planning, “the land used by government agencies and large-scale public facilities is over occupied”, “the construction density of ordinary residential areas is too high”, and “the function of urban public services is missing” (prospective industrial planning, 2017).

However, such a “plan” has been over emphasized in recent years. Although the new Land Management Law passed in 2019 has been improved, there are still many problems. One of the serious problems is the improper over emphasis on the “master plan of land use”. It is full of such “planners” language: “strict land use control”, “overall arrangement of urban and rural production, life, ecological land”, “the overall planning of land use of township (town) should Determine the purpose of each piece of land, and “people’s governments at all levels shall The total amount of construction land shall be controlled, and the construction of township enterprises, public facilities, public welfare undertakings and houses of rural villagers shall be carried out in accordance with the planning of villages and market towns Construction land shall conform to the general plan for land use and the annual plan for land use of townships (towns), and shall go through the examination and approval procedures in accordance with the provisions of articles 44, 60, 61 and 62 of this law” and so on. “Planning” is everywhere, and any move to build a house must be “approved”.

We also know that “determining the use of each piece of land” correctly almost a dream. It is impossible for the planning authority to make a perfect plan. It should even be said that compared with the layout of land resources determined by the market, the planning of the planning authority is many times crude. But the “Land Management Law” requires people to give up the decision-making right depended on the market signal, and follow the rough planning, people can only be restricted by the rough planning and cannot carry out effective construction, or even the rough planning is not available, and cannot carry out any construction. The latter is a more serious distortion of land resource allocation. However, the so-called “land use indicators” stipulated by the administrative departments at all levels can only be roughly distributed evenly according to the administrative divisions, but cannot understand and foresee the actual imbalance of urban development under the guidance of market mechanism, and cannot foresee that a certain place is a new growth space driven by the next technological innovation. If such planning power appeared 150 years ago, there would be no rise of Shanghai at all, because at that time Shanghai was only a village level unit. If such planning right appeared 40 years ago, there would be no rise of coastal cities such as Shenzhen, Guangzhou, Pudong, Xiamen and Qingdao, because it seems they should develop synchronously with the administrative regions at the same level.

Is there any evidence of that? In the 30 years before the reform and opening up, the allocation of urban land resources was completely controlled by the central planning authority, and citizens had no right to build their own houses. As a result, the urbanization rate increased from 12.46% to 17.92% in the 26 years from 1952 to 1978. The average annual increase is only 0.2%. As early as 1936, according to the China Yearbook, the population living in the settlements with more than 2500 people accounted for about 28% of the total population (Gaolu, 2014). As a contrast, the urbanization rate in Chinese mainland has increased by about 1 percentage points per year since 1978, and then accelerated to 2 percentage points after 1996. This shows that in the period of planned economy, the level of urbanization is actually backward. In 1978, the average housing area in Chinese mainland city was only 3.6 square meters, not as good as 4.5 square meters in 1950. 8.69 million households were short of housing, accounting for 47.5% of the total number of Urban Households at that time (Huang Xiaofan, 2017). At the same time, urban infrastructure and municipal construction are even more dilapidated. In many cities, there is no tap water to enter the household, and only a few cities have pipeline gas, let alone overpass and subway. The reason for this is the same as the reason for making production plans and depressing economic development, that is, planners use their limited rationality to limit the decision-making and efforts of the people in housing and urban construction under the guidance of market signals.

So why do some people go back to planning for land like they did in the planned economy? This is because, in the present political structure of our country, the government administrative department has the impulse of seizing power. The so-called power is the ability that the people give the government to protect their rights and improve public governance. But when the officials of these administrative departments deviate from the wishes of their clients, they will find that these powers can also be used for their own benefit. This is the so-called power rent-seeking. If we want to seek rent, we must first set up rent; if we want to set up rent, we must first have power. As long as we can set limits on the price, quantity of resources or products, the entry of production enterprises and even the purchase of consumers, there will be rent. For example, food is rationed, food tickets can be exchanged for money; at the beginning of the reform, the Administration for Industry and Commerce had the power to approve the establishment of enterprises, and those leaders of the Administration became rich. So power is interest. Government officials, like others, are economic men who seek benefits and avoid disadvantages, so they naturally fight for power for their own interests. There are also various levels of power struggle, the lowest is probably to fight for the existing power. For example, for the management of agricultural vehicles, the agricultural machinery management department and the public security traffic management department competed with each other only because of the management fee. The highest level is “departmental legislation”.

