The second-instance hearing of Shandong Kaiyuan Thermal Power's lawsuit against the Management Committee of Dezhou Economic Development Zone recently took place at the Dezhou Intermediate People's Court. In the first year of the Private Economy Promotion Law's implementation, this heating supply dispute is far more than an ordinary business-related legal conflict—it serves as a judicial test of the bottom line for public utility consolidation.

Local governments across the country are currently advancing the "one city, one enterprise" integration model for heating, water supply, and gas utilities, a policy aimed at ensuring supply stability and price control through unified pipeline network management. However, some localities have exploited the pretext of "ensuring supply" and "carbon reduction" to bypass legal procedures, suppress compensation values, and occupy core private enterprise assets without payment, directly violating the rigid constraints of Article 61 of the Private Economy Promotion Law regarding "statutory authority, due process, and fair compensation." The Kaiyuan case represents a defining example of this "low-compensation renationalization" trend in public utility asset consolidation.

The first-instance ruling dismissed Kaiyuan's claim to confirm the invalidity of the shutdown, citing "voluntary closure by the enterprise itself," thereby skipping the core review of whether the shutdown was legal and blocking Kaiyuan from substantive trial proceedings. Kaiyuan's appeal demands are clear: the court should overturn the first-instance judgment, remand the case for retrial, or amend the ruling according to law. To achieve this objective, the court must first provide a judicial determination of the shutdown's nature, which would break through the procedural bottleneck. Only then can disputes such as the 450 million yuan assessed valuation being arbitrarily reduced to 173 million yuan in compensation, and core pipeline networks being used free of charge for nearly five years, enter judicial review.

This case unusually presents the complete chain of "investment attraction, policy reversal, specially established successor entity, low-compensation appropriation, and procedural obstruction" all on record. With a compliant precedent available in neighboring Binzhou within the same province, the second-instance hearing has reached a watershed moment requiring the court to clarify its judicial stance. The core function of this second-instance review is fundamentally to answer two critical questions about institutional expectations for private capital through legal standards: Can private capital's confidence in long-cycle public welfare investment withstand the erosion caused by "investment attraction followed by policy reversal"? Can the government credibility accumulated through over two decades of public utility marketization reforms withstand the dismantling effects of "low-compensation absorption" and operations outside established rules?

Over the past decade or more, local governments have commonly employed three types of justifications for irregular consolidation of private public utility assets: exaggerating minor enterprise flaws as grounds for forced takeover, packaging procedural gaps as negotiated integration, and citing "no precedent exists" to bypass legal procedures. The Kaiyuan case is distinctive because all these pretexts supporting "legitimacy" collapse when confronted with verifiable facts. Unlike similar cases in Min County of Gansu, Boxing County of Shandong, and Lichuan of Hubei, the absorption of Kaiyuan lost its "enterprise fault" justification from the very beginning. In 2011, Kaiyuan was recruited by the Dezhou municipal government to restructure a loss-making state-owned heating enterprise. In July 2019, the Shandong Provincial Energy Bureau designated it as the "sole and irreplaceable livelihood heat source" for the economic development zone, establishing stable policy expectations. Just three months later, the same level of government moved to include it on the shutdown list.

The financing lease dispute between Kaiyuan and China Huaxia Financial Leasing was purely commercial debt—thermal power unit retirement is determined only by coal consumption, environmental standards, capacity, and replacement heat sources, not "civil debt disputes." Even if the concession were terminated early due to government reasons, Articles 41 and 42 of the Concession Management Measures clearly stipulate: consultation with creditors, assessed handover, and fair compensation. Kaiyuan maintained stable heat supply before and after the shutdown with no compliance violations, and the commercial debt alone could not constitute a legal basis for shutdown. In May 2021, the development zone management committee issued a shutdown notice. In September, the district-owned enterprise Hengyi Thermal Power was registered specifically to take over the assets. In August, the project was listed as a key livelihood project under the city's "battle map" operations, and by December, the core assets had been forcibly transferred. District platform company statements revealed that "due to the shutdown of Kaiyuan units, Hengyi Thermal Power came into being," with officials directly confirming the establishment of a platform for asset takeover, undermining the claim of "voluntary closure."

