Shut for a Year, Why Can't Dali's Erhai Guesthouses Escape Being Closed for Good?

Should protecting the environment come at the cost of property rights?

The people who sold their homes, fled Beijing, Shanghai and Guangzhou, and opened a guesthouse "facing the sea, with spring flowers in bloom" on the shore of Erhai Lake in Dali may not get their brand-new life after all. They now have to face an unexpected and bitter turn.

On May 30, the Dali municipal government announced that it would carry out a "lakeshore buffer zone ecological restoration and wetland construction project" around Erhai. Everything within 15 meters of the water on the lake's western side would be torn down to restore the lakeshore buffer zone, forcing hundreds of guesthouses and more than a thousand households to move and become "ecological migrants."

"By now I think they simply don't like homestays," said Liu Kaiyuan. He believes the Dali government's attitude toward the homestay and guesthouse business has changed.

He used to be an IT engineer in Beijing. In 2012, wanting to "live a completely different life and stop being a cog in a machine," he and his wife decided to leave. They compared Lijiang and Dali and chose Dali, because it sits between mountains and water and its folk customs felt more traditional. They sold their Beijing apartment and opened a guesthouse on the Erhai shore at Yinqiao, on the lake's western side.

But a year earlier, on March 31, the Dali municipal government had issued "Announcement No. 3," ordering more than 2,000 restaurants and guesthouses around Erhai and along the rivers that feed it to suspend business until the city's lake-encircling sewage interception project went into service on June 30, 2018. Over that year, Liu Kaiyuan first took over the running of a guesthouse in the old town, then gave it up when he found it was losing money. After that he sold mushrooms to help support his family while he waited for the interception pipeline to be finished.

The May 30 news startled him. It meant the end of his guesthouse, possibly with no compensation, and he did not even know whether he could get back the remaining ten years of rent he had prepaid his landlord.

In Caicun, also on the western shore, the doors and windows of the lakeside guesthouses carry two contradictory slogans. One reads, "Defend Erhai, close voluntarily." The other reads, "Support protecting Erhai, oppose demolition, demand the government keep its promise, allow us to reopen."

Chen Jin, a backpacker who left Lijiang in 2010 and came to Caicun to open a guesthouse, says the first slogan was handed out by the village committee last April, when the government ordered the guesthouses around Erhai to close; owners had to put it up themselves and were not allowed to tear it down. The second went up on the owners' own initiative after the Dali municipal government released its "Erhai Ecological Environment Protection 'Three Lines' Delineation Plan" on May 30. After a year of swallowing their objections and cooperating, they realized that if they did not speak now it would be too late.

"To this day I can't work out how everyone was shut down so quietly last year," said Sun Yan, who borrowed more than a million yuan to open her guesthouse and has had no income since it closed. Chen Jin, standing nearby, said: "Because they dangled a promise in front of us." He meant the pledge in Announcement No. 3 that guesthouses could reopen on June 30. "Everyone feels stripped of dignity. Ever since we opened we've been inspected every few days over sewage and licenses. We put up with a year of closure, and now we find we've been played," he went on.

The lakeshore is deserted. A slogan is painted on a wall: "We must protect Erhai well." A sign by the road reads: "Because of the need to protect Erhai, tourists are asked not to stay or spend at closed restaurants and guesthouses during the closure period, or bear the consequences themselves."

What Shut the Homestays Down?

Cleaning up Erhai has been the biggest item on the Dali government's agenda in recent years.

Since 2006, Erhai's water has stayed broadly stable at Grade III surface water, occasionally reaching Grade II. By definition Grade III is not badly polluted, but in 1996 and 2003 blue-green algae broke out twice. People say the edge of the lake was packed with algae so green it looked like a coat of paint, and boats could not get out onto the water. In 2003 Erhai was found to have entered the "early stage of eutrophication," with total nitrogen and phosphorus too high. Preventing another algae outbreak became the first concern of everyone managing the lake.

In January 2015, Xi Jinping came to Dali to inspect Erhai's ecological protection and told local officials: "We must protect Erhai well." After posing for a photo with them he said: "Let this photo stand as a record. I'll come back in a few years, and I hope the water will be cleaner and clearer."