In 2010, I pointed out in my article, Criticism of the Land Management Law and its” revised draft “, that the” revised draft “proposed by the Ministry of land and resources at that time was a” departmental legislation “. I pointed out that “the administrative department is too strong, and the government departments are involved in more economic fields, thus becoming a party of transaction or conflict of interest. It is impossible to hold a neutral and detached position in legislation, while the people’s Congress is relatively weak, which can not effectively restrain the tendency of the administrative department. The executive branch usually carries out the actual legislative power through the departmental ‘regulations’ or even’ opinions’. Because the departmental officials are also the actual law enforcers, and they are not perfect. They may use the ‘actual legislative power’ to seek rent for themselves. It is the greatest practical legislative power to provide “draft” for law revision, and the best opportunity to set up rent for department rent-seeking. And “departmental legislation” often takes the form of secrecy. Before it is submitted to the National People’s Congress for deliberation, most Chinese people, especially those who are related to the interests, do not know about it, and there is no pressure of public opinion supervision, which leads to the adoption of wrong legislation. ” (Sheng Hong, 2010)

We know that the “departmental legislation” of the Ministry of land and resources that time ended in failure. However, the “departmental legislation” can also take advantage of the opportunity of drafting the detailed rules for the implementation of the law, once again cramming the departmental private goods into the law. The implementation regulations of Land Management Law (Revised Draft) proposed by the Ministry of natural resources is a typical “departmental legislation” operation that takes advantage of the opportunity of drafting the implementation rules. Originally, the elevation of planning right in the new land management law was a serious mistake, but in the “revised draft”, the “planning right” was once again elevated. As mentioned in the third article, all kinds of “land development, protection and construction activities should be based on land space planning.” If there is no plan, nothing can be done. First, this meaning does not exist in the land management law, which actually reduces the rights of citizens or organizations and increases the power of administrative departments. This is prohibited by the Legislative Law. Second, this article puts “planning” in a supreme position, which eliminates the decisive role of the market system in the allocation of land resources, and also deprives all citizens of use of land through the obtaining of property rights or use rights of land. This of course also violates the “market economy” principle of the Constitution and the “land ownership” and “housing rights”.

Who will plan? As the main body of the draft, the Ministry of natural resources has written its own power scope and position in the revised draft. This is “the national land and space planning shall be organized by the natural resources department of the State Council in conjunction with relevant departments”; if someone violates the planning, “the natural resources department of the people’s government at or above the county level shall order…” “,” those who obstruct the staff of the competent department of natural resources from performing their duties according to law shall be given administrative penalties for public security or investigated for criminal responsibility according to law. “It plans, it implements, it checks, it punishes. Thus, the weakening and deprivation of the land rights of citizens has become the power of the Ministry of natural resources and its interests. These are the only ones that combine legislation, justice and law enforcement. They are not only a great power, but also a kind of compulsive power, which becomes murderous. According to legal theory, a department can’t stipulate its own power in the detailed rules for implementation, which is equivalent to self-authorization. And self-authorization is the behavior that an administrative department should not do, which is to overstep the legislative power. Its power can only be defined by its superior administrative organ (such as the State Council) or legislature. Therefore, it is illegal for the Ministry of natural resources to draft such a “revised draft” at one stroke.

Do I exaggerate in saying this, or do I judge a gentleman with a villain’s heart? No. Not necessary to say that the Ministry of natural resources is an administrative department, in this structure, there is an internal impulse for it to fight for power, its predecessor is mainly the Ministry of Land Resources. In all the “departmental legislation” opportunities, it shows this characteristic. It has such a “tradition”. For example, in the “revised draft” of the land management law proposed by the Ministry of Land Resources in 2009, there are many its departmental interests. The most important thing is to give the Ministry of land and resources comprehensive power on land resources. I pointed out in the article, Criticism on Land Management Law and its “revised draft”, “since the land management law and its’ revised draft’ have a strong color of departmental legislation, although the land management department is given too much power, there is no description of the positioning of the land management department in the whole article, which implies that the land management department is the main body of legislation and enforcement of the law; among them it is even less likely that there will be provisions to limit and supervise the land administration. This makes the Department a ‘de jure’ Department of the Land Management Law. ” (Sheng Hong, 2010)