In comparable cases in Min County, Boxing, and Lichuan, regardless of how contentious, judicial proceedings at least examined whether "termination of concession and asset takeover constituted administrative coercion." The first-instance ruling in the Kaiyuan case, however, dismissed the claim merely on the grounds of "you chose to shut down yourself," without even addressing the core question of whether the action was government-compelled. In July 2023, the Tianqu New District Management Committee issued a unilateral "Compensation Decision" that exposed the actual price suppression: the jointly commissioned asset valuation of Kaiyuan assets was 450 million yuan, but the unilateral compensation was set at 173 million yuan—a gap of nearly 280 million yuan. The price difference fell on core heating infrastructure including high-temperature water pipeline networks and heat exchange stations. The management committee excluded these assets from compensation entirely, citing "currently in use, no actual loss incurred, and ownership disputed." What was excluded were precisely the pipeline networks and heat exchange stations that the district-owned Hengyi Thermal Power had been operating since December 2021.

According to Kaiyuan's claims, it has received zero compensation to date while still bearing the financing lease and related debts behind those assets. With the pipeline network generating profits under Hengyi's operation while debts remain on Kaiyuan's books, the essence of "low-compensation renationalization" through absorption is confirmed. This operation of "forcibly taking assets, paying no consideration, and leaving behind debts" constitutes targeted expropriation under the guise of consolidation. The Kaiyuan case's uniqueness lies in solidifying "low-compensation renationalization" from local verbal justifications into a fully documented, indefensible, transparent template—the most complete and incomparable "phenomenal" reference currently publicly visible.

The outrageousness of the Kaiyuan case lies not in the "one city, one enterprise" integration direction itself, but in the fact that within the same provincial judicial jurisdiction, faced with highly similar governance scenarios, Dezhou chose confrontation while Binzhou chose negotiation. This contrast directly disproves the excuse that "integration inevitably leads to conflict." The Binzhou example is one of the "Typical Cases of Substantive Resolution of Administrative Disputes" jointly released by the Shandong Provincial High Court and Provincial Justice Department in April 2026. A private enterprise responsible for geothermal heating for 150,000 residents came under pressure in 2023 due to shareholder disputes. After the district government coordinated temporary third-party takeover, the court determined that the hearing procedure had not been followed, constituting procedural illegality. Rather than directly overturning the takeover, the court issued a "Risk Warning Letter on Losing the Case," prompting the district government to participate in government-court coordination. Through 15 on-site mediation sessions, the confrontational administrative dispute over "takeover legality" was transformed into a commercial negotiation issue of "heat asset pricing."

The local state-owned enterprise ultimately completed a package acquisition at a fair appraised value of 21.6883 million yuan, simultaneously resolving mining rights, water extraction rights renewals, and legacy debts. Throughout the entire transition, heating for 150,000 residents was never interrupted for a single day. This model of "treat the illness first, then pay the bill" thoroughly disproves the claim that "integration necessarily sacrifices private enterprise rights." The core value of the Binzhou example is demonstrating that "procedural justice" not only does not impede progress but is the lowest-cost, least-controversial path to integration. This fundamentally represents a commitment to government credibility—even when recovering assets, fair assessment and state-owned enterprise acquisition must settle historical accounts. What Binzhou purchased with over 20 million yuan of public funds was not just heating assets but the long-term confidence of private capital in the local legal environment, providing a ready-made "standard answer" for Dezhou in the same province while highlighting the absurdity of Dezhou's approach.

In contrast, Dezhou's operational logic exhibits blatant "institutionalized debt evasion": "free use" over "acquisition," "blocking" over "negotiation," "debt dumping" over "assuming responsibility." With Binzhou's ready-made model to follow, choosing to deviate does not reflect ignorance of the law but rather a deep understanding of the low cost of illegality. Hengyi Thermal Power, established specifically to take over Kaiyuan assets, ostensibly isolates debt but in reality serves as the core mechanism for "debt dumping and fruit-picking" within the district's state-owned asset system. Through denying joint assessment, skipping hearings, and refusing debt responsibility, the "low-compensation renationalization" excluded 280 million yuan of core pipeline networks from compensation, effectively completing a heavily discounted state absorption of private enterprise assets. The absurdity of the Kaiyuan case is that Binzhou in the same province proved "procedural correction can still achieve proper outcomes," yet Dezhou insisted on treating "low-compensation renationalization" as a shortcut to "efficient governance." The contrasting examples lay bare this deviation from the rule of law.