The "13th Five-Year Plan for Water Environment Protection and Management of the Erhai Basin" set the targets: water at the lake's central monitoring section should hold steady at Grade II; the lake as a whole should meet Grade II for at least 30 months, and ideally 35; and no large-scale algal bloom should occur anywhere in it.

But in early 2017 blue-green algae broke out again, this time across large, connected stretches.

In November 2016, Chen Hao, Yunnan's party secretary and governor, called for "rescue mode" in the protection of Erhai. Two months later Yang Ning, a member of the provincial party standing committee and party secretary of Dali Prefecture, said the "seven major actions" of that rescue mode should be carried out with "the courage and resolve of a warrior cutting off his own hand." They included treating non-point-source pollution, speeding up the sewage interception project, dealing with illegal construction, cleaning up restaurants and guesthouses operating in breach of the rules, sealing off illegal water intakes, and one more: "protecting Erhai is everyone's job."

"Protect Erhai. If I don't step up, who will? If I don't act, who will? If I don't guard it, who will?" Walk through the towns and villages around Dali and slogans about protecting Erhai are everywhere. So are construction sites where the road surface has been broken open to lay interception pipes, and retention ponds freshly dug out of farmland to catch non-point-source pollution. The lake-encircling interception project is in its final sprint.

In this campaign, the restaurants and guesthouses along the lake are treated as a major source of pollution.

On March 31, 2017, the Dali municipal government issued the "Notice on Launching Special Rectification of the Catering and Guesthouse Service Industry in the Core Area of the Erhai Basin Water Ecological Protection Zone," known as Announcement No. 3. In order to "genuinely reduce the pollution load entering Erhai and promote steady improvement in water quality," it ordered restaurants and guesthouses around the lake and along its inflowing rivers to stop trading from April 10 and submit to inspection. Only businesses with a complete set of licenses and discharge that met standards could reopen once the city's lake-encircling interception project went into service. Media reports put the completion date at June 30, 2018, the fifteenth month after the closure. In all, 2,498 restaurants and guesthouses were shut, 70% of them guesthouses.

How much of Erhai's pollution comes from guesthouses? There does not seem to be an exact figure, but the "13th Five-Year Plan for Water Environment Protection and Management of the Erhai Basin" says: "Livestock and poultry farming, rural households and farmland non-point sources are the main sources of pollution, and together account for about 70% of the total pollution load." The rest comes from industry, urban households, the service sector, soil erosion, and dry and wet deposition. Guesthouses are part of that service sector.

Eutrophication is not caused by pollution alone. Several factors feed it.

One is how much water reaches the lake. Villages and businesses along the Eighteen Streams of Cangshan Mountain draw water for their own use, which has cut inflows sharply and limited the lake's ability to clean itself. That is why the government has also been sealing off illegal intakes.

In March 2017, Wang Xinze, deputy director of Shanghai Jiao Tong University's Yunnan (Dali) Research Institute, told Southern Weekly: "When temperatures rise and the wind and water conditions are right, it is normal and occasional for blue-green algae to grow and gather in a densely populated bay. But you cannot judge the overall quality of Erhai's water from one time and one place."

Guesthouse owners insist that sewage is a solvable problem, and that they have not handled it badly.

By the end of 2016, guesthouses in some areas had already spent tens of thousands of yuan, at the local government's request, buying and installing government-specified water treatment equipment, bringing their discharge up to Grade 1A, the same standard as a municipal sewage plant. Some had gone further, again as the government asked, using the reclaimed water to irrigate their courtyards or trucking it to a treatment plant for further processing, so that not a drop of wastewater reached Erhai. Guesthouses without advanced treatment equipment had long since built seven-chamber septic tanks connected to their village's integrated sewage facility — the units installed along the shore that look like oil tanks or substations, which also discharge at Grade 1A. And anyway, they argued, the interception pipeline was due to be connected on June 30, 2018, which would settle the sewage question for good.

Just as the guesthouses were closing, in September 2017 the 600-room Weisheng Shanhaiwan Hotel began trial operation on a piece of wetland jutting into Erhai on the lake's southeastern shore. That only strengthened the guesthouse owners' belief that pollution was not the real issue.