Later, some functions of the Ministry of land and resources and other departments were merged into the Ministry of natural resources, and its behavior, even before the implementation regulations were not passed, was already frightening. In the current large-scale illegal demolition campaign, we can often see the figure of the Ministry of natural resources. In my article “an important lesson of property right theory”, I mentioned that “in response to the letter from the residents of the Old Beijing Courtyard in the Water Great Wall, the Beijing Municipal Commission of planning and natural resources said,” according to the spirit of the document of the Ministry of natural resources, the house is within the scope of river management, and the area belongs to the state-level forbidden construction area. It is forbidden to build all facilities unrelated to water conservancy and should be demolished.” In the absence of any legal basis, the system of the Ministry of natural resources actually used the secret “spirit of documents” within the Ministry as the legal basis for sentencing the death penalty of “old Beijing courtyard of the great wall of water”. It can be seen how urgent the Department is to seize power and fight for power, so that it can neither be cited as laws and regulations nor taken as evidence in court regardless of the “spirit of documents” Na, however, uses it against the “housing right” and “property right” protected by the Constitution, and against other legal settings safeguarding the Constitution.

The forced demolition of Xiangtang cultural new village was also endorsed by Beijing Municipal Commission of natural resources and planning. It identified the residence of Xiangtang cultural new village as “illegal construction” on the grounds that it did not “obtain (temporary) construction project planning license, rural construction planning license” (Beijing Municipal Commission of planning and natural resources, 2019). However, Article 41 of the urban and rural planning law, which was implemented in 2008, stipulates that “rural construction planning license” is only required when using agricultural land; this obviously does not apply to most Xiangtang cultural new village houses that do not occupy agricultural land. Even if it is applicable, according to the legislative law, it is “not retroactive”, because the houses in Xiangtang new village were basically built and sold before 2008. In the case of illegal demolition of banshanyunju, Nankou town government is “in accordance with the application of Beijing Planning and Natural Resources Commission and the ruling of the people’s court”. And Banshan Yunju was sold in 2010, and it can’t be forcibly demolished according to Article 65 of the urban and rural planning law, because it’s not the “project under construction”. At present, the basic mode of large-scale illegal demolition is that the Ministry of natural resources determines “illegal construction” systematically, and then the local government departments carry out illegal demolition. When questioned by the forced demolition owners, the agency of the Ministry of natural resources said “I only identify the illegal construction”, and the forced demolition local government said “it’s not what I identify”. They cooperate with each other skillfully, do not want to bear legal responsibility, and will accomplish such evil deeds. Can we allow such an institution to regain the power conferred by its own draft implementing regulations?

In fact, the Ministry of natural resources (the Ministry of land and resources) has been standing behind the large-scale demolition campaign for many years. In the process of market-oriented land allocation to achieve China’s miracle, it has no achievements, but often provides public opinion support and specific operation for forced demolition. Among all kinds of public opinions it produces, “illegal house with small property rights” and “no house building planning license” are more prominent, which are also the main reasons for illegal forced demolition. In fact, the so-called “small property right house” is a house built on collective land. The property right of collective land is the complete property right stipulated in Article 10 of the constitution. Including the right to use, the right to income and the right to transfer. In many speeches, I said, “the officials of the Ministry of land and Resources said that the so-called” house with small property rights “was illegal, but they never said which law it violates. Their so-called “law” is their own view. So I put forward in a speech in Shenzhen, “all property rights should be protected no matter it is small or big.”. However, in practice, many local governments have explicitly said that “small property right houses” are illegal, saying that “as long as the real estate certificate is not a red copy, but a green or blue copy”, it should be demolished. This has misled many people into thinking that “small property right houses” are illegal and will be demolished.

And if the so-called “no construction planning license” is illegal, almost all houses have become “illegal houses”. Article 41 of the urban and rural planning law, which came into effect in 2008, says that in order to occupy agricultural land for rural housing construction, it is necessary to apply for a rural construction planning license. And the real occupation of agricultural land for building houses only accounts for a small part of “small property right houses”. However, from the perspective of the systematic behavior of the Ministry of natural resources, it has extended the article of the law to all urban and rural housing construction; it is applicable to both the buildings before the entry into force of 2008 and the buildings built on non-agricultural land at all times. As long as there is no “construction planning license” as it said, it will be listed as “illegal construction” and will be illegally forced to demolish. In this way, no house can escape the fate that the system of the Ministry of natural resources determines “illegal construction”. You can tear it down wherever you want. This is not only a general distortion of the interpretation and use of the law. It is what one cannot do without an extremely malicious motive, unscrupulous means, the arrogance towards the Constitution and the law in minds. We can imagine what kind of disaster would happen if the Ministry of natural resources got the power it put into the implementation regulations of the Land Management Act (Revised Draft).

