How China can tax its way out of a housing bubble: just read Sun Yat-sen and study Singapore

Nicholas Ross Smith and Zbigniew Dumienski say there is an answer to Beijing’s property bubble conundrum: either a single tax on land value that Sun argued for, or a pragmatic land tenure system that Singapore has adopted

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Nicholas Ross SmithandZbigniew Dumienski

Published: 7:00am, 19 Oct 2018Updated: 7:10am, 19 Oct 2018

Much has been made of China’s purported housing bubble and the economic ripples it will send through the country and the world if it bursts. Indeed, a number of commentators have been fatalistic about the possibility of deflating this bubble because real estate seems to be the engine of the Chinese economy.

Ostensibly, the Chinese economy is increasingly reliant on construction, which has stoked a huge credit boom. It is often said that China avoided a direct hit from the financial crisis of 2008, unlike the United States and Europe; essentially, Beijing built its way out of a recession.

Certainly, the effects of this policy have filtered into China’s real estate sector. As academic Christopher Balding notes, a housing price index for 100 Chinese cities, published by Fang Holdings, rose 31 per cent to nearly US$202 per square foot from June 2015 to December 2017. “That's 38 per cent higher than the median price per square foot in the US, where per-capita income is more than 700 per cent higher than in China,” he said.

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While this is worrying, we contest the view that there is no real remedy to China’s current predicament. Actually, China is in a better situation than some countries in the West because it has the main ingredients needed to help mitigate the threat of a bursting housing bubble.

Beijing need not look far for inspiration. It could refer to the writings of Sun Yat-sen, the revolutionary leader who is still fondly remembered on the mainland. A man of letters and a philosopher on a range of topics, Sun took a particular interest in land tenure, probably after discovering American political economist Henry George as a young man in Hawaii. George argued for a single tax on land value, a principle now known as “Georgism”.

Sun was such a convinced Georgist he subsequently built an entire reform programme around the idea of developing an equitable land tenure system. He argued: “The land tax as the only means of supporting the government is an infinitely just, reasonable, and equitably-distributed tax, and on it we will found our new system.”

Revolutionary leader Sun Yat-sen is still fondly remembered in Beijing. He took a particular interest in the idea of a single tax on land value. Photo: AFP