Today, on the Shuanglang shore on the eastern side, the bay ringed by guesthouses is still almost entirely covered in aquatic plants, without a ripple on it. At Caicun and Xizhou on the western side, the water in front of the guesthouses is still full of algal bloom, though the guesthouses have been closed for more than a year.

Announcement No. 3 allowed guesthouses and restaurants with a full set of licenses to reopen once they arranged to truck their wastewater out. Over the past year a tiny number have managed it. People in the business estimate that only 5% of the closed restaurants and guesthouses hold all "seven licenses" (construction, land-use planning, business, health, sewage discharge, fire safety and special-industry). Of those that fall short, 90% want the missing licenses but cannot get them. Owners told QDaily the reasons vary widely: sometimes the commerce bureau and the tax bureau disagree over whether the business license or the tax registration certificate comes first; sometimes, after fire-safety licensing was handed down to township police stations, the stations say they do not know how to process it; but most often the paperwork is simply delayed, with no reason given. On top of that, Dali stopped issuing discharge permits altogether in April 2016, and in August 2016, as part of a clean-up of the tourism market, suspended processing of any guesthouse-related license at all.

What Changed Erhai?

Erhai — "ear sea" — is said to be named for its shape. It runs north to south, 42.5 kilometers long and 5.9 kilometers wide, 128 kilometers around. To the west, the nineteen peaks of Cangshan Mountain rise like a tall green screen parallel to the lake, and between them lies a flat basin several kilometers wide, where the old town of Dali sits. That side is called Haixi, "west of the lake," and has been the heart of Dali since ancient times. The eastern shore has little flat land and low, bare hills. As the saying goes: "Better a bed in Haixi than a mu of land in Haidong."

But it is only from the Haidong shore that you can take in the whole of Cangshan.

Dali's lakeview guesthouses began in Shuanglang, on the Haidong side. Qinglu, Haidi Shenghuo, Baiju and the dancer Yang Liping's Sun Palace, which appeared around 2006 and 2007, were the earliest prototypes. Under the plateau sun, the view from these houses that seemed to float on the water was taken as the best reading of "facing the sea, with spring flowers in bloom."

Around 2010, a wave of artsy young people and backpackers from all over the country spread lakeview guesthouses to other villages around Erhai. Some had already spent years running stalls and shops in the old town; others had just given up city jobs and city life in pursuit of something entirely different. Most of them treated the guesthouse as home, and home as the guesthouse.

The local government was already paying attention. In September 2012 an article in the Yunnan Daily headlined "Breakthrough Progress in Dali Tourism's Second Wave of Entrepreneurship" called "distinctive guesthouses," including those around Erhai, "an important vehicle for the transformation and upgrading of Dali's tourism industry."

Xiao Li, who came to Shuanglang in 2012 and opened a small guesthouse with five or six beds, told QDaily that by 2013 Shuanglang was covered with building sites for new lakeview guesthouses. Newcomers typically paid landlords 20 years of rent in one lump sum. "There's nowhere else in China like this," she said.

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Chen Jin went to Lijiang in 2003 to open a guesthouse. When people there started "flipping courtyard houses" and the mood changed, he moved to Dali in 2010 and opened a guesthouse by the water at Caicun. When he arrived, he says, Dali was still just a stop on the tourist route between Kunming and Lijiang. Within two or three years it had overtaken Lijiang to become a major national destination, and the lakeview guesthouses deserve much of the credit.

In 2014, lakeview guesthouses showed up in Ning Hao's film Breakup Buddies, tourists began pouring in, and more owners and investors followed. One operator said the "consumption upgrade" in the lakeview guesthouse world was obvious in that period: room rates jumped from 200 to 400 yuan in 2012 to one or two thousand, and the guesthouses grew bigger and bigger, some already the size of small hotels.

From "Cutting Discharge" to "Adding Capacity"

The fear that lakeview guesthouses would be demolished had in fact been building for more than a month.

On April 18 the Dali municipal government held a public hearing on the draft "Three Lines" Management Regulations (Trial). The hearing documents showed that to protect Erhai, Dali would draw three lines around it: a "blue line" for the boundary of the lake itself, a "green line" for the lakeshore zone, and a "red line" for the water ecological protection zone. At the hearing, representatives of guesthouse owners learned that the green line would be drawn 15 meters back from the lake boundary set by the 1,966-meter elevation marker, and that every building inside those 15 meters would be cleared away in order to "increase Erhai's environmental capacity."

