VZCZCXRO0974
RR RUEHGH RUEHVC
DE RUEHCN #0123/01 1300929
ZNY CCCCC ZZH
R 100929Z MAY 07
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC 2486
INFO RUEHOO/CHINA POSTS COLLECTIVE
RHEHAAA/NSC WASHINGTON DC
RUEHCN/AMCONSUL CHENGDU 3009

C O N F I D E N T I A L SECTION 01 OF 04 CHENGDU 000123 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/CM AND DRL 
 
E.O. 12958: DECL:  5/10/2027 
TAGS: PGOV PHUM SOCI SCUL CH
SUBJECT: HOMEOWNER ASSOCIATIONS -- A MODEL FOR GRASSROOTS GOVERNANCE 
AND COMBATTING CORUPTION? 
 
 
CHENGDU 00000123  001.2 OF 004 
 
 
CLASSIFIED BY: James Boughner,  Consul General, United States 
Consulate, Chengdu. 
REASON: 1.4 (b), (d) 
 
 
 
¶1. (C) Summary:  Consulate contacts recently described the role 
of homeowner associations in rights protection at the local 
level, referring to them as a central point for democratic 
reforms in China.  The homeowner rights movement in Chengdu, 
which began in 2004, recently resulted in the establishment of 
the Chengdu Fu River Democratic Home Owners Association (Chengdu 
HOA).  The most difficult obstacle for the Chengdu HOA is 
divergence of opinion between members who seek to protect 
homeowner rights and others who participate only to make money 
for themselves, according to one contact.  One of the principal 
motivating factors for the creation of active homeowner 
associations is the perceived need to combat corruption and 
collusion between real estate developers and property management 
companies.  In many cases homeowner associations lack control 
over communal assets and are unaware of, or do not know how to 
protect resident's rights.  Corruption is rampant from the 
"ground up" in the first stages of the real estate development 
process.  Homeowner rights advocacy in Beijing appears to be at 
a more advanced stage than it is in Southwest China as there are 
cases in which associations have successfully protected their 
rights against powerful developers and property management 
companies.  The nascent homeowner rights protection movement in 
Chengdu has the potential to be beneficial to a growing segment 
of middle-class property owners, but runs the risk of being 
stymied by local government structures uncomfortable with large 
and vocal groups that could potentially threaten social 
stability and undermine Party authority.  End Summary. 
 
Background 
---------- 
¶2.  (C) In separate meetings, a Chengdu homeowner association 
(HOA) leader and an American scholar studying the issue of 
grassroots governance in China discussed with us the importance 
of these community organizations in rights protection at the 
local level.  Xie Songru (strictly protect) is a retired 
university professor and former Communist Party member who has 
taken a leadership role in the HOA movement in Chengdu.  He is 
the director of the Chengdu Fuhe River Democratic Home Owners 
Association (Chengdu HOA), a functioning, but unregistered 
non-governmental organization (NGO).  Xie has worked on 
homeowners' rights issues in ChQgdu since 2004.  The American 
scholar has spent the last four months studying grassroots 
governance in HOAs in Beijing, Guangzhou, Shanghai, Chengdu and 
Chongqing.  He describes HOAs as a central point for possible 
future democratic reforms in China. 
 
Local Governance:  Where Do HOAs Fit In? 
----------------------------------------- 
¶3.  (U) Sub-district governments advise and supervise what 
residents do in their communities.  For example, they promulgate 
local ordinances, participate in city planning, and assist with 
family planning supervision.  Sub-district governments also 
appoint neighborhood committees, even though technically the 
committees should be elected by residents, according to 2003 
real estate regulations issued by the State Council.  The 2003 
regulations also stipulate that all communities should have a 
HOA and that sub-district governments and neighborhood 
committees should supervise the HOAs.  The neighborhood 
committees are powerful because they control the key stamp that 
a HOA needs to register, in effect, having veto power over the 
establishment of HOAs.  In many cities in China, according to 
the scholar, HOAs are starting to demand rights to have a say in 
who is on neighborhood committees and are advocating for 
specific candidates. 
 
How to Establish a HOA 
----------------------- 
¶4.  (U) In order for a community to organize an election for an 
HOA, it must first establish a "preparatory committee" (choubei 
zu).  A resident must show a property deed to a home and 
evidence they have paid the management fee in order to be a 
nominee for a HOA.  The number of candidates in HOAs varies 
because residents write their own rules for elections.  The 2003 
regulations mandate that HOAs have between seven and nine 
members.  The local Bureau of Construction, whose Property 
Rights Division approves HOAs, will not register a group that 
has less than the required number of members.  Because it is 
very hard to get approval, many communities maintain only HOA 
"preparatory committees." 
 
Who Joins an HOA? 
----------------- 
¶5.  (C) Members of HOAs are diverse, according to the American 
 
CHENGDU 00000123  002.2 OF 004 
 
 
scholar, who claimed that many "June Fourth" leaders are 
becoming involved in their communities as leaders of HOAs.  In 
addition to older retired residents, new HOA members often fall 
within the 38-42 year-old age range.  From a socio-economic 
perspective, Xie in a separate meeting said there is a wide 
spectrum of income ranges among communities in Chengdu.  Some 
HOAs don't have an office or a phone line in their community, 
while others are much more "sophisticated and organized." 
Separately, the American scholar noted that upper-class 
homeowners seem to be staying away from the homeowner rights 
protection movement because they don't want the attention.  The 
movement is sensitive and many individuals involved are being 
scrutinized by public security officials. 
 
¶6.  (U) Another tool bringing together potential members of 
homeowners associations is "QQ Quan," a chat group composed of 
people who have purchased properties that are not yet 
constructed.  The American scholar described one group of 
Beijing participants in QQ Quan that organized to meet with 
their developer as a group to negotiate move-in details before 
their properties were constructed.  Other groups throughout the 
country have studied this model, and more than 12 other groups 
have organized communal move-ins.  These groups of individuals 
serve as the foundations for HOAs in their communities. 
 
The Homeowners "Movement" in Chengdu 
------------------------------------ 
¶7.  (C) Chengdu has 600 small communities (made up of one or 
more housing developments) and 20-30 street-level and 
sub-district governments.  Within Chengdu's Third Ring Road, 
there are five established HOAs.  Recently Xie Surong and a 
group of HOA leaders who began organizing in 2004 established an 
association of HOAs called the Chengdu Fu River Democratic Home 
Owners Association (Chengdu HOA), which includes leaders from 
approximately 100 of Chengdu's communities and represents 
several thousand middle-class home owners.  The Sichuan Province 
Yanyangchu Research Institute agreed to act as a sponsor for the 
Chengdu HOA in the NGO registration process, but the Bureau of 
Civil Affairs refused to register the group.  The government 
offices that have a more direct relationship to the subject 
matter of the Chengdu HOA, the Chengdu Property Bureau and 
Chengdu Construction Association, are unwilling to act as 
sponsors of the organization, Xie lamented.  Frustrated with the 
lack of progress in having a legal status, some members of the 
Chengdu HOA have proposed trying to register as a form of social 
club. 
 
Inability to Register Doesn't Slow Organizing 
--------------------------------------------- - 
¶8.  (C) In spite of the fact that the group has been unable to 
register, it has begun to hold meetings and plan activities to 
raise awareness of homeowner issues.  In April, the Chengdu HOA 
held a roundtable meeting to discuss the 2003 Real Estate Law 
and gain a better understanding of homeowner rights.  The group 
also hoped to learn about the rights protection experiences of 
some of the more affluent neighborhoods. 
 
¶9.  (C) The American researcher, who was able to attend the 
meeting, described the organization's goals as 
 
- Promoting research on how HOAs have successfully protected the 
rights of home owners; 
 
- Preventing HOAs from violating resident's rights; 
 
- Increasing awareness of the problems homeowners face and 
provide this information in public fora, including the Internet; 
and 
 
-  Providing examples of these problems to government officials 
in order to seek resolution of problems. 
 