In fact, it is against the principles of the constitution as long as it is stipulated that the construction of houses by citizens should be approved by the government. The constitution confirms that Chinese mainland is a country that implements market economy system. Its basic principle is resource allocation, including land resource allocation to be determined by the market. The so-called “market decision” is a decision made by citizens or organizations based on the cost-benefit judgment of market signals. So the so-called “market decision” is the citizen decision. At present, many people may not understand why land allocation cannot be decided by the government. In fact, we can only understand if we look at the allocation of resources for commodity production determined by the market. Today, no one can think that the goods produced by a company are illegal without the approval of the government. On the contrary, the production of goods without the approval of the government can form today’s abundant supply of goods and quantities, and the emergence of new products and services with constant innovation. Why worry about house building without the approval of the government? We only need to look at the strategic contribution of “village in the city” and “house with small property rights” to China’s miracle after 40 years of reform and opening up, and we will know the great significance of market allocation of land resources.

On the other hand, let’s imagine what a commodity would look like if it was illegal without government approval. For example, there is a kind of computer case or mobile phone fuselage that is not approved by the government, so a government department says that it is a kind of case or fuselage that is “illegally produced”, so it is necessary to “forcibly dismantle” these cases or fuselages. As a result, all citizens’ computers or mobile phones will be destroyed. Not only the CPU and other parts in the chassis or the fuselage will be destroyed, but also the main storage and accumulated information will be destroyed. What kind of consequences will this have? How similar is the situation that the Ministry of natural resources wants to demolish citizens’ homes with the so-called “no permission”! A residential unit is a “case” or “fuselage”. The decoration and installation of furniture and electrical appliances carried out by the owners or residents, as well as the trees and flowers planted in the courtyard are “CPU” and “parts”. The lifestyle, family culture, courtyard aesthetics and life memory they form inside are the software and information in the “case” or “fuselage”. Illegal demolition destroys more valuable things just like the hardware and software destroyed when “case” or “fuselage” is dismantled.

Some people will misunderstand me and think that I have any personal grievances with the Ministry of natural resources (the Ministry of land and resources). In fact, I am full of love for it. I can’t bear to see it make mistakes or hurt itself. Why do it hurt itself? In fact, any person or institution, as long as it competes for power that does not match its own responsibilities, will hurt itself. Not the greater the power, the better. I pointed out in my article “Criticism of the Land Management Law and its’ Revised Draft ‘”, “due to the lack of institutionalized supervision over the land management departments and the government departments that expropriate and expropriate land, the relevant land departments abuse their power, set up rent-seeking and rent-seeking, which has become a serious disaster area of corruption.” As early as the beginning of the 21st century, the land sector has been “one of the three major disaster areas of corruption”. So far, two ministers of the Ministry of land and resources became prisoners, several directors of local land and resources bureaus were sentenced, and several department and bureau level officials were jailed. In 2018 alone, five department level officials were convicted (Zhou Chao, 2019). This is because the greater the power, the more deviated from the public power given by the constitution, the more likely to form a violation of civil rights. In order to avoid the so-called “legal harm”, many citizens have to use other means to avoid it. Professor Steven Cheung said that the government’s intervention in the market price will generate rent, which also creates rent-seeking space for officials.

On the other hand, if a department has too much power and thus too much interest, someone will covet the position of the Department. When I wrote “the theory of partial property rights and the illusion of state-owned enterprises”, I found that after state-owned enterprises obtain more preferential policies and monopoly rights through “lobbying in house”, the positions of management in state-owned enterprises are more unstable and their political risks are greater. This is because the benefits gained by the state-owned enterprises due to their political operation are not attributed to a certain individual, but only to a group. When other individuals in the group find this benefit, they can take various means to squeeze into the state-owned enterprises. One of them is to frame up the existing managers of state-owned enterprises. According to the analysis of some data, the probability of senior executives of state-owned enterprises getting a crime is 94 times that of private entrepreneurs. Moreover, the higher the position is, the more likely to be punished; the crime probability of the top leaders of state-owned enterprises (Chairman, general manager or secretary of the Party committee) is 207% higher than the average level of senior executives; the greater the monopoly interest of the industry, the more senior executives will be jailed; for example, Sinopec’s three consecutive general managers were jailed. This includes the problem of the lack of self-discipline of the executives of these state-owned enterprises, and some of them may be framed by others who prefer for their positions.