The most concerning aspect of the Kaiyuan case is not the numerical gap between 450 million yuan in assets being reduced to 173 million yuan, but rather that the first-instance court used a "voluntary shutdown" ruling in an attempt to completely seal off the judicial remedy door that should remain open to citizens and enterprises. This "procedural door-blocking" is essentially judicial-level "interception of petitions." It is not a simple error in legal application but a logic-inverted "trumped-up charge." The first-instance court, citing "Kaiyuan cooperated with the shutdown and accepted resettlement funds," determined the shutdown was self-implemented by the enterprise and dismissed the claim for failing to meet filing conditions, directly stripping the enterprise of its standing to sue. This is equivalent to someone whose property was forcibly confiscated without justification accepting the "living expenses" offered to survive, only to have the court determine that "accepting living expenses means voluntarily donating the property," denying any forum to seek justice.

Using an enterprise's passive loss-minimizing "cooperation" under immense administrative pressure to negate the "nature of conduct" of administrative coercion—if this logic stands, any administrative coercion could be packaged as "voluntary behavior" through induced signing or coercion-based persuasion, rendering the Administrative Litigation Law completely ineffective. This judicial "procedural door-blocking" is more insidious and destructive than direct seizure: direct forced shutdown leaves evidence of administrative abuse, while a judgment declaring "enterprise voluntariness" not only permits asset taking but also deprives the enterprise of any avenue to seek recourse. Beating someone and then silencing their cries, taking assets and then "confiscating" the right to sue—this is the most vicious aspect of "procedural door-blocking": making it impossible to re-enter the courthouse, creating the most economical and efficient means of avoiding accountability. In February 2026, the Kaiyuan case completed evidentiary examination. In March, the first-instance court was accused of abusing the catch-all provision for indefinite suspension of proceedings, using "dispute resolution" to avoid reviewing the administrative coercion of the shutdown. After concentrated expert criticism, the court orally resumed proceedings in May, then in June issued a judgment of dismissal—not a ruling. This "suspend, resume, dismiss" sequence is essentially using procedural maneuvering to "cover errors through delay" for ultra vires administration.

An unjust substantive judgment can still be appealed or retried, and public opinion can still supervise—damage is limited to one case's justice. But "procedural door-blocking" destroys the credibility foundation of the entire judicial remedy system. It sends a destructive signal of power operation to all private enterprises: if your assets are targeted, authorities can either take them directly or manipulate procedural tactics to block your path to legal recourse. When the first-instance court extinguishes substantive review at the procedural doorstep, "compliance" becomes an empty shell. The second-instance hearing of the Kaiyuan case must confront a fundamental question: Is the judiciary's function to review the legality of power exercise, or to provide "compliance" endorsement for arbitrary power? If "procedural door-blocking" prevails, it effectively declares that in fields involving major property disposition like public utility consolidation, the principle of final judicial resolution has failed, and the last judicial protection umbrella for private enterprises has been folded up. For all private capital deeply invested in public utilities with heavy assets, this amounts to the collective collapse of expectations for judicial guarantee.

The Kaiyuan case is not merely an individual injustice but a high-risk specimen for stress-testing property rights protection in the public utility sector. In May 2025, the Supreme People's Court, applying the Private Economy Promotion Law, modified the Nanyang real estate case, clearly establishing that policy changes and promises cannot leave private enterprises bearing losses alone—this is the adjacent judicial signal for the Kaiyuan case under Article 61 scenarios. The Kaiyuan case goes further, becoming the first touchstone for testing how Article 61's "expropriation and compensation" rules apply in concession scenarios and whether substitute application infringes enterprise property rights. The Kaiyuan case is by no means a governance error but rather the appropriation of private enterprise heating infrastructure under the banner of "one city, one enterprise"—this is precisely the core motivation behind Dezhou's refusal to follow Binzhou's compliant path.

