


































Economics, Law and Policy 
ISSN 2576-2060 (Print) ISSN 2576-2052 (Online) 

Vol. 8, No. 2, 2025 

www.scholink.org/ojs/index.php/elp 

102 
 

Original Paper 

Study on Loss of Necessary Benefit in Administrative 

Compensation 

Yu Tian
1*

 & Feihan Sun
1 

1
 Dalian Ocean University, Dalian, Liaoning, China 

 

Received: June 30, 2025        Accepted: July 9, 2025       Online Published: July 10, 2025 

doi:10.22158/elp.v8n2p102               URL: http://dx.doi.org/10.22158/elp.v8n2p102 

 

Abstract 

On March 21, 2022, the Supreme People’s Court issued the Judicial Interpretation on Administrative 

Compensation, expanding the scope of direct losses under the State Compensation Law. This landmark 

development extends the definition of actual losses in administrative compensation litigation from direct 

damages to include lost expected benefits—a milestone in China’s administrative legal reform. For 

decades, theoretical and practical circles have debated the concept of “expected benefits” in 

administrative compensation. Through this judicial interpretation, we examine the current challenges in 

determining actual losses within China’s compensation framework, including inconsistent standards, 

diverse calculation methods, and complex procedures. By integrating the State Compensation Law with 

administrative regulations and judicial interpretations, this study clarifies the theoretical foundations 

and practical criteria for assessing actual losses, delineates the boundaries between direct and indirect 

losses, and incorporates property depreciation and lost expected benefits resulting from administrative 

actions into the compensation scope. 

Keywords 

administrative compensation, direct loss, indirect losses, loss of necessary benefits 

 

1. Introduction 

1.1 Research Background 

China’s National China’s National Compensation Law, enacted in the 1990s and revised twice in 2010 

and 2012, has been continuously updated to address evolving societal needs. However, Article 36 (8) of 

the law—which mandates compensation for property losses based on direct damage—has remained 

unchanged since its initial enactment and continues to spark controversy. The current compensation 

standards therefore fall far short of victims’ expectations to fully restore their rights to pre-infringement 

conditions through state compensation mechanisms. 



www.scholink.org/ojs/index.php/elp                   Economics, Law and Policy                        Vol. 8, No. 2, 2025 

103 
Published by SCHOLINK INC. 

Article 29, Paragraph 4 of the Judicial Interpretation on Administrative Compensation defines actual 

losses as comprising both vested interest losses and necessary interest losses. The latter refers to benefits 

that market entities would have obtained without administrative intervention. Throughout its evolution, 

the administrative compensation system has been shaped by significant legal developments and 

landmark cases. Its progress manifests not only in refined legal frameworks but also through enhanced 

compensation standards and streamlined procedures. With socioeconomic development and heightened 

public awareness of rights protection, compensation thresholds have progressively increased while 

administrative processes have become more simplified. 

1.2 Research Meaning  

From a practical standpoint, administrative compensation serves as a vital mechanism for safeguarding 

the legitimate rights of citizens, legal entities, and organizations. However, in practice, the complexity of 

compensation standards and procedures often results in significant discrepancies between compensation 

amounts and actual losses. Therefore, studying the actual losses in administrative compensation helps 

refine the compensation system, enhance its fairness and reasonableness, and better protect the legitimate 

rights of affected parties. 

Secondly, from a theoretical perspective, research on actual administrative compensation losses 

contributes to enriching and developing the theoretical frameworks of administrative law, compensation 

law, and related disciplines. Through in-depth analysis of actual losses, this study can reveal existing 

issues and shortcomings in compensation systems, providing theoretical support for their improvement. 

Simultaneously, such research offers valuable references for compensation mechanisms across other 

fields, driving comprehensive progress in the compensation system as a whole. 

Furthermore, research on actual losses in administrative compensation holds significant social value. 

With rapid societal development and the deepening of legal system reforms, citizens, legal entities, and 

organizations have increasingly heightened their legal awareness, demanding greater fairness and 

rationality in compensation mechanisms. Therefore, studying actual losses in administrative 

compensation not only helps meet public expectations for compensation systems but also enhances 

government credibility and image, ultimately contributing to social harmony and stability. 