There is a similar situation in the executive branch. Departments expand their power by means of “departmental legislation”, but it is impossible to clearly define it to some individual, which attracts others to obtain power by seizing the position of the Department. And the current officials working in the Department may be in a high-risk situation. Most tragically, the tragedy of the executives of the state-owned enterprises is just caused by this group’s striving for too many improper interests through a series of “in house” lobbying; the same reason is that the administrative departments obtain too many improper powers through “department legislation”, which leads to their own officials in a high risk situation. That is to say, the corruption trap or conspiracy trap that led to the fall of officials was just dug by themselves. The process of fighting for power and infringing citizens’ constitutional rights through “departmental legislation” is a process of digging up traps. People who are short-sighted will be lost in the illusion of the present power, and those who have received more education and have relatively rich knowledge structure will be able to see the logical chain clearly. In the government administration, there should be not a small number of such people, and the higher the position, the more such people should be. If one can not yet find that “departmental legislation” is to dig a trap for ourselves in competing for power and infringing civil rights, it seems inexcusable.

Finally, some people will say that in the field of land resource allocation, does the government not need to intervene at all? Of course not. First of all, the government should provide confirmation and protection for the land property rights of citizens or organizations, record the land property rights transactions, and make fair decisions on land disputes. That is to use public power to consolidate the land property rights system. Secondly, the market can remedy the failure of land resource allocation. Including national security, environmental protection, natural and cultural landscape maintenance. Of course, these are very special circumstances. Therefore, we should emphasize that market allocation of land resources is a general constitutional principle, while government involvement in land resources allocation is a special case. General principles should play a role in all areas of land allocation. If we want to deviate from the general principles due to special circumstances, we must go through special legal due process, explain the special circumstances and get the consent of the legislature. The public land management departments should be defined and limited, so that they can not exaggerate the authority of the government and harm the land property rights under the banner of intervention. However, due to the special circumstances, it is better to adopt the way of behavior rules, that is, to implement it through judicial adjudication, and to use administrative means with caution.

Then, is planning worth nothing? Of course not. What I am against is improper promotion of “planning right”, which is used to negate the land property right, housing right and property right of citizens. I think effective planning can help. The so-called “effective planning” is to predict the future development of a region or city according to the market mechanism based on the market system hypothesis. According to this general development outline, we can predict the mature scale of the region or city, foresee the general structure of the industry, and provide reference for the layout and investment of infrastructure in the early stage. In my opinion, most of the current regional and urban planning is not “effective planning”. The planners must follow the opinions of government officials. Many planning figures do not come from planning methods, but are decided by discussing between the planners and officials. Over the years, I have also participated in some planning preparation, and we have developed the “spatial economics and institutional economics planning simulation model” (SIEM). I think we are very ahead in the way. Even so, I often remind our local government customers that the planning we have prepared is just for reference, not as a hard indicator.

On the other hand, I would also like to stress that although we are against the “planned economy”, we are not against the “plan”. Any economic organization or even family can have its own plan. As long as the plan is not monopolized by a central planning authority and there is competition between plans, the plan may be a good thing. Similarly, as long as the planning is independently formulated by each city, region, township or village, and the opinions of most members are solicited during the formulation process, it may be beneficial to the group. In particular, rural planning, as long as it is not prescribed to be approved by the higher authorities, as long as it is not subject to administrative intervention, is an autonomous planning, which may be a good planning. Why is it good? Today, we are very keen on ancient village tours or ancient town tours. The reason why these places are beautiful is that there is no land management department and no “plan” they worship. Everyone is a center of wisdom, and a village is full of talents. They were born and grew up there, and they most care about the beauty and comfort of their village. Of course, this does not exclude them from inviting outsiders to participate. They not only benefit the present age, but also love their descendants. Let tourists praise and let residents benefit. And those “planning fetishists” who think they are smart should not leave the “blue ants” of villages and towns to later generations to spit and scold.

Hannah Arendt said that “in constitutional, limited and rule of law governments, the power of the so-called rulers that are constrained is not actually power, but violence” (2011, P. 135). That is to say, any extra force beyond the scope of serving the public does not deserve to be called power. Therefore, the “power” that the Ministry of natural resources wants to fight for through “departmental legislation” is not actually power, but the violence against citizens temporarily without punishment. To connive at it is to put departmental interests above social interests. In addition, this ministry, which has not made any contribution in the process of reform and opening up, has been fed by the wealth created by the market. Today, it is breaking the foundation of the market system by using these resources generated in market, it can be called “eating the rice of reform and opening up, smashing the pot of reform and opening up”. However, it knows well where there are cracks in the constitutional body, and keeps to pry up the crack skillfully in stealing the civil rights that the system is intended to protect, even at the expense of destroying the constitution itself. Therefore, if our society (including the officials of the Ministry of natural resources) allows it to make “departmental legislation” by using the opportunity of the amendment of the implementation regulations of the land management law, it not only shows that we do not have a clear vision of “stealing rights”, even watch more administrative departments, which should serve the people, but carve up these rights, do we allow ministries destroy the public power and violence run rampant?