That set off panic in the trade, since a great many lakeview guesthouses stand within 15 meters of the water. Owners published statement after statement, arguing that guesthouses were not at odds with protecting Erhai and offering constructive management plans. One even wrote an essay drawing on institutional economics to argue how pollution could be managed sensibly — all in the hope that the final lines would leave them some room.

The "Three Lines" Management Regulations (Trial) still has not been published. But on May 30 the city government held a press conference and released the "Three Lines Delineation Plan," which covered only where the lines run, not how the zones will be managed. What people saw was that the rumored green line spared Haixi nothing: it runs almost exactly 15 meters parallel to the lake boundary the whole way, taking in a great many guesthouses and homes, with only small adjustments in the east and south. Shuanglang, where lakeview guesthouses are concentrated, was left out of the green-line zone thanks to the "Shuanglang Historic and Cultural Town Protection Plan." The red line was set 100 meters beyond the lake boundary on the Haixi side, and 30 meters beyond the lakeside ring road on the Haidong side.

The government announced that from June 30 it would expropriate land within the three lines to carry out the "Erhai Basin Lakeshore Buffer Zone Ecological Restoration and Wetland Construction Project," clearing away the buildings, fields and fish ponds there to build a lakeshore buffer zone, ecological wetlands and ecological corridors — an "ecological barrier" around the whole lake.

The demolition plan itself has not been published, but a "Public Notice on the Social Stability Risk Assessment for the Dali Erhai Basin Lakeshore Buffer Zone Ecological Restoration and Wetland Construction Project," pasted up in the villages, says: "Relocation and resettlement within the green-line area of this project involve eight townships around Erhai, …, 1,806 households in 24 neighborhood committees." One guesthouse owner estimates that about 600 guesthouses are among them.

A month of rumors was confirmed: the promise the government made a year earlier in Announcement No. 3, that guesthouses could reopen, would not be kept.

An invisible green line now decides whether a house and the people in it stay or go. Those whose walls sit close to the 15-meter mark immediately began asking exactly where the 1,966-meter elevation marker is, and whether only the part of a house inside the line comes down or the whole building if it touches the line at all.

This was the first the guesthouse owners had heard of the "Erhai Basin Lakeshore Buffer Zone Ecological Restoration and Wetland Construction Project." They read in news reports that at the press conference, talking about protecting Erhai, Dali's executive vice mayor Zhao Yongxiang no longer spoke only of "cutting discharge" but had begun to speak of "adding capacity."

"Adding capacity," Zhao Yongxiang said, "means restoring the lakeshore areas that have been encroached on and building ecological wetlands."

"The guesthouse's foundation sits on the landlord's homestead land, and that homestead land was approved by the government. You can't just grab a piece of the shore whenever you like," countered one guesthouse owner in Xizhou, answering the charge of "encroaching on the lakeshore."

Protecting the lakeshore and restoring wetland is not a new subject in Dali.

Wetland is an important kind of ecosystem, and matters a great deal for cleaning water and protecting biodiversity. The "Regulations on the Protection and Management of Erhai" have long banned building along the shore. About ten years ago, two villa developments in Xiaguan, Erhai Tianyu and Erhai International Eco-City, caused enormous local controversy by occupying shoreline wetland in breach of those rules.

In 2015 the media reported Dali's first lawful forced demolition of a lakeview guesthouse built on illegally occupied shore. That same year a Dali court ruled in another case that a guesthouse had been built on illegally occupied shore, voided the lease between the operator and the landlord, and left each side to bear its own losses.

But expropriating an approved, self-built house is plainly not the same thing as cracking down on illegal construction.

Wetland and Water Levels

Dali has expropriated large amounts of legally held land and housing before, to restore wetland.

Wu Manchang of the Kunming University of Science and Technology law school wrote in a 2009 paper, "Ecological Environment Construction and the Protection of Farmers' Rights and Interests: The Case of Erhai's 'Three Withdrawals, Three Returns' Policy":

The 1996 algae outbreak sounded the alarm over the state of Erhai's water. In 1998 the "Erhai Management Regulations" were revised, raising Erhai's water level to 1,974 meters (note: this is the Haiphong elevation datum, equivalent to 1,965.84 meters under the 1985 datum now in use). In 1999 Dali Prefecture began its "three withdrawals, three returns" policy — returning farmland to forest, fish ponds to lake, and houses to wetland. By 2002, 616.8 mu of housing had been returned to wetland.