 

2. Research Status  

2.1 Status Quo of Domestic Research  

In the current research landscape of administrative compensation systems both domestically and 

internationally, it is evident that with the continuous advancement of legal system development, this field 

has become a focal point in legal academia. In China’s domestic academic circles, numerous scholars 

have conducted in-depth studies on the theoretical foundations, practical applications, and challenges 

within administrative compensation mechanisms, proposing innovative and actionable recommendations. 

For instance, recent years have seen Chinese researchers thoroughly examine the scope, standards, and 

procedural requirements of administrative compensation, developing forward-looking solutions. 



www.scholink.org/ojs/index.php/elp                   Economics, Law and Policy                        Vol. 8, No. 2, 2025 

104 
Published by SCHOLINK INC. 

Meanwhile, the practical implementation of China’s administrative compensation system continues to 

progress, with landmark case judgments providing crucial guidance for refining the framework. 

2.2 Current Situation of Overseas Research  

At the international level, administrative compensation systems have garnered significant attention. 

These systems exhibit distinct characteristics across different countries and regions, with their 

development trajectories and current practices demonstrating varied features. For instance, developed 

nations have established comprehensive legal frameworks and practical experience in administrative 

compensation mechanisms. Their systems demonstrate high scientific rigor and fairness in defining 

scope, establishing standards, and implementing procedures. These well-developed systems provide 

valuable references for other countries and regions seeking to improve their administrative compensation 

mechanisms. 

 

3. Basic Theory of Necessary Benefit Loss in Administrative Compensation 

3.1 Theoretical Scope of Citizen Property Protection in the Constitution 

The Constitution establishes clear protections for both public and private property. Public property, 

which refers to state and collective assets, is safeguarded by the state with legal obligations, prohibiting 

any organization or individual from appropriating or destroying it through any means. Regarding private 

property—particularly citizens “lawful private property—the Constitution explicitly guarantees its 

inviolability and mandates that the state legally protects citizens” private property rights and inheritance 

rights. While affirming equal protection for both public and private property, the Constitution further 

delineates their boundaries. Private property encompasses, but is not limited to, citizens’ lawful income, 

savings, housing, livestock, and legally permitted production materials. These provisions ensure that all 

types of property accumulated by citizens in daily life are protected under the law. 

In safeguarding citizens’ property rights, the Constitution enshrines several fundamental principles. The 

principle of “right as entitlement” establishes that personal property rights must be protected through 

legal frameworks, meaning such rights are only protected when acquired and exercised in accordance 

with the law. The principle of “separability” ensures that property rights remain inseparable from 

personal identity, guaranteeing their independence and stability. Finally, the principle of “fairness and 

reasonableness” mandates that property rights protection should follow equitable and reasonable 

standards, ensuring appropriate measures are applied to different individuals and circumstances. 

While safeguarding citizens “property rights, the Constitution also takes into account the needs of public 

interest. Under specific circumstances, such as when public interests are satisfied, the state has the 

authority to legally expropriate or requisition citizens” private property. However, this action must be 

based on fairness and reasonableness—meaning the state must provide appropriate and reasonable 

compensation to affected citizens to ensure their rights are fully protected and respected. This provision 

demonstrates that while protecting citizens’ property rights, we must also respect and consider the needs 

of social public interest. 



www.scholink.org/ojs/index.php/elp                   Economics, Law and Policy                        Vol. 8, No. 2, 2025 

105 
Published by SCHOLINK INC. 

In general, the theory of the scope of citizen property protection in the Constitution aims to ensure that 

citizens’ legal property is effectively protected, and balance the relationship between individual interests 

and public interests, so as to maintain social harmony and stability. 

3.2 The Theory of the Scope of Protection of the Legitimate Rights and Interests of the Plaintiff in 

Administrative Litigation 

First of all, the legitimate rights and interests of the plaintiff in administrative litigation include the right 

to file a lawsuit, the right to produce evidence, the right to debate, the right to apply for withdrawal, the 

right to apply for preservation of evidence, the right to appeal and other litigation rights. These rights are 

the basic guarantee for the plaintiff to carry out litigation activities normally and safeguard their 

legitimate rights and interests in administrative litigation. 

