The Tax That Can Make China's Cities Safer
The mountain of mud and construction debris that collapsed in Shenzhen, China over the weekend started piling up years ago. But despite complaints and warnings from residents in the area, nobody -- neither the city, nor the company responsible for managing the site, nor the contractors who dumped debris there -- stopped or diverted the waste to somewhere safer. Fast-growing Shenzhen, a gleaming metropolis of more than 10 million people, was too busy growing to worry about an impending disaster that's left dozens of people missing or dead.
The Shenzhen landslide is only the latest in a long line of manmade tragedies that have struck Chinese cities in recent years, including an explosion at a hazardous materials warehouse in Tianjin in August and fatal floods that overwhelmed new sewer infrastructure in Beijing in 2012, not to mention a national air pollution epidemic that shows no sign of abating. Each of these disasters is unique in its own way. But collectively they and other incidents highlight a long-term failure on the part of the Chinese government to plan and build cities that are safe for their residents. Instead, the emphasis has been on growing as much and as fast as possible.
Top officials aren't blind to the problem. On Sunday, the day of the Shenzhen disaster, Chinese President Xi Jinping and other leaders were gathered for what state media billed as China’s first high-level urban planning conference since 1978. What the country really needs, though, aren't better rules or more extensive blueprints. First and foremost, leaders need to change the perverse incentives that drive rampant overdevelopment.
Of these, the most critical is that China’s local governments have almost no authority to levy taxes. As a result, they depend upon the sale of land for as much as 35 percent of their operating revenues. For Chinese officials, who are promoted or demoted in part on the basis of just how much growth they’ve managed to gin up, this creates an irresistible urge to seize and develop land. Meanwhile, developers -- fueled by cheap government loans -- are more than happy to keep building. China’s estimated 50 million empty apartments are just one obvious consequence of this breakneck development.
Another is the rash of disasters like the one that occurred in Shenzhen. If city officials were more concerned with "livability" than generating revenue, government and private industry might have figured out some safer and more productive destination for all that dirt. (Only 5 percent of China’s construction debris is recycled, for instance, compared to over 95 percent in many industrialized countries.) One way to have an immediate impact would be to give local governments the right to raise new revenues, starting with a property tax.
China already taxes property transactions. But a recurrent property tax would accomplish goals that a one-time levy simply can’t. First, speculators who currently face no carrying costs for leaving apartments and whole buildings empty would have much more incentive to rent them out. That, in turn, should help dissuade them from over-building.
Second, being able to count on steady, long-term revenues would help wean local governments off their dependence on land sales. According to a March study by the International Monetary Fund, a well-designed tax could more than make up for the revenues from such transactions.
Third, a property tax would ensure that property owners have a direct stake in the infrastructure and other development projects being built in their neighborhoods and cities. Presumably, those stakeholders would be more vocal and forceful in opposing unsafe projects.
A tax won't solve all of the problems that plague China’s urban planning, of course. Even when the government has good rules on the books, developers and officials collude to evade them. Xi's government has made some progress in combating corruption, but not nearly enough to prevent such practices. The Shenzhen landslide, for example, appears to have been caused by some combination of incompetence, lack of enforcement and -- in all likelihood -- the kinds of low-level corruption that pervade Chinese urban life. Fixing these problems will require further attacks on corruption, better enforcement of regulations and professionalization across China’s bureaucracy.
Still, as the toll from China’s urban disasters accumulates, it’s past time to reassess the price of building unlivable cities. In recent years, China has attempted two property-tax pilot projects. Efforts to expand them nationally have been repeatedly delayed for fear that they might sap a weakening economy. After Shenzhen, China should reconsider the cost of not implementing them.
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