Finally, some good news for BYD

Last October I wrote about a situation in which BYD, the private automaker from Shenzhen, was punished for attempting to build a factory on farmland near Xi'an.

In short, BYD was fined about $435K and had seven buildings, on which it had already begun construction, confiscated and ordered destroyed. In addition 14 local officials in Shaanxi province were also punished for violating rules forbidding the use of arable land for non-farming purposes. Ouch. And this came in a tough year for BYD whose sales only grew 16 percent in 2010 (compared to China's auto industry as a whole which enjoyed 32 percent growth).

The story surfaced a few days ago that BYD was preparing to restart construction in Xi'an. According to an earlier story in the Economic Observer, the land has been "legalized" (合法化) and rezoned as industrial land. BYD was allowed to bid for the land in a public auction, and -- surprise! -- BYD won the auction. (There was no word on whether anyone else bid for the land.)

Even though BYD didn't get all of the land it had secured before, it still got most of the land, and, most conveniently, it got the part of the land on which its unfinished construction already stood. Back in October, the announcement from the Ministry of Land and Resources said BYD's buildings would have to be destroyed, but, fortunately for BYD, no one had got around to destroying them yet.

This strikes me as quite a miraculous turnabout for BYD. The problem that led to BYD's punishment was (and is) that China, despite being a huge country, has precious little of the arable land it needs to feed 1.3 billion people. The central government has recently become quite serious about preserving arable land.

But not that serious apparently.

In the months following BYD's punishment last October, Local officials in Xi'an had begun to complain that they had been deprived of a major source of local income -- sales of land use rights. The Economic Observer quoted a local official as saying that Shaanxi's annual demand for industrial land is running at about 400,000 mu (67,000 acres) per year, but they are only able to supply about 150,000 mu.

I was initially happy to see the central government finally taking a stand last fall by supporting their own laws forbidding illegal use of arable land. For once, it wasn't just about the money. At the time, I took this as a positive sign that rule-of-law was actually starting to mean something in China.

It's amazing to me how a scarce resource such as arable land could have been so quickly and easily "rezoned" as industrial. Apparently it really was about the money.