Secondly, the protection of plaintiffs “legitimate rights and interests encompasses multiple dimensions. 

On the one hand, courts must legally accept lawsuits to safeguard their right to file claims. On the other 

hand, during litigation proceedings, courts should fully protect plaintiffs” procedural rights including 

evidence presentation and debate opportunities, ensuring they can adequately express their demands and 

arguments. Furthermore, courts should conduct substantive reviews of plaintiffs’ legal rights and conduct 

legality assessments of administrative actions by government agencies to uphold these rights. 

Furthermore, the protection of plaintiffs’ legitimate rights and interests in administrative litigation also 

encompasses remedial measures. When such rights are violated, courts shall provide relief through 

revocation, amendment, or confirmation of the illegality of administrative actions. Additionally, based 

on case specifics, courts may order administrative agencies to assume corresponding compensation 

liabilities to compensate plaintiffs for losses incurred due to such actions. 

In the theoretical framework for protecting plaintiffs “legitimate rights and interests in administrative 

litigation, several critical aspects require attention: First, it is essential to accurately define the scope of 

cases accepted by administrative litigation, ensuring that plaintiffs” lawful rights are fully encompassed 

within its remedial scope. Second, enhanced procedural safeguards must be implemented to protect 

plaintiffs “procedural rights, guaranteeing their full exercise of litigation rights throughout the 

proceedings. Third, substantive protections should be strengthened to ensure effective safeguarding of 

plaintiffs” legitimate rights. In summary, the theory of protecting plaintiffs “lawful rights and interests 

constitutes a vital component of the administrative litigation system. Its primary purpose is to ensure that 

plaintiffs” rights are fully respected and protected during administrative litigation, thereby achieving 

justice, fairness, and effectiveness in judicial processes. 

3.3 The Scope of the Loss of Necessary Benefits in Administrative Compensation 

1) The connotation of the loss of necessary benefit in administrative compensation 

Generally speaking, direct loss refers to the reduction or loss of existing property. However, analyzing 

the scope of direct losses outlined in the Judicial Interpretation on Administrative Compensation reveals 

that examining the causal relationship between tortious acts and damages better aligns with legislative 

intent. Indirect loss pertains to the loss of potential benefits, which includes both probable and certain 



www.scholink.org/ojs/index.php/elp                   Economics, Law and Policy                        Vol. 8, No. 2, 2025 

106 
Published by SCHOLINK INC. 

benefits. Among these, certain benefits should fall under direct loss. For probable benefits lacking causal 

necessity, even without tortious acts, such gains might not materialize, thus this portion of losses should 

be excluded from compensation. However, certain certain benefits—like operational losses during 

vehicle downtime specified in Article 29 of the Judicial Interpretation—are guaranteed to occur 

regardless of tortious acts. Similarly, rental losses from business suspensions under Article 28 also 

constitute certain benefits, both falling under direct losses with guaranteed benefits. For instance, while 

rental income is generally considered indirect loss and excluded from compensation, in the 

administrative compensation case Liu v. Xincai County Government, where Liu rented out part of his 

property and provided evidence, the Supreme People’s Court ruled that administrative compensation 

primarily covers direct losses rather than indirect ones. Therefore, Liu’s retrial application was dismissed. 

However, the loss of rent belongs to the loss of inevitable and obtainable benefits. The forced demolition 

will inevitably block the collection of rent, and there is an inevitable causal relationship with the loss of 

rent, so it is a direct loss and should be compensated (Lu, Z. F., & Wu, J. H., 2022, pp. 115-119). 