Reference

Baidu Knowledge, “The Problems Existing in China’s Urban Planning at This Stage”, May 16, 2017.

Beijing Municipal Commission of planning and natural resources, “Dispute on the Determination of Illegal Construction of Xiangtang village, Cuicun Town, Changping”, website of Beijing Municipal Commission of planning and natural resources, December 19, 2019.

Cheng Liansheng, Planned Economy in China, party history press of the Communist Party of China, 2016.

Gao Lu, “A Review of the Research on the Level of Urbanization in China in the First Half of the 20th Century since the Republic of China”, Journal of Jianghan University (SOCIAL SCIENCE EDITION), Vol. 31, No. 6, December 2014.

Hannah Arendt, On Revolution, Yilin Press, 2011.

Huang Xiaofan, “From house splitting to house buying: the residential revolution in New China”, Sohu, “Looking at History”, February 20, 2017.

Jingdong Big Data Research Institute, Development Report on 2019 Green Consumption Trend, December 27, 2019. (quoted from Telegraph, December 27, 2019)

Forward Looking Industrial Planning, “Analysis of Current Situation and Existing Problems of Urban Planning Development in China”, November 14, 2017.

Commercial Economy Research Institute of the Ministry of Commerce, New China Commercial History, China Finance and Economics Press, 1984.

Sheng Hong, “Criticism on Land Management Law and its” Revised Draft “, Review of New Political Economy, November 1, 2010.

Sheng Hong, “Why can’t Xiangtang be Demolished”, FT Chinese, November 2, 2019 (published under the title of “Economic and Legal Issues in Xiangtang’s” Small Property Right Housing “).

Sheng Hong, “Plan and Market in Anti-epidemic in Wuhan”, Micro blog in Wordexpress: Professor Sheng Hong, March 23, 2020.

Zhou Chao, “Before the” Disappearance “of this department, five cadres at the department level were defeated”, Beijing Youth Daily, January 6, 2019.

May 11, 2020, Forget-talk Hill Study

The Nest of Spring / Sheng Hong

My eyes are surprised by Spring’s coming,
There is no perfume left when she goes;
The nest of Spring in my wish only,
Will attract Spring back years and years.

Translated from a poem of mine in Chinese, 春之巢.

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春来惊我眼,春去不留香;
惟愿春之巢,年年惹春归。

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The Forget-talk Hill Study is at the Old Beijing Courtyard in Water Great Wall

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Let All Citizens Enjoy Safely Their Homes / Guo Daohui et al

Note: Recently, we saw a new wave of illegal demolition in Changping, Beijing. The first is that the local government deviates from the due process of law. For example, in Jiuhua Villa, the local government even disdained to show the legal documents, did not show the identity of the intruder. At the Jinhongyuan Cultural Exchange Center, the local government claimed that the community with complete legal procedures “failed to obtain (temporary) rural construction planning permit according to law” and “ordered to dismantle within a time limit”, and illegally dismantled the gas pipeline and illegally cut power. Another characteristic is that it is closer to the urban area of Beijing. This highlights the nature of “land grabbing” and threatens to approach the city. Issue this open letter again, denouncing all unconstitutional and illegal demolition. (October 21, 2020)

家园

To the State Council on the Massive Illegal Demolition Campaign against the Constitution in Beijing and Other Places

State Council of the People’s Republic of China, Premier Li Keqiang:

In recent years, Beijing and other places have been emerging the violation of  citizens’ housing rights and property rights and large-scale illegal forcibly demolition in the name of “demolition of illegal buildings “. Since 2019, due to the fact that some local governments, such as Beijing, have formulated large-scale forced demolition plans by form of movement,  used government organizations at all levels to link positions and promotions with the “achievements” of forced demolition, which has resulted in more negative and significant social impact, serious violation of housing rights, eviction and displacement of citizens living in the only residence, and huge property losses equivalent to the total annual income of several years suffered by citizens whose houses were  illegally forcibly demolished; their constitutional rights were violated and their human dignity was destroyed (see the annex for details). We condemn this unconstitutional and illegal demolition campaign.

