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How Xinjiang Real Estate Takes Its Shape

Former Urumqi Party Boss Said to Pocket Bribes for Development Rights to Mountains Around Capital

Police nabbed property developer Zhao Xingru and detained her for more than thirty days in late 2012 and early 2013 based on fraud allegations filed by executives at one of the country's largest developers, Hangzhou-based Greentown China Group.

But the detention ended abruptly and in the end Zhao was cleared of several serious charges leveled by Greentown, including contract forgery and faking transaction documents.

How did Zhao dodge the bullet? Sources told Caixin all credit goes to Yang Gang, a high-ranking Communist Party and central government official with deep ties to the real estate business in Urumqi, thousands of kilometers west of Hangzhou.

"Yang used his connections to spring Zhao" and apparently trump angry Greentown executives, said the source, who is close to the Urumqi real estate sector.

Apparently it wasn't the first time that Yang had used his power to snub the law and get what he wanted. Which is why, less than a year after Zhao was released, the ax has fallen on Yang.

The Party's Central Discipline Inspection Commission announced in December that Yang, who had been serving in Beijing as Deputy Director of the Economic Committee of Chinese People's Political Consultative Conference (CPPCC), the country's top political advisory body, was being investigated for illegally using his position to profit from a Urumqi real estate project spurred by the local government in violation of central government rules.

Deep Connections

Yang, sixty, was elevated to his most recent central government post in 2013 after serving three years as Deputy Director and Deputy Party Secretary for the central government's General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ).

Before arriving in Beijing in 2009, Yang held government and party positions for the governments of the Xinjiang Uighur Autonomous Region and its capital city, Urumqi, for more than forty years. He worked as Party Secretary for the Urumqi municipal committee and as Xinjiang's Deputy Party Secretary.

Caixin has learned that Yang is being probed in connection with alleged wrongdoing in Xinjiang and the Urumqi real estate industry.

Claims that Yang and his relatives pocketed illicit profits apparently stem from the testimony received when police questioned several Urumqi real estate developers. About ten developers were questioned at various times in 2013 as part of a probe into deals involving the city's projects of developing the desolate mountains.

Sources said that Yang had gotten involved in the program in 2002. Allegedly, that's when he started accepting bribes from developers looking for the government's help.

Free Land Transfers

Bribery may have been the most expedient means of obtaining land for commercial and residential building projects in Urumqi, a city with a chronic shortage of tracts suitable for new development.

Yang's response to developer demand for land prompted his decision in 2002—shortly after he was appointed Urumqi Party Secretary—to expand the city's development north, east, and west. The campaign included plans to erect buildings in the mountains near the city and reclaim a shuttered coal mine called Liaodaowan.

Before the campaign, the Urumqi Forestry Bureau said the city's urban zone was surrounded by about 28,350 hectares of undeveloped mountainous land.

In March 2002, the Urumqi party committee and municipal government encouraged local enterprises and individuals to join the program. New policies were enacted that allowed essentially free land transfers from the government to builders, even though rules issued by the State Council, China's cabinet, bar free land transfers for any reason.

Developers and other builders who participated in Urumqi's expansion project could obtain fifty-year land rights, including rights to forests.

To ensure a pleasant environment, building contractors were required to develop no more than 30 percent of the land. The bulk of the project area was to be green.

But local officials knew that the program flew in the face of central government regulations, a Urumqi land bureau official said. The campaign was locally justified, however, as part of a broader effort to boost development in Xinjiang and other western regions.

On paper, the program's contracts between developers and the Urumqi government specified a transfer price of five yuan per square meter. But in fact the fee was waived "which one could discern by looking at a contract's total funding outlay," said a Urumqi land bureau source.

The program caught the attention of Beijing authorities in 2008, when officials from the National Audit Office investigated Urumqi's land transfer finances. They noticed that land transfer fees had been waived. Local officials tried to defend the practice.

"We pointed to the (national) policy for developing western China, but they didn't buy it," said a Urumqi land bureau official. "So we had no choice but to admit fault."

To comply with Beijing's direction, all fee waivers were canceled in 2009. But the campaign was already a success. In the first six years of the program, according to the Urumqi forestry bureau, some 3,588 hectares were developed on mountainous land by forty-six contractors.

A Urumqi land bureau official said the project attracted a large number of private investors. But due to problems with planning, lack of inspections, and other confusion in the bureaucratic process, "there were instances of rent-seeking among developers and authorities," the official said.

A Urumqi forestry bureau source said previously uninhabited mountain land was transformed into housing and tourist resorts. Some of the most valuable real estate was developed at the site of a former coal mine, which was cleaned up before builders moved in.

But there was shady business, too. The forestry bureau source cited cases of land-flipping based on illegally obtained land lease and construction permits. "These included hidden problems," the source said.