2) The significance of administrative compensation covering loss of vested interests 

According to the timing of damage occurrence, damages can be categorized into direct and indirect 

losses. Indirect loss refers to future property reduction, specifically diminished potential benefits (Zhang, 

X. B., 2005, pp. 56-57). Potential benefits refer to the interests that victims would have obtained or were 

highly likely to obtain had the infringement not occurred. These losses are characterized by two key 

features: First, such benefits existed before the infringement occurred, and victims could potentially 

acquire them without actual possession; Second, these benefits were either inevitable or highly probable 

if the infringement had not occurred—in other words, they held practical significance rather than being 

hypothetical. Under relevant provisions of China’s State Compensation Law, indirect losses are excluded 

from state compensation coverage. This legislative decision reflects China’s fiscal constraints and the 

inherent complexity of calculating indirect losses, leading courts to prioritize compensating only direct 

damages in property-related cases. However, this approach has become increasingly problematic with 

economic development. Judge Liu Haihong identifies the distinction between direct and indirect 

damages as a critical challenge in judicial practice, noting inconsistent adjudication standards that 

undermine public trust. From the perspective of fully safeguarding human rights, she proposes limiting 

compensable indirect losses to evidence-proven specific ranges (Liu, H. H., 2005, pp. 39-41). Scholar 

Ding Bangkai elaborates on the necessity and feasibility of including indirect losses in compensation, 

suggesting reference to civil law standards for defining indirect losses (Ding, B. K., & Qian, F., 2004, pp. 

68-72). Therefore, according to the actual needs of social progress, it is necessary to adjust the coverage 

of administrative compensation regularly. 

Incorporating loss of expected benefits into administrative compensation not only fulfills legislative 

objectives but also constitutes an essential requirement for achieving “administrative rule of law.” The 

modern state compensation philosophy prioritizes people-centered principles, emphasizing the provision 

of fair, timely, and effective compensation when citizens’ legitimate rights are infringed upon by state 



www.scholink.org/ojs/index.php/elp                   Economics, Law and Policy                        Vol. 8, No. 2, 2025 

107 
Published by SCHOLINK INC. 

power. It seeks to establish reasonable compensation standards that align with social development. The 

original intent of the State Compensation Law was to provide legal remedies for victims. The scope of 

administrative compensation directly impacts the intensity of supervision over administrative power and 

the extent of protection for victims’ rights. In today’s economic environment where indirect losses often 

accompany direct ones, overly restrictive loss determination may inflict secondary harm on 

disadvantaged victims. Meanwhile, China’s Constitution stipulates that all power belongs to the people. 

It further specifies that victims entitled to compensation may seek redress through legal channels when 

state organs or officials unlawfully exercise authority to infringe upon citizens’ rights. By 

institutionalizing and legalizing state compensation, the State Compensation Law embodies the 

government's core principle of acting according to law and assuming responsibility for violations. 

Incorporating loss of expected benefits into administrative compensation precisely implements this 

principle and meets the requirements of “administrative rule of law.” 

 

4. Dispute and Cause Analysis of the Loss of Necessary Benefit in Administrative Compensation 

4.1 The Scope of Legislative Protection of Vested Interest Loss Is Not Clear 

The current legislation on “actual loss” faces two major issues regarding its scope of protection. First, 

there is a lack of clear legal basis. Although the State Compensation Law introduced the concept of 

“direct loss,” it fails to provide detailed and precise definitions. This results in inconsistent judicial 

standards when handling related cases, undermining the credibility and authority of the judiciary. Second, 

unclear legal definitions pose another pressing challenge. In China, the concept of “actual loss” is not 

only applied in state compensation law but also extends to civil and administrative laws. However, 

significant differences in interpretations of “lost expected benefits” across various legal systems create 

substantial confusion and uncertainty in defining the scope of legislative protection. 

Of particular significance is the Supreme People’s Court’s 2008 Judicial Interpretation on Several Issues 

Concerning Judicial Compensation in Civil and Administrative Litigation, which systematically outlines 

specific scenarios of direct losses that may arise during judicial compensation proceedings. As current 

national compensation legislation lacks a clear definition of “compensable loss of expected benefits,” it 

becomes imperative to conduct comprehensive research across relevant laws, regulations, and normative 

legal documents to establish an accurate interpretation and delineation of this concept. 