In 2003 algae broke out again. In 2004 the "Erhai Management Regulations" were revised once more, adjusting the lake's water level again, and in 2007 Dali carried out "three withdrawals, three returns" a second time, planning to demolish 798 buildings.

On what that 2004 adjustment meant, Li Ping of the Dali branch of the Yunnan Provincial Hydrology and Water Resources Bureau gave a detailed analysis in a 2008 paper, "An Analysis of the Adjustment of Erhai's Characteristic Water Levels in Dali":

Before 1973 the four cascade hydropower stations on the Xier River downstream of Erhai had not yet been built, and the water flowed in a natural or semi-natural state. Between 1973 and 2003 the four stations were built one after another and could control Erhai's level. Because they stored poorer-quality water during the flood season and released large volumes of better-quality water for generation during the dry season, the lake ran at low levels for long stretches. That weakened its ability to dilute and clean itself, worsened eutrophication, and lengthened the periods when blue-green algae appeared.

To improve the water, in 2004 the prefectural people's congress standing committee approved raising Erhai's minimum and maximum operating levels. The result, in the paper's words: "The lake's water shifted overall from below Grade IV to Grade III, with Grade II in places, effectively checking the advance of eutrophication in Erhai."

Standing by the lake talking about water levels, a villager in her sixties from Xizhou told QDaily that the spot on the shore where she used to wash clothes as a young woman is now under water.

Compensation Is a Problem

"If they compensate the landlord by the replacement cost method, he'll only get a few hundred thousand yuan — not even enough to pay me back the rent I've already handed over!" Liu Kaiyuan told QDaily.

The "replacement cost method" he refers to values a property by what it would cost to build the same house elsewhere, minus depreciation on the original. At the May 30 press conference the city government did not say whether operators would be compensated at all. That worries him: if the government pays only the landlord, by replacement cost, the valuation will not recognize what the guesthouse operator actually spent on building and fitting out the place, including any floor area built beyond what was approved. In that case the payout would come to a few hundred thousand yuan.

Building beyond the approved area is very common among lakeview guesthouses. A floor-area tally for guesthouses in one village in Yinqiao Township, seen by a QDaily reporter, showed excess space ranging from just over 40 to more than 1,500 square meters. Operators pay the village collective an annual "paid-use fee" of 200 yuan per square meter for it.

Liu Kaiyuan spent more than 4 million yuan simply to get his guesthouse open. In 2012 he found a plot of homestead land in Yinqiao with a single-story house on it, went to the owner and struck a deal: the construction permit would be applied for in the owner's name, and Liu would put in more than 3 million yuan to knock down the old house and build a three-story guesthouse with 800 square meters of floor space. He signed a 15-year lease on the new building and paid all 15 years of rent up front, 1.05 million yuan.

This is how lakeview guesthouse operators usually get their buildings. Landlords who took 15 or 20 years of rent in advance have generally already spent it on repaying loans, buying or building other property, or other investments and expenses, and have little cash to hand back now. Liu Kaiyuan expects a wave of disputes between operators and landlords.

The city government says it will set up a mechanism to help the two sides settle them.

A little over 4 million yuan was a typical investment in the trade around 2013. One operator told QDaily that anything before 2013 counts as the early period, when the sums were smaller. From 2014 the numbers climbed fast, and guesthouses costing 8 to 10 million yuan became common. The time to recoup the money stretched from two or three years early on to four or five later.

But Liu Kaiyuan says he never made his money back, and believes most people in the business have not either, because lakeview guesthouses need regular refits and new equipment. "A small overhaul every three years, a big one every five" is the rule of thumb, each costing 600,000 yuan and up, sometimes more than a million.

In a June 3 report by The Paper, Gao Liuquan, full-time deputy head of the ecological relocation group under Dali's "Three Lines" delineation headquarters, said: "What guesthouse operators invested is mainly embodied in the buildings. We will compensate in accordance with the relevant laws and regulations, and whatever part of the assessed compensation belongs to the operator will certainly reach his hands." It is a vague form of words, and the compensation standard remains unclear to this day.