This "textbook-level" operational template holds enormous temptation for localities facing fiscal constraints who urgently need to package quality public utility assets into platforms for special bond issuance—far more attractive than the compliant integration path requiring real financial outlay. What is even more concerning is that the conditions for this model's "low-risk, high-reward" spillover have matured, coinciding precisely with the concentrated expiration window for public utility concessions nationwide. Heating, water supply, and gas concession projects were historically granted with 20–30 year terms. Industry consensus holds that the "15th Five-Year Plan" period (2026–2030) will mark the peak of first-batch municipal concession expirations and renewals, involving numerous private-backed small and medium operators, with the scale of expiring renewal projects estimated at thousands of projects by market calculations. Localities leverage their administrative priority in managing livelihood public utilities, using "non-renewal" as a common pressure lever: if enterprises refuse low-compensation transfers, their prior investments of hundreds of millions in pipeline networks face potential write-off. Compared to the Kaiyuan case's hard operation of "forced shutdown without just cause," expiration-based absorption is dressed up as "lawful review for non-renewal," supplemented by procedurally compliant judicial endorsement—more concealed, ostensibly more "legal," and extremely cheap to replicate.

If the second-instance hearing in the Kaiyuan case upholds the "procedural blocking" ruling, it effectively issues a "judicial pass" for such operations. Localities could use "voluntary shutdown" rulings to extinguish litigation rights, avoiding both accountability and compensation costs—a "low-compensation nationalization" template compared to the "Binzhou path" requiring actual payment. Once this door opens, localities across the country will inevitably race to imitate during the expiration window. If "zero cost for violations" becomes entrenched, individual injustice will evolve into systematic "harvesting" of private public utility assets, not only eroding two decades of marketization reform achievements but also triggering chain reactions of financing contraction, supply security risks, and original operator debt defaults.

The Kaiyuan case controversy extends far beyond the ownership of 450 million yuan in assets; it fundamentally represents the first major judicial examination of Article 61 in public utility asset consolidation scenarios during the first year of the Private Economy Promotion Law's implementation. Even if private public utility assets are consolidated into state ownership or transferred to state platforms under "one city, one enterprise," localities cannot simply shut down or seize at will—"determine the nature first, then follow procedures, then provide compensation" are three hard requirements. Either the expropriation path applies under Article 61 of the Private Economy Promotion Law, or early concession termination follows Articles 41 and 42 of the 2024 edition of the Infrastructure and Public Utility Concession Management Measures. No legal path permits "shutdown by notice, core pipeline networks without payment, and legacy debts dumped on the original enterprise." In the view of experts and public opinion, the Kaiyuan case precisely crossed this red line.

The core error of the first-instance ruling lies in reversing Kaiyuan's passive cooperation in ensuring heating supply and arranging employee resettlement through special coordination teams into evidence of "voluntary shutdown," deliberately avoiding the core factual basis of administrative dominance. If the second-instance court endorses this logic, it amounts to a destructive reverse interpretation of Article 61: localities pressure enterprises to "cooperate," then characterize forced shutdowns as "self-initiated"; courts then close the door with procedural rulings that "this case should not be heard," rendering the remedial function of administrative litigation meaningless. If this logic gains judicial endorsement, it will entrench the operational template of "using procedural blocking to pave the way for administrative overreach," hollowing out Article 61's property rights protection bottom line, eroding judicial credibility, and shaking market expectations of "investment attraction keeps promises, property rights receive protection."

Conversely, if the Dezhou Intermediate Court lawfully overturns the first-instance ruling and advances substantive review, the significance extends far beyond justice for Kaiyuan alone. Establishing the Kaiyuan case and the Binzhou compliant consolidation example as "dual Shandong precedents" could, in reviewing the first year of the new law's implementation, clarify the judicial boundaries of "one city, one enterprise": supply continuity and state takeover are permissible, but the consolidation process must operate in compliance. Although the Binzhou case predates the new law's implementation, its resolution logic aligns closely with Article 61's rigid requirements, making it the most replicable compliance reference. The inadequacy of the Dezhou first-instance ruling lies precisely in this critical first year of the new law, still attempting to use the erroneous "voluntary shutdown" characterization to nullify statutory procedures. This examination tests not how 450 million yuan in assets should be divided, but whether Article 61 can truly become a "hard constraint" protecting private enterprise property rights. If the judiciary retreats, it sends the wrong signal that "administrative superiority trumps rule of law." Only by opening the litigation door and substantively reviewing the legality of coercive actions can private enterprises believe that even amid policy adjustments and asset recovery, judicial substantive review provides fair compensation protection. This is the crucial leap for Article 61 from "paper provision" to institutional practice.