4.2 The Scope of Compensation for Loss of Vested Interests Is Limited 

In the practice of state compensation law, the determination of direct losses directly determines the 

specific amount of compensation. However, in reality, many victims suffer actual losses far exceeding 

the scope of direct losses, yet receive inadequate compensation. Take the administrative compensation 

case between Baqing County Dazhuang Game Hall and Baqing County Public Security Bureau as an 

example: The game hall suffered over 1,000 days of business interruption due to the public security 

bureau’s illegal shutdown. Its electronic gaming equipment depreciation, property rent, financing costs, 

and potential operating profits were not adequately considered. Although the court compensated for 



www.scholink.org/ojs/index.php/elp                   Economics, Law and Policy                        Vol. 8, No. 2, 2025 

108 
Published by SCHOLINK INC. 

some direct losses like equipment depreciation and property rent, it excluded other more complex and 

hard-to-quantify losses such as financing costs and operational losses on the grounds of “only 

compensating direct losses.” The outcome of this case shows that the victim received compensation far 

below their entitled loss, while the administrative authority imposed excessively low costs for its illegal 

actions. 

While the “causation theory” serves as a standard for determining direct losses in administrative 

compensation, its strict definition of “direct causation” often excludes anticipated benefit losses in 

practice. This undoubtedly limits the fairness and reasonableness of compensation. Therefore, it is 

necessary to re-examine and adjust existing compensation standards to more comprehensively cover 

victims’ actual losses. This will better protect their legitimate rights and interests, promote lawful 

administration by government agencies and their staff, and ensure proper exercise of authority. 

4.3 The Scope of Judicial Protection of Vested Interest Loss Is Limited 

The inadequacy of compensation standards for victims’ property losses in China’s administrative 

compensation system has persisted since the enactment of the State Compensation Law. While the 

legislation mandates “compensation based on direct losses,” it fails to clearly define what constitutes 

such losses. This ambiguity has resulted in judicial practices that apply extremely narrow criteria for 

determining lost expected benefits, thereby preventing victims from receiving comprehensive and 

adequate legal redress. 

According to Article 12 of the Supreme People’s Court’s Interpretation on Several Issues Concerning the 

Application of Law in Civil and Administrative Litigation Cases Involving Judicial Compensation, when 

property cannot be restored to its original condition or is destroyed, losses shall be calculated based on 

the price at the time of the infringement. If market prices cannot be determined or are insufficient to 

compensate for the victim’s losses, other reasonable methods may be used to calculate damages (Zhang, 

X. Y., 2017, pp. 124-133). Therefore, the principle is to calculate losses according to market prices at the 

time of demolition. However, for real estate and bulk commodities where values fluctuate easily, 

calculating losses based on original values might appear unfair. 

According to Articles 3 and 4 of the State Compensation Law, administrative compensation applies only 

when administrative authorities unlawfully exercise their powers to infringe upon personal or property 

rights. These provisions limit the scope of administrative compensation (Wang, K., 2007, pp. 140-166). 

In determining loss of expected benefits, it is essential not only to consider the specific amount of loss but 

also clarify the method for determining the loss amount and the allocation of burden of proof. The 

determination of loss amounts proves particularly complex, as it involves selecting calculation 

benchmarks and time nodes for compensation. Currently, China’s existing State Compensation Law does 

not explicitly specify calculation benchmarks for property damage. However, Article 27 of the Judicial 

Interpretation on Administrative Compensation explicitly states the principle of using market prices as 

the calculation benchmark. This provision provides judicial guidance, allowing reference to market 

prices when determining loss amounts. Therefore, when assessing loss of expected benefits, full 



www.scholink.org/ojs/index.php/elp                   Economics, Law and Policy                        Vol. 8, No. 2, 2025 

109 
Published by SCHOLINK INC. 

consideration should be given to the method for determining the loss amount, the allocation of burden of 

proof, and the selection of calculation benchmarks and time nodes for compensation. This ensures the 

fairness and reasonableness of compensation outcomes. 