He said he believed the group's affiliation with researchers 
from the Sichuan Academy of Social Sciences (SASS) would give it 
legitimacy and potential backing in the eyes of the government. 
 
Roadblocks to Grassroots Organizing 
------------------------------------ 
¶10.  (C) Xie said the most difficult obstacle for the Chengdu 
HOA is discord among members about the goals of the 
organization.  Some members of the group, like himself, are in 
the organization in order to protect homeowner rights and 
promote democratic governance at the local level.  Xie remarked 
that others participate only to make money for themselves.  This 
ideological divergence of opinion makes it hard for the Chengdu 
HOA to agree on approaches to bettering their communities, Xie 
concluded. 
 
¶11.  (C) Xie described a series of "cultural activities" the 
 
CHENGDU 00000123  003.2 OF 004 
 
 
Chengdu HOA planned to hold in each of the five districts of 
Chengdu over the weeklong May Labor Day holiday. (Note:  the 
planned events included a movie night, exercise for retired 
residents and dances, for example.  End note).  All five 
activities had to be cancelled because the Chengdu HOA could not 
gain government approval.  Xie explained that the process for 
approval was very burdensome because it required permission from 
the Cultural Spirit Office of the Propaganda Department of the 
Chengdu Community Party Committee.  The Office expressed its 
unfamiliarity with the Chengdu HOA and made an excuse, according 
to Xie, that it would not approve the activities because the HOA 
did note yet have the corporate sponsorship to pay for them. 
The Chengdu HOA had previously garnered pledges of corporate 
support pending government approval of the events. 
 
Will Academic Study of HOA Assist the Movement? 
--------------------------------------------- --- 
¶12.  (C) When asked whether academic interest and study by two 
researchers of SASS would promote government acceptance or the 
ability to register of the organization, Xie replied skeptically 
that it would not.  While he acknowledged that the study of how 
homeowners' rights are being protected in different Chengdu 
communities would provide very useful information to association 
members, it would not promote government acceptance of the 
movement.  He opined that the SASS academics are doing research 
in order to assist provincial-level Communist Party leaders in 
carrying out policies to promote social stability.  These 
policies will not necessarily consider the rights of homeowners. 
 Moreover, the basic problem is that provincial leaders are 
afraid of the growth of civil society organizations that might 
undermine Party authority and the Chengdu HOA represents this 
growth, Xie asserted. 
 
Corruption and Collusion by Real Estate Developers 
and Property Management Companies 
--------------------------------------------- ------ 
¶13.  (C) One of the main reasons for the need for active HOAs, 
according to both Xie and the American academic in separate 
meetings, is the need to combat corruption and collusion between 
real estate developers and property management companies. 
Another challenge for homeowners results from to the strong 
relationships between developers and government officials.  When 
the developer is "in bed" with the government, homeowners have a 
weak voice in protesting mismanagement of their properties, 
according to Xie.  He added that in Chengdu, most property 
management companies are "children born of the developers".  Xie 
explained that these are illegal arrangements where developers 
set up property management companies to be run by their friends 
and relatives, violating regulations which stipulate there must 
be an open bidding process among experienced property management 
companies. 
 
HOAs Lack Control Over Communal Assets 
-------------------------------------- 
¶14.  (C) Lack of control over communal assets is a big problem 
for homeowners.  Xie said that in many cases, in violation of 
homeowner rights, the developer and/or property management 
company take for themselves what should belong to the residents. 
 He described one community in Chengdu where the developer and 
property management company built a structure on the community 
property.  They rented it as a grocery store business and now 
control the income from the rent of the space.  According to the 
Real Estate Law, Xie said, these should be communal assets.  In 
a Chongqing community several HOA members discovered they were 
being overcharged almost double for a variety of fees and 
services, to the tune of 10,000 RMB (USD 1,290) per household. 
The HOA has taken the case to court on behalf of its members. 
Parking and property management fees are other types of income 
exploited by property management companies, according to the 
American scholar. 
 