Indeed, the central government bans free land transfers because they give developers and unscrupulous government officials opportunities to profit illegally.

Apparently, sources said, that's how Yang handled the mountain development project—to his personal benefit.

A Urumqi urban planning bureau official said contractors with Yang's backing would get the documents needed to win project approvals from the National Development and Reform Commission, the country's top economic planner.

Yang "sometimes personally issued a direct approval" for a project "and sometimes he'd call a meeting" aimed at giving the appearance of consensus, said a real estate developer who participated in the campaign. "But even at a meeting, everyone there was just a conduit for what he wanted to say."

Building Urumqi

During his seven years in Urumqi, Yang led a series of state-owned enterprise (SOE) reforms that helped the local economy flourish. The economy also rode high on his decision to expand the city, build a commercial center and move city government offices to a new area.

Yang was born for success. His father was a high-ranking party and military cadre with the Xinjiang Production and Construction Corps, which was established in 1954, six years after People's Liberation Army General Wang Zhen marched through the region and established a dual system of frontier border defense and agricultural development. Yang's father, Yang Zhaocai, was one of the corps' first organization department directors.

Yang was born in 1953 in Gaocheng, Hebei Province, but raised in Xinjiang. He went to college at Xinjiang University in 1978, studying political theory. After graduation, Yang was assigned to the organization department where his father served.

Sources said Yang's rise was unusually fast thanks to his father. In 1993, he was appointed Deputy Party Secretary for the city of Turpan. A year later, he was elevated to Party Secretary, serving until 1997.

Yang directed that the city follow the development model of Shihezi Prefecture in northern Xinjiang, combining urban housing and state-run farms. The city and farm yields grew rapidly, winning Yang a reputation as a capable party leader.

In 1997, Yang was promoted to Deputy Director of the Xinjiang party committee organization department. In 1999, he was appointed Party Secretary for Urumqi's municipal committee, serving there until 2006.

In 2000, Yang's SOE reform push affected 120 local enterprises. The following year, in an interview with China News Service, Yang said: "On the strength of our participation in reforms to state-owned enterprises alone, we have caused annual growth of private enterprises to rise from 17 percent last year to 35 percent this year."

In late 2006, Yang was appointed Xinjiang Deputy Party Secretary. And the next year, he was appointed an alternate member of the Communist Party's Seventeenth Central Committee.

But Yang's demeanor drew critics. One Xinjiang political source told Caixin that some consider him dictatorial, going too far by attacking anyone who disagrees with him. Yang once stripped a subordinate of his official duties, the source said, over a difference of opinion.

Circle of Developers

After Yang's fall, the Urumqi real estate industry buzzed with the realization that investigators were sparing no one, no matter how influential, from their probe. Indeed, most of the city's major developers and those involved in the mountain-development project have been targeted.

"There were a lot of real estate developers involved in the green (mountains) project, and there were great opportunities to profit from it," said a source. "The gossip was that a real estate developer had given Yang a villa."

The investments in the project totaled several hundred million yuan and, according to a source at the city planning bureau, "There were some loopholes and some chaos. Everybody in that circle knew a little, but nobody could have explained the whole situation."

One person at the center of Yang's development push was then Chairman of the Xinjiang Hongyuan Co., Zhao Xingru.

Zhao invested in an old coal mine area in 2003. By 2010, her company had reclaimed more than 223 hectares through which she was granted 43.3 hectares of land for commercial development.

A Urumqi city planning bureau source said that Zhao had worked in the planning bureau's land-use department before quitting for a new career as a property developer.

Xinjiang real estate sources said Zhao is mysterious and had a special relationship with Yang.

In 2010, Zhao started working with Greentown, signing a cooperation agreement along with a colleague at Hongyuan, Zhou Dingwen. The agreement said Greentown would front 25.5 million yuan in exchange for 60 percent of Hongyuan, and lend 348 million yuan to Hongyuan to pay off the debts.

Three months after the signing, Greentown Director Song Weiping accused Zhao and others of falsifying receipts, transaction documents, and contracts. He then filed a complaint with police at the Zhejiang Province Public Security Bureau.

The Greentown-Hongyuan dispute shed light on details of the mine reclamation. Allegedly some of the land reclaimed by Hongyuan was not properly cleaned up. Moreover, the local government gave the developers policy support and more than 100 million yuan.

Sources said Zhao's arrest in Zhejiang led investigators to Yang.

Specifically, Yang has been accused of illicit gains tied to the new commercial zone development in Urumqi, called the Qimashan District, as well as construction of a wildlife park and other projects.

One source said Yang was a major supporter of the Qimashan build-up, which includes a special residential community for public servants and a complex of high-end villas.

Topics: 
Business, Politics
Keywords: 
Urumqi, Real Estate, Corruption