4.4 The Standard of Judicial Judgment on the Loss of Vested Interests Is Too Low 

When discussing compensation standards for personal rights violations, two critical issues emerge. First, 

the current “national average daily wage of employees from the previous year” used as a daily 

compensation benchmark primarily compensates victims for lost wages, while neglecting mental distress 

and potential future income losses. Second, the standard calculation method—based on multiplying the 

“national average daily wage” by the number of injured days with an upper limit set at the “national 

average annual wage multiplied by a specific multiplier”—fails to reflect modern economic diversity and 

varied occupational income distribution. This rigid standard proves unfair and inadequate, particularly 

when calculating compensation for moderate-to-high-income individuals who suffer substantial 

non-monetary damages from injuries. 

The same issue manifests in the compensation standards for property rights infringement. The State 

Compensation Law stipulates that infringing authorities only need to compensate for “direct 

losses”—that is, financial reductions directly caused by the infringement, such as direct decreases in 

victims’ wealth due to property damage. All other losses are classified as “indirect losses” and not 

eligible for compensation. For instance, when business licenses are revoked, compensation covers only 

regular expenses like utility fees during suspension periods, while direct losses like breach penalties and 

compensation payments incurred due to business shutdowns remain uncompensated. Expectations of 

future income and potential benefits are even more excluded. Since the amount of potential benefits is 

often substantial and realistically exists, such compensation standards prove ineffective in addressing 

victims' actual loss of expected benefits. 

 

5. Legislative Improvement and Judicial Countermeasures for the Determination of Necessary Benefit 

Loss in Administrative Compensation 

5.1 Clarifying the Scope of Legislative Protection for Losses of Vested Interests 

When defining the legislative scope of administrative compensation for actual losses in China, a central 

issue is establishing clear calculation standards for lost expected benefits. Current laws provide vague 

regulations in this area, resulting in significant discretionary room in practice. This ambiguity 

undermines the fairness and reasonableness of compensation outcomes. 

The calculation of lost expected benefits should establish a multi-dimensional evaluation mechanism that 

comprehensively considers direct economic losses, indirect economic losses, and non-economic 

damages. Regarding direct economic losses, assessments should not only evaluate physical damage but 

also include business interruption costs and relocation expenses caused by administrative actions. For 

indirect losses, factors such as potential impacts on future earnings and reputational harm should be 

incorporated, with methods for quantifying these damages being explored. As for non-economic 



www.scholink.org/ojs/index.php/elp                   Economics, Law and Policy                        Vol. 8, No. 2, 2025 

110 
Published by SCHOLINK INC. 

damages like mental distress compensation, clear standards and caps must be established to prevent 

excessive payouts. Furthermore, calculating lost expected benefits should extend beyond static property 

valuation to consider victims’ actual living conditions and future prospects. For instance, in housing 

expropriation cases, compensation should not only cover the property’s value but also account for 

resettlement costs, relocation expenses, and potential changes in living standards. To enhance the 

scientific rigor and accuracy of loss calculations, it is recommended to engage third-party professional 

institutions for evaluations. Third-party assessments can reduce subjective biases, ensuring objective and 

credible results. Simultaneously, establishing review procedures will guarantee the professionalism and 

independence of third-party evaluations. 

Finally, the legislative body should establish clear legal guidelines for calculating compensable losses in 

administrative compensation to eliminate practical uncertainties. This includes creating unified 

evaluation benchmarks, assessment methodologies, and necessary correction mechanisms. These 

measures will provide a more robust legal foundation for calculating compensable losses in 

administrative compensation, thereby advancing the realization of fairness and justice within the 

administrative compensation system. 

5.2 The Scope of Compensation and Relief for Loss of Vested Interests Shall Be Expanded 

Article 4, Item 4 and Article 36, Item 8 of the State Compensation Law of the People’s Republic of China 

stipulate that when administrative acts by administrative organs and their staff violate laws during the 

exercise of administrative authority, causing property damage to citizens, legal persons, or other 

organizations, the victims have the right to claim compensation. When property rights of citizens, legal 

persons, or other organizations are infringed and damages occur, compensation shall be provided based 

on direct losses. Therefore, when administrative organs unlawfully carry out forced demolition actions 

causing property losses to affected enterprises, they shall compensate for the “direct losses” caused by 

such unlawful administrative acts. Article 29 of the Judicial Interpretation on Administrative 

Compensation incorporates interest, operational losses, and rewards/subsidies eligible in compensation 

into the category of direct losses. Other actual property losses are recognized as real losses, and 

compensation claims in cases involving illegal house expropriation or land requisition must not be less 

than the original compensation, thereby fully protecting the legitimate rights and interests of the parties 

concerned (Yu, H. S., Guo, X. J., Yang, K. X. et al., 2022, pp. 25-36). 

