Analysis of the solution to the dilemma of Shandong Hongri Chemical's "withdrawal from the city and entry into the park"

Shandong Hongri Chemical Co., Ltd.'s "Relocation from Urban Areas to Industrial Parks" has been in trouble for nearly six years, and the resulting disputes have attracted widespread attention from all parties. All sectors of society are actively calling for and making efforts to resolve this long-standing stalemate. Given the long duration and complex nature of the incident, involving multiple stakeholders, the author first reviews the development of the situation and then analyzes potential solutions.

1. A Rocky Road for "Relocation from Urban Areas to Industrial Parks"

Shandong Hongri Chemical Co., Ltd. has a history of more than 50 years and has made significant contributions to the economic development of the Lunan area in Linyi. However, with the rapid development of the urban economy and the transformation and upgrading of the chemical industry structure, the company is no longer suitable for continued development in the urban area. Therefore, on December 9, 2019, Hongri signed a "Relocation Agreement" with the Luozhuang District Government.

The agreement stipulated that the proceeds from the land transfer after the change of use of Hongri's factory site, after deducting the portion legally due to the state, would be used in the following order: ① Legally and compliantly for land acquisition, storage, and compensation for relocation and production suspension at Hongri's factory site; ② Priority for employee resettlement fees; ③ Support for Hongri's real industrial projects; ④ Infrastructure and supporting facilities construction for Hongri's development projects. Meanwhile, the Luozhuang District Government would actively advance land acquisition, planning adjustments, land use approvals, and public transfers, while Hongri would fully cooperate in the "Relocation from Urban Areas to Industrial Parks," project construction, and related procedures.

According to the requirements of the Luozhuang District Government of Linyi City, Shandong Province, Hongri was to complete the "Relocation from Urban Areas to Industrial Parks" by March 2020. The natural resources and planning departments were also required to include Hongri's factory site in the overall planning of Gaodu Street in advance to accelerate the land listing and development process.

Since April 2019, Hongri has actively responded to the government's call and completed the relocation of machinery and equipment, demolition of factory buildings, and land leveling on schedule. However, after receiving the notice from the Luozhuang District Government in April 2020 regarding the initiation of land acquisition and evaluation for "Relocation from Urban Areas to Industrial Parks," Hongri's relocation process stalled.

But Hongri's factory buildings had already been demolished, its business nearly ceased, and its cash flow gradually dried up. The company still had to bear approximately 50 million yuan in bank interest and other expenses annually, which was undoubtedly a heavy burden for a private enterprise without its main source of income.

According to further revelations by the company's head, Mr. Shen, due to the suspension of production, the company has been unable to repay debts owed to suppliers, employee resettlement fees, and bank loans. Creditors have also been troubled by Hongri's unresolved "Relocation from Urban Areas to Industrial Parks" for years, and the local government's delay in advancing land acquisition has led to frequent rights protection actions by customers and employees. Banks and creditors have also filed lawsuits and applied to the court for compulsory enforcement of Hongri's assets. If the court supports the creditors' applications and Hongri's land and other assets are auctioned, it will cause irreversible losses to the company.

Over time, further investigations by journalists revealed that the Gaodu Subdistrict Office and the Luozhuang District Government were ruled illegal by the local court on October 23, 2023, and November 7, 2024, respectively, for forcibly demolishing or occupying Hongri's walls and land.

Mr. Shen stated that the company would continue to protect its legal rights through legal channels and hoped the local government would resolve the land acquisition and relocation issues as soon as possible to save the private enterprise on the brink of survival and help Hongri emerge from its difficulties.

2. Where Does the Problem Lie?

Undoubtedly, the crux of the problem lies in the land acquisition process. Why has the Luozhuang District Government been unable to advance it after signing the agreement?

The Luozhuang District Government believes that before the "Relocation from Urban Areas to Industrial Parks" began, Hongri's land had already been mortgaged, and there were multiple litigation disputes, making land acquisition impossible. Additionally, according to regulations, land from companies exiting production capacity must undergo soil pollution surveys, assessments, and remediation before acquisition, and Hongri has not conducted such remediation.

In response, Mr. Shen stated that the land was mortgaged to banks during normal operations without litigation disputes. After signing the relocation agreement, the local government delayed land acquisition, prompting banks to sue Hongri for loan repayment. As for soil pollution surveys, the government did not raise the requirement when signing the agreement but only issued a "Notice on Conducting Soil Pollution Surveys" in December 2024, five years later.

In the author's view, since the crux lies in land acquisition, we must look beyond the surface to explore the essence of the problem. Only by understanding the essence can we find consensus for solutions.

First, Hongri's location is in the suburbs of Luozhuang District, not remote, with some urban development value. If we go back to 2016–2020, real estate developers might have bid for the land. However, after 2022, this assumption no longer holds due to a significant decline in Luozhuang's housing prices, especially since late 2023. According to Anjuke data, the average price of second-hand homes in Luozhuang is 5,525 yuan per square meter, a 28% drop from 7,607 yuan at the end of 2022.

This has raised concerns for the Luozhuang District Government. If housing (land) prices continue to rise, no one will develop the land after acquisition; if prices fall, developers' willingness to bid will weaken.

Moreover, the government's funding sources for land acquisition are uncertain. Although special bonds have been issued for land acquisition in some cases, local governments' bond qualifications vary, and national restrictions on land use for special bonds (e.g., no commercial housing, only public facilities or affordable housing) add complexity.

In short, while the surface issue is the dispute between Hongri and the Luozhuang District Government, the deeper problems involve land use changes, idle land revitalization, protection of private enterprises' and investors' rights, government policy fulfillment, and related legal and financial practices. Any blockage in these areas will hinder progress.

3. The Way Forward

As for solutions, the author believes consensus through negotiation, finding breakthrough points, marginal improvements, and asset revitalization are crucial. After all, it is regrettable for a suburban plot like Hongri's to lie idle for six years without commercial or use value.

According to insiders, during the six years of Hongri's relocation dispute, relevant officials in Linyi City and Luozhuang District have undergone multiple personnel changes, with shifting policy attitudes toward the relocation. This has undoubtedly added complexity.

Currently, amid a downturn in the real estate cycle, land acquisition and digestion pose challenges nationwide. For example, three apartment plots under Vanke in Guangzhou South Station Business District were reacquired by the government due to Vanke's inability to develop them. After failing to find developers, the plots were reacquired by Vanke on December 17, 2024, with the land use changed from apartments to residential.

Similarly, on December 13, 2024, OCT (Overseas Chinese Town) won a bid for a residential plot in Wuhan's Hongshan District for 2.42 billion yuan. The plot was part of OCT's undeveloped Happy Skylight project. Previously, due to a high proportion of commercial land, OCT could not develop it, and the government reacquired it. After rebidding, OCT reduced the commercial land ratio and increased residential use.

In these cases, the original land sellers rebidding for the land may seem odd but represent a consensus path between companies and governments. The underlying logic is to maximize the value of idle land.

In the author's view, this approach could offer a solution for Hongri and the Luozhuang District Government. Given the current situation, cash flow is precious for both parties. Revitalizing first and distributing later seems more rational and practical, demonstrating the government's commitment to policy continuity. A resolution to Hongri's long-standing issue would set a positive example for the local business environment.

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