First of all, this forced demolition is a serious violation of the principle of protecting the life, property and dignity of citizens in the Constitution, and a serious violation of citizens’ housing rights (Article 39), property rights (Article 13), personal freedom (Article 37) and human dignity (Article 38). The only reason the implementers of this illegal demolition campaign used against the Constitution was that these houses were “illegal buildings”. Its legal basis is the Law of Urban and Rural Planning, which is the subordinate law of the Constitution. Among them, the so-called “planning right” should only protect and serve the citizens’ housing right and property right, and should not arrogate them, let alone damage the constitutional rights of these citizens. At the same time, it violates the principle of “socialist market economy” stipulated in the Constitution. That is to say, market system plays a decisive role in resource allocation, including land allocation. “Planning right” can only be a secondary public power which plays an auxiliary and referential role in the market allocation of land resources.

Second, this illegal demolition violates the Legislative Law and the Urban and Rural Planning Law. A large number of “forced eviction notice” quoted article 41 of the Urban and Rural Planning Law, but this article only emphasized that if people want to occupy the farming land for building houses, they need to obtain the construction planning license, so that we can see that there is no need for a license for building on non-farming land; it does not give the forced evictor the power to forcibly demolish the citizens’ houses, especially on non-farming land. The Article 65 cited clearly refers to the “building under construction”, rather than the citizen’s home that has been completed, sold, and carefully managed for several years, or even 10~20 years. It is a deliberate violation of the law that the forcible demolisher distorts its meaning and uses it for a purpose totally different from the original intention of the legislation. In spite of this, the forcible demolisher still apply the distorted interpretation of the Urban and Rural Planning Law, which was implemented in 2008, to the houses built before that, which also violates the principle of “no retroactivity” in the Legislative Law (Article 93).

Third, this illegal forced dismantling also violates the legal due process stipulated in the Administrative Punishment Law, the Administrative Reconsideration Law, the Administrative Litigation Law and the Administrative Compulsory Law. The forcible demolisher fails to comply with the Administrative Punishment Law, that is, inform the citizen concerned (Article 31), listen to the defense (Article 32), hold a hearing after the notification (Article 42), post the threatening notice of “three days within a time limit” by means of sudden attack, which violates the provisions of the Administrative Compulsory Law that the party concerned shall not demolish after bringing administrative reconsideration or administrative litigation (Article 4 4). The legal period of “administrative litigation” is six months. For example, there are more than 800 citizens in Xiangtang cultural new village who have filed administrative reconsideration or administrative litigation against the “Notice of forced demolition”. Up to now, none of them have received the notice of acceptance, nor have they entered the administrative reconsideration or administrative litigation procedure, which violates the provisions of the Administrative Reconsideration Law and the Administrative Litigation law on accepting complaints.

Fourth, the forcible demolition by the forcible demolisher also violates the Administrative Compulsory Law and the relevant regulations of the State Council. For example, the use of power and water cut-off means to force citizens to leave their houses in order to forcibly demolish them (for example, in Woodhouse village, Oubei), in violation of the provisions of the Administrative Compulsory Law, “the administrative organ shall not stop water supply, power supply, heat supply, gas supply for residents and other ways to force the parties to implement relevant administrative decisions.” (Article 43) the forcible demolisher has forced demolished (for example, to Hanbi building) or prepared (for example, to Xiangtang new village and Old Beijing Courtyard in Water Great Wall) to forcibly demolish in the form of sudden attack, which violates the Emergency Notice of the State Council (Guo Ban Fa [2010] No. 15), and is not allowed to “forcibly demolish by means of” demolition in a row “or” demolition by surprise “. Some local forcible demolishers ordered the police to interfere with and intimidate the rights safeguarding actions of the citizens concerned (such as in Guozhuang Village), which violated the regulations of the State Council that “the public security police should not be used to participate in the forcible land acquisition and demolition”; the forcible demolishers employed the demolition company and the security company to illegally demolish the taxpayer’s houses with the financial funds, which violated the provisions of the Budget Law in scope of use of government funds (Article 27, Article 93).

Fifth, this unconstitutional and illegal demolition movement has fundamentally damaged the property rights institution. This property rights institution is the basis of the “socialist market economy” system stipulated in the Constitution. It is precisely because of the establishment of the property rights institution, the enthusiasm of the people’s production and management stimulated by China’s reform and opening up that China’s miracle has attracted worldwide attention. Illegal demolition in violation of the Constitution and challenge the constitutional rights including housing right and property right with exaggerated administrative “planning power” is to dig the root of reform and opening up and shake the root of China’s economic miracle. The illegal forced eviction campaign not only violated the housing and property rights in practice, but also threatened all other house owners with its unconstitutional and illegal, devalued their market value and deterred citizens and foreigners from investing in China.