The term “direct losses” refers to the total actual financial damages caused by unlawful administrative 

actions to the affected party. Typically, when implementing property expropriation for corporate 

factories, compensation covers: the value of the expropriated property, relocation and temporary 

resettlement expenses, business suspension losses due to expropriation, as well as subsidies and 

incentives stipulated in the compensation plan. If an administrative agency unlawfully demolishes lawful 

properties through forced demolition during expropriation, the administrative compensation items and 

amounts must not be less than those from administrative compensation procedures. In other words, all 

legally entitled compensations including relocation fees, temporary resettlement allowances, business 



www.scholink.org/ojs/index.php/elp                   Economics, Law and Policy                        Vol. 8, No. 2, 2025 

111 
Published by SCHOLINK INC. 

suspension losses, and subsidies/grants should fall under the category of “direct losses” and are legally 

required to receive administrative compensation. 

5.3 Expanding the Scope of Judicial Protection of Vested Interests Losses 

The newly issued Judicial Interpretation scientifically defines and legally expands the scope of 

compensation for damages to legitimate rights and interests. It clarifies that administrative compensation 

protection covers, but is not limited to, personal and property rights, while extending judicial protection 

to losses of expected benefits in administrative actions. Addressing issues such as unlawful exercise of 

administrative authority infringing on labor rights and adjacent rights in judicial practice, Article 2 of the 

new interpretation stipulates that citizens, legal entities, or organizations may file administrative 

compensation lawsuits if they believe administrative authorities or their staff have unlawfully exercised 

power, causing personal or property damage to their labor rights, adjacent rights, or other legitimate 

interests. This expands the original scope of administrative compensation protection. The interpretation 

also reasonably defines the scope of direct losses and clarifies the boundaries of legitimate rights and 

interests infringed upon by parties. 

In accordance with the provisions of the State Compensation Law of the People’s Republic of China, the 

scope of compensation for damages to personal and property rights caused by illegal acts by 

administrative authorities and their staff should be further clarified and expanded. Beyond existing 

damages from unlawful detention, illegal confinement, assault, and abuse, legislative acts, abstract 

administrative actions, and discretionary decisions should also be included in the compensation scope. 

First, material compensation for mental distress should be added. In practice, many victims suffer not 

only material losses but also psychological anguish. Therefore, material compensation for mental harm 

should be enhanced to better protect victims’ rights. Second, the scope of compensation should 

encompass both direct and indirect losses. Compensation should extend beyond direct damages to 

include indirect losses caused by administrative violations, such as lost expected benefits. This approach 

helps comprehensively compensate for economic losses. Third, judicial oversight over administrative 

power should be strengthened. By enhancing judicial supervision, we can ensure lawful exercise of 

authority and reduce illegal acts. Administrative agencies violating laws should be held accountable and 

compensate victims accordingly. Additionally, to ensure legal flexibility, the new Judicial Interpretation 

has established a catch-all clause explicitly stating that other actual property losses also fall under direct 

loss categories. The way of expanding the scope of direct losses through the bottom-line clause aims to 

encourage the practice of bravely remedying other actual losses, which can maximize the protection of 

the legitimate rights and interests of the parties concerned, and also provide a more clear and specific 

legal basis for the trial of administrative compensation cases (Ma, W. D., & Zhang, Z. Y., 2022, pp. 

18-24). 

 

 

 



www.scholink.org/ojs/index.php/elp                   Economics, Law and Policy                        Vol. 8, No. 2, 2025 

112 
Published by SCHOLINK INC. 

5.4 The Fairness of the Standard of Judicial Protection for the Loss of Vested Interests 

After determining that the administrative organ is liable for compensation, a new problem arises, namely, 

what standard the administrative organ should adopt to assume liability and compensate the victim’s loss. 