Some landlords have already received a government-issued "Compensation Assessment Agency Selection Form," listing three appraisal firms and an "other" box. Guesthouse operators argue that moving straight to compensation assessment, before the demolition risk assessment is finished and before any resettlement plan has been settled, may breach procedure.

Some operators care less about compensation and are preparing lawsuits to stop the demolition altogether.

Where's the Next Stop?

In the year the guesthouses spent closed, governments elsewhere kept holding out olive branches.

By incomplete count, Honghe, Zhaotong, Mile, Xishuangbanna and Pu'er in Yunnan, and Libo, Guiding and Xixiu District of Anshun in Guizhou, have all held recruitment sessions in Dali or invited Dali guesthouse operators to visit and look around, with attractive support policies. One place is said to have offered each operator 1.5 mu of land, with the government paying to put up the buildings and adding a fit-out subsidy of 500 yuan per square meter. After last year's shutdown, a group of Dali guesthouse owners also set up a "platform" in Guizhou, working with local governments to recruit other Dali owners into a "homestay cluster."

"Honestly, I'd love to go, I just have no money to invest right now," Liu Kaiyuan told QDaily. "Homestays can make a place popular in a way hotels can't." As he sees it, once the guesthouses are cleared out en masse, tourism in Dali will "go backwards," returning to a model built on travel agencies, tour groups and sightseeing stops.

Dali's officials have not always been cool toward lakeview guesthouses. Now, though, they have started restricting the growth of rural ones.

The "Dali Rural Homestay and Guesthouse Management Measures (Trial)," which went to a hearing on May 18, marks out "development-prohibited zones" and "development-restricted zones" for rural guesthouses, where the number of guesthouses may only fall, never rise. Beyond them lies a "moderate development zone," where guesthouse floor space is capped at 450 square meters. Note the word "rural" in the title.

In town, meanwhile, a new property concept has emerged: the title-deed guesthouse. Its showcase is a well-known project on a hillside facing the lake along the Haidong ring road. The sales brochure calls it a "tourism resort town," with a hotel, a shopping street and two themed guesthouse zones. The guesthouse zones have 512 rooms in all, in dozens of units ranging from 600 or 700 square meters to more than 2,000, each with 70-year commercial-residential title and each able to obtain the "five licenses" a guesthouse needs (business, health, sewage discharge, fire safety and special-industry). They currently sell for more than 20,000 yuan per square meter. The brochure says: "From April 24, 2015, all self-built projects around Erhai have been rectified across the board, renting farmers' homestead land to build guesthouses has been banned, and guesthouse standards around Erhai have been raised." That presumably refers to Dali's "Notice on Launching Special Rectification of Rural Homestead Land in the Erhai Basin," which states: "It is strictly forbidden to use rural homestead land or farmers' residences for hotel, guesthouse, catering or other business activities without approval."

Resort villas, too, have lately spread thickly across the foothills of Cangshan facing Erhai on the Haixi side, and across the lake-facing slopes of the new Haidong district. A just-sold-out villa development at the foot of Cangshan, on 40-year commercial title, went for 25,000 yuan per square meter.

"Cultural tourism property" is another rising concept, with developers from inside and outside the province coming to Dali and signing agreements with local governments to build comprehensive tourism and resort projects branded as one kind of "town" or another.

The prefectural government says that during the 13th Five-Year Plan period, Dali aims to become a "world-class leisure and resort destination."

At the same time, a new city is going up on the hills of Erhai's southeastern shore: Haidong New Town, the site of Dali's new administrative center, planned for a population of 250,000 by 2025.

The operator of a 2,000-square-meter guesthouse in Haixi, himself a property developer, is also facing demolition. He told QDaily that what really holds up prices in a place is people moving in. He thinks the guesthouse business once drew people to Dali, and that after this round of clearances things may go differently.

"Erhai clean, Dali thriving," reads a slogan by the road.

Chen Jin feels the "Dali Utopia" that those idealistic young arrivals once dreamed of is about to be lost. Having left Lijiang once, he is now leaving Dali too.

(Liu Kaiyuan, Sun Yan and Chen Jin are pseudonyms.)

Photos: Jiang Yifan