¶15.  (C) Developers want to control this communal income, so 
they may "use" or pay off "friendly" residents on the HOA to 
assure the HOA does not vote out its "friendly" property 
management company, thus endangering its ability to control 
community assets.  According to the scholar, many HOAs in China 
have been co-opted by property management companies and 
neighborhood committees because they fear the power of the HOAs 
to hire new management companies.  Courts have also allowed HOAs 
to sue developers and management companies, with some success. 
The problem in many cases, Xie emphasized in a separate meeting, 
is that residents do not know their rights or how to protect 
them -- that is why HOAs are important. 
 
Corruption in Land Development 
------------------------------- 
¶16.  (C) In his interviews with developers, the American scholar 
encountered a real estate developer who spoke candidly about the 
corruption that literally begins at the "ground level."  In one 
 
CHENGDU 00000123  004.2 OF 004 
 
 
community an hour's drive from Chengdu, a developer described an 
auction process in which one developer (of a total of eight) 
bidding on a project brought a dozen "politically connected 
thugs" to the auction.  The auctioneer opened the bidding with a 
price that was 800,000 RMB (USD 103,000) below the market value 
of the property.  According to the developer, not a single other 
bidder raised the stakes, and the developer walked away with a 
"steal" that he could turn around and sell for significant 
profit.  According to the same developer, the next stage of the 
process required property management companies with at least one 
year of experience to bid on the job.  In this case, the 
developer formed its own property management company (which had 
no experience) and did not put out a call for bids. 
 
Homeowner Rights Advocacy in Beijing 
------------------------------------- 
¶17.  (C) Homeowner rights advocacy in Beijing is at a much more 
advanced stage than it is in Southwest China, according to the 
scholar.  In Beijing, a lawyer named Qing Bing is working with 
HOAs to advocate for rights against developers.  The Beijing 
Association of HOAs (Beijing Yezhu Weiyuanhui Xiehui) is an 
organization representing 500 communities and based in the Xin 
Tian Di community. 
 
¶18.  (SBU) The scholar recounted the ongoing case of the Beijing 
community "Times Manor" that has an issue involving electricity 
services.  When the property was being developed, the 
electricity company ran a temporary line to the development. 
Later, it converted the line to a permanent line to power the 
community.  In one section of the development, the company 
failed to establish a permanent line or to connect it to the 
grid.  That part of the community suffered frequent power 
outages.  The residents of that section of the community sued 
the property management company and won a judgment.  The court 
ordered the company to repay the residents the 400,000 RMB (USD 
51,600) they had spent to pay for a functioning electrical 
system.  The developer appealed the judgment and the case is 
ongoing. 
 
¶19.  (C) The residents also decided to vote to remove the 
property management company.  Unexpectedly, a new neighborhood 
committee was formed -- with the developer's wife as the head -- 
to defend the property management company.  In order to protect 
its rights the community decided to organize an HOA.  The 
residents were successful in registering their HOA with the 
district government.  The government upheld the rights of the 
new HOA and said the newly established neighborhood committee 
could not organize an election, only the current HOA had the 
right to have an election to vote out a property management 
company.  In this case, according to the scholar, it was clear 
that the developer was paying off people to start a neighborhood 
committee to try to control the HOA and protect the developer's 
interests. 
 
¶20.  (C) Comment:  The nascent homeowner rights protection 
movement in Chengdu is clearly something that has the potential 
to be beneficial to a growing segment of middle-class property 
owners who are at risk of being exploited by profit-hungry 
developers and property management companies.  Similar to other 
rights protection movements, however, it runs the risk of being 
stymied by local governments uncomfortable with large and vocal 
groups that, in their view, present a threat to social stability 
and to their authority. 
BOUGHNER