According to the provisions of the State Compensation Law, the principle of compensation for 

infringement of the property rights of citizens, legal persons and other organizations is based on the 

principle of compensation for direct loss. 

Regarding cases where property damage cannot be restored or is irretrievably lost, the National 

Compensation Law stipulates “payment of corresponding compensation.” The term “corresponding” is a 

broad concept that requires specific determination based on China’s current administrative compensation 

standards. In terms of the adequacy of administrative compensation, calculation criteria can be 

categorized into two types. First, punitive standards. This special calculation method adopted by 

administrative compensation authorities involves paying amounts exceeding the victim’s entitled loss 

rather than simply determining compensation based on the victim’s potential gains. Beyond 

compensating victims, punitive damages serve a deterrent function for administrative agencies, ensuring 

both rights protection and future compliance through penalizing illegal acts. Therefore, moderately 

increasing punitive standards in administrative compensation can raise the cost of violations and prevent 

unlawful conduct. Second, compensatory standards. This calculation principle ensures that 

compensation payments align with the actual loss suffered by the claimant. Under this standard, 

compensation amounts match the victim’s actual damages to achieve full restitution and ensure fair 

compensation. The scope of this compensatory standard should be expanded to match the scope of civil 

law compensation. 

 

6. Conclusion  

In recent years, significant theoretical perspectives and empirical analyses have emerged regarding the 

loss of necessary benefits in administrative compensation. However, unresolved issues persist, such as 

ongoing debates over the criteria and scope of these losses, as well as the need for deeper exploration in 

procedural integration and systematic research. To better protect the legitimate rights of administrative 

counterparts, it is imperative to reform the current compensation system in a timely manner. This 

involves establishing a liability framework prioritizing violations and manifest impropriety while 

incorporating minor faults as a secondary consideration, moderately expanding the scope of 

administrative compensation, introducing additional provisions for mental distress and potential benefit 

losses, broadening coverage of actual property damage compensation, and designing more streamlined 

administrative compensation procedures alongside practical and meticulous administrative recovery 

mechanisms. Therefore, further research and exploration into the loss of necessary benefits in 

administrative compensation remain both crucial and essential. 

 

 



www.scholink.org/ojs/index.php/elp                   Economics, Law and Policy                        Vol. 8, No. 2, 2025 

113 
Published by SCHOLINK INC. 

References 

Ding, B. K., & Qian, F. (2004). Legislative discussion on the inclusion of indirect losses in the State 

Compensation Law. Journal of Shanghai University of Finance and Economics, 2004(01), 68-72. 

Liu, H. H. (2005). On damage compensation in state compensation. Shandong Trial, 2005(01), 39-41. 

Lu, Z. F., & Wu, J. H. (2022). A Brief Discussion on Direct Losses in the Judicial Interpretation of 

Administrative Compensation. Journal of Tianshui Administrative College, 23(04), 115-119. 

Ma, W. D., & Zhang, Z. Y. (2022). Standardizing the Trial of Administrative Compensation Cases to 

Promote the Development of the State Compensation System. Legal Application, 2022(04), 18-24. 

Wang, K. (2007). Orientation for the amendments to the State Indemnity Law of China. Frontiers of Law 

in China, 2(1), 140-166. https://doi.org/10.1007/s11463-007-0008-y 

Yu, H. S., Guo, X. J., Yang, K. X. et al. (2022). Interpretation and Application of Key Provisions in the 

Supreme People’s Court’s Provisions on Several Issues Concerning the Trial of Administrative 

Compensation Cases. China Applied Law, 2022(2), 25-36. 

Zhang, X. B. (2005). Principles of Tort Liability Law (2005 edition, pp. 56-57). Renmin University of 

China Press. 

Zhang, X. Y. (2017). Legal Determination of Criminal Compensation Standards for the Loss of Property 

Involved in a Case. Research on Administrative Law, 2017(05), 124-133. 

 

https://doi.org/10.1007/s11463-007-0008-y

