The world is watching China, not only for its impact on global financial markets, but also to see how the country’s unprecedented urbanization will continue to unfold amid a changing economy. Having grown at scale unseen in human history, China’s cities now face an economic slowdown and potential glut of new housing, particularly outside top-tier markets such as Beijing, Shanghai and Shenzhen.
The future of China’s urban development will have a tremendous effect on the nation’s economy. A 10-percent decline in real estate would equate to a 2-percent decline in gross domestic product due to ripple effects in industries ranging from cement to food to textiles, according to a recent presentation at the Lincoln Institute by Ting Shao, who studies real estate at China’s Development Research Center of the State Council.
Dr. Shao was joined by Dr. Yan Yan, a research fellow at the Peking University-Lincoln Institute Center for Urban Development and Land Policy, Shifu Wang, an urban planning professor at South China University of Technology, and Chengchuan Tian, who studies climate change issues at China’s National Development and Reform Commission. The experts discussed China’s unique urban-rural social and economic divide, new approaches to urban planning and renewal, and efforts to develop low carbon and livable communities.
Among the challenges related to China’s housing market is the huge reliance of cities on new development for the revenue needed to deliver public goods and services. Some two thirds of local government revenue comes from real estate taxes and fees, primarily from the sale of land use rights. “China is in uncharted waters when it comes to local governments’ reliance on the sale of land development rights to raise revenue,” said George W. “Mac” McCarthy, president of the Lincoln Institute. “In light of recently announced land reforms, China will need to find creative ways to build revenues bases under its cities. To its credit, the central government has embraced an opportunity to learn from the experiences of other nations that have struggled to achieve balanced and sustainable growth.”
Experts from Peking University-Lincoln Institute Center have been working with officials in China on the introduction of the nation’s first residential property tax, which could provide a more stable source of local government revenue and temper speculation in the housing market.
McCarthy recently attended a Beijing roundtable on the property tax, featuring experts from Canada, Indonesia, Korea, Lithuania, South Africa, Taiwan (China), the United Kingdom and the United States, who shared their nation’s experience implementing the property tax. He visited several urban land redevelopment projects and met with local land authorities in Guangzhou, participated in a roundtable with the Guangdong Provincial Bureau of Land Development and Reserve, and gave a lecture on the history of urban redevelopment in the U.S. to representatives from local planning and land bureaus and institutions.