Sixth, this illegal forced demolition movement used the concept of “small property rights” to stigmatize the property rights of rural collective land, in an attempt to weaken the legitimacy of its property rights. The property rights of rural collective land is a complete property rights stipulated and protected by the Constitution. In a certain period of time, it was limited by the mistakes in the Land Management Law. However, the new Land Management Law of 2019 corrects this error. Rural collective land can enter into the construction land market without being expropriated by the government. This improvement originally restored the complete nature of the rural collective land property rights. The houses built on the collective land in the past should be better protected in accordance with the principles of the new law. However, this illegal forced demolition campaign continues to deceive the society with the fallacy of “illegal house with small property rights”, which destroys the wealth of house owners and greatly damages the interests of rural collective as land owners.

Seventh, the forcibly demolition is suddenly launched during the time fighting against the COVID-19. It shows that the demolitions took advantage of the COVID-19 epidemic as an opportunity to demolish (Hanbi building in Qingdao) or threaten to demolish (the Old Beijing Courtyard in Water Great Wall ), causing the gathering of the demolishers, of the demolishing teams,  of the security companies, and their strongly body contact with house owners, greatly  increased the risk of virus infection and destroys the overall situation of anti-epidemic. It also shows that the forced demolishers ignore the economic recession aggravated by the epidemic, seriously hit the economic recovery, and destroy the mode of suburban economic development in large and medium-sized cities, resulting in huge loss of wealth and related demand contraction and unemployment, leading to further deterioration of the macroeconomic situation. Some areas (such as Miyun County, Beijing) have “sounded the clarion call of” basically no illegal construction area “, which is enough to prove that it is a serious damage to China’s overall interests to place illegal demolition on top of anti-epidemic and economic recovery.

Eighth, in the form of the “Cultural Revolution” movement, this illegal forced demolition campaign is characterized by “first convicting, then finding evidence of crime”, first determining the area of forced demolition, then finding the reasons for forced demolition, and taking the completion of the forced demolition indicators as the criteria for assessing the performance of governments at all levels, forcing governments at all levels to become tools of illegal forced demolition, devastating governments at all levels and their officials, forcing them to break their promises and tear up contracts, Illegal actions, insulting the constitution. The forced demolitions forced the government officials to distort their minds, to annihilate human nature, to break through the moral bottom line, to take destruction as a task, and to regard human life as nothing, which became the cause of local citizens’ unease and fear. The forced demolition movement put government officials at all levels in a high risk area that will eventually be punished by law, and turned the government institutions that originally protected citizens’ constitutional rights into monsters that devoured houses. This is a serious damage to the national system.

Ninth, This illegal demolition campaign violates the Constitution, the Legislative Law, the Urban and Rural Planning Law, the Budget Law, the Administrative Penalty Law, the Administrative Reconsideration Law, the Administrative Procedure Law and the Administrative Compulsory Law, the administrative decision of the municipal government, the decision of the District or County People’s Congress, the contract of villages and towns as the civil subject,   by illegal means to forcibly demolish citizens’ home is to destroy the entire legal system. Because if the violators can’t be punished, the law itself has no effect. This is equivalent to putting the homes of all the people in our country into a huge risk that they can be forcibly demolished at any time without legal protection, and our society will lose the foundation of its public governance.

Mencius said, “Killing one innocent, conducting one injustice, even can get the world, I will not do so.” Today, in China, there are tens of thousands of buildings have been destroyed; there will be millions of buildings will be destroyed, in buildings there are homes, and people. Above the top of the country, is there no shame? To sum up, we invite the State Council and Premier Li Keqiang to quote the first paragraph of Article 89 of the Constitution, “according to the Constitution and the laws Issue decisions and orders “, urgently stop this large-scale illegal demolition campaign of abusing public power, investigate the illegal demolition that has been implemented, and prosecute the responsible person of illegal demolition. At the same time, we hope you also reaffirm the protection of citizens’ constitutional rights, including the right to housing — even for buildings that are likely to violate major laws, they should be treated on a case by case basis, and they should strictly follow the due process of law to make decisions — let all citizens enjoy safely their homes.

Guo Daohui    (signature)

Zhang Qianfan               (signature)

He Weifang     (signature)

Sheng Hong                               (signature)

Guo Yuhua               (signature)

April 26, 2020

Annex I: Some facts of illegal demolition in Beijing and other regions (omitted)

Annex II: The directory of forcibly-demolition  videos (omitted)