Rights-Weakening Federalism

Abstract

This article examines whether federalism protects land rights in China from two dimensions. I first compare national law with local institutions of eminent domain, revealing that local governments take much more land than the national government approves, frequently violating, tweaking, and challenging national law. I next examine the impact of interjurisdictional competition on the development of local land institutions, demonstrating that local governments are weakening individual land rights for the benefits of mobile capital. Overall, Chinese federalism weakens rather than strengthens individual land rights and should be called rights-weakening federalism.

This China case also has general theoretical implications. Leading property law scholars in the U.S. have debated whether federalism protects land rights for decades but have achieved no consensus. The existing debate centers around the immobility of land, however, this article argues that land immobility is not an essential factor. The structure and power of local governance, the balance between land and capital in particular, matters much more. Hence, the better question to ask with respect to interjurisdictional competition is who benefits from the competition. This article also poses a more fundamental challenge to the literature on interjurisdictional competition by adopting agglomeration economics, which poses the question of whether such competition constitutes sorting or agglomeration. All the existing literature on property rights and federalism presumes a market of sorting, i.e., that investors are indifferent to location, and are thus attracted by local governments offering the best price or strongest protection. However, urbanization and industrialization in China are actually a process of agglomeration, which determines that a few cities with a natural, or at least initial, advantage are taking over, and the local governments of the remainder will therefore eventually lose in the competition. The implication is that interjurisdictional competition is actually a race to the bottom for most local governments rather than a win-win game as the sorting literature suggests.