First released just six years ago, the Chinese social-media app WeChat is one of the most popular in the world, with a reported 938 million active monthly users. It caught on as a messaging service, and has kept adding features. One has become wildly popular in ways that have attracted widespread attention: payments. Visit any Chinese city today and you’ll quickly discover that the option to pay for practically anything by using a smartphone is pretty much inescapable.

The upshot is that WeChat Pay has emerged as a powerful example of a digital-payments ecosystem taking hold through a unique intertwining of mobile technology and the built environment. Along with a rival service called Alipay (offered by e-commerce giant Alibaba), it’s at the center of a digital phenomenon shaped in part by the city context—and one that may, in turn, affect elements of that urban context in the future.

The general notion of digital payment is nothing new. PayPal has been around for years; your credit card details are likely on file at a slew of online retailers; a solid and growing base of users rely on Venmo to make person-to-person payments; Apple Pay has forged deals to enable smartphone payments at a number of major retailers in the United States and beyond. And so on. But while 2016 mobile payments in the United States totaled US$112 billion (RMB 742.7 billion), the figure in China was a reported US$5.5 trillion (RMB 36.47 trillion). Beyond the numbers, the sheer ubiquity of WeChat Pay and Alipay has made the smartphone-as-virtual-wallet idea more overtly visible, something woven into the fabric of city life.

Accepting payment via WeChat requires a vendor to do little more than print out a unique QR code—essentially a more advanced form of bar code—and link it to a digital account; to make a payment, a customer can scan that code with a smartphone. Pony Ma, the CEO of WeChat parent Tencent, has called the QR code “a label of abundant online information attached to the offline world.” For sellers, there’s no need for anything as complicated or expensive as the special devices a vendor typically needs to accept credit-card payments (or, for that matter, Apple Pay); anybody can print a QR code.

That’s one reason WeChat Pay caught on not just with larger established businesses, but also everything from small restaurants to street vendors. “It’s impossible not to use,” says Kate Austermiller, program manager for the China program of the PKU–Lincoln Center in Beijing. Skeptical at first, she now relies on WeChat Pay even for minor transactions like buying water or a piece of fruit from a vendor. “It’s almost faster than fishing through my purse for cash—my phone is always in a pocket,” she says. Even buskers use it to accept “tips” via a QR code, as easily as they might collect coins tossed into a hat.

The Better Than Cash Alliance—a United Nations–based organization focused on financial inclusion, with business, government, and other collaborating members—recently published an extensive case study focused on the rise of digital payments in China, and what that trend could mean globally. “Digital payments are very closely linked to financial inclusion,” observes Camilo Tellez, the head of research and innovation at the alliance. In China, Africa, and elsewhere, he explains, mobile payment systems have given millions of people their first direct link to the formal financial system.

“In China it’s become really obvious that SMEs—small- and medium-sized enterprises—can really reap the benefits,” Tellez says. “Leveraging digital payment systems can actually allow them to access new forms of credit” unavailable to a pure-cash operation, he continues, and that can have a major impact on managing or even growing a business. A payment system folded directly into a social network has other advantages; the Better Than Cash Alliance report tells the story, for instance, of a hair stylist who used WeChat both to expand his customer base, and to avoid carrying too much cash when traveling among client appointments.

Because WeChat made it easy for all sorts of online vendors to use its platform (and even subsidized third-party developers to help them), users can now do anything from book a flight to pay utilities to reimburse a friend for a shared meal, without ever leaving the app. “People responded to it rapidly—it really provided a lot of convenience,” says Zhi Liu, director of both the China program at the Lincoln Institute of Land Policy and the Peking University–Lincoln Institute Center for Urban Development and Land Policy in Beijing.

In fact, Liu confesses that while he’s not the type to jump onto the latest tech trend, this one made itself irresistible, even offline. He’d start looking around for an ATM to get the cash to, say, split a bill, and his colleagues “would just use a mobile phone and say ‘It’s done!,’” Liu laughs. Pretty soon, you just get on board with everyone else. And thus the flip side: any given urban business quickly figures out that if every rival on the block accepts this payment form, it’s time to do the same.

Some country-specific factors have likely contributed to the digital-payment explosion in China. Its Internet ecosystem is distinct in part because familiar entities like Google and Facebook, among others, are essentially locked out, and a kind of alternative universe of connected innovation has evolved. And in the case of these payment services, at least, Chinese regulators have so far allowed a fair amount of latitude for experimentation. (Current government planning around financial development through 2020 includes the specific encouragement of extending financial services to micro-businesses and low-income groups.)

And in China, digital payments arrived as an option in a fairly cash-based society—certainly compared to the deeply entrenched credit and debit card culture of the United States. (Some observers suggest that a Chinese aversion to debt makes digital payments preferable to the plastic alternative Americans in particular are so fond of.) The leapfrog from cash to digital seems to be happening elsewhere in the developing world, with the rapid rise of mobile as a driving factor. This has been amplified by population shifts toward urban centers, where job opportunities concentrate, that make the ability to stay connected with family or other contacts across physical distances more important.

WeChat isn’t the only digital payment player, or even the first, in China. Alibaba Group’s e-commerce platform dates back to the late 1990s, and evolved from a business-to-business marketplace into a variety of digital-payment products and services that made the company a global powerhouse. Its Alipay app was early to target brick-and-mortar merchants with an offline, QR code–based payment system. But it is widely acknowledged that when WeChat creator Tencent put its payment feature on the map with a major marketing push a couple of years ago, it was a game-changer.

Cleverly, the campaign played off a tradition of making monetary New Year’s gifts of cash in red envelopes. WeChat offered a digital Red Packets promotion, and an estimated 5 million users participated—learning in an instant to associate the social network with payments. For Tencent, the payment feature isn’t necessarily conceived of as a profit center, but as another attraction keeping WeChat users locked in to a service that profits from games and advertising. The company has subsidized third-party developers to help more businesses adopt WePay, and peer-to-peer transactions are free.

The more WeChat Pay took off, the more Alipay countered with its own competitive moves. Both systems are now widely available in China—and compete with various “cashless society” promotions involving discounts or rebates—and the companies are each diving into markets elsewhere, sometimes in partnership with local players.

As digital payments have become a routine part of city life, they’re already subtly shaping it. Tellez, of the Better Than Cash Alliance, points to the effect on utility cost-recovery and toll collection, particularly in developing-world contexts; and, for even small businesses, the ability to collect and leverage useful transaction data. And as Liu points out, the broader potential of higher-level data collection is tantalizing. Clearly there are privacy-related concerns about how such data is shared and utilized. But in an academic or planning context, it may offer a window on day-to-day economic behavior that can give us a whole new way to, as Liu puts it, “understand the city.”

Rob Walker (robwalker.net) is a columnist for the Sunday Business section of The New York Times.

Photograph: Tao Jin

China is one of a small number of countries around the world that does not levy property tax on privately owned residential properties. After the Communist Party established a socialist regime in 1949, China adopted a public land ownership system and thereby lacked a real estate market until the reform era.

Since the reform, property sales, along with the economy as whole, have boomed. First-tier cities such as Shanghai and Beijing are now home to some of the world’s most expensive real estate. But taxes are imposed only at the point of property sales and transactions, not annually on ownership.

It may come as a surprise, then, that China is driving the evolution of valuation technology, particularly in Shenzhen—the brand-new southern city that has grown from a small town of 50,000 residents to a major metropolis of 12 million since 1982. The Shenzhen Assessment Center—a municipal statutory agency that was established to assist the collection of taxes on real estate sales and transactions—has developed what is arguably the most advanced property valuation system in the world. It is a logical extension of the computer-assisted mass appraisal (CAMA) system that the Lincoln Institute was instrumental in developing for desktop computers decades ago. The Peking University–Lincoln Institute Center for Urban Development and Land Policy (PLC) has helped several Chinese cities implement CAMA in anticipation of a future property tax. What makes Shenzhen’s system different is that it uses GIS technology and new techniques that elevate CAMA to the next level.

Today, CAMA is an international standard that has made it possible to assess entire metro areas from a desktop computer. But CAMA by nature is mainly a two-dimensional system, whereas modern geographical information system (GIS) software is capable of efficiently rendering three-dimensional (3-D) maps. The future of property assessment lies in marrying CAMA techniques with GIS tools in a system known, naturally, as “GAMA.”

CAMA systems are, broadly speaking, not overly exciting to look at, with lots of data tables and highly detailed two-dimensional maps. GAMA by contrast is dazzling. Using GIS tools, the system constructs 3-D models of entire cities, with streets, buildings, the individual properties within them, landscape features, and so on. Imagine the feel of an open-world video game. The aim is to be able to appraise every property from computers in the assessment office.

“In my view, Shenzhen is dragging CAMA into the next generation, doing things in their valuation that nobody else can do,” says George W. McCarthy, president and CEO of the Lincoln Institute.

Shenzhen: Center of Progress

In many ways, the development of Shenzhen’s property assessment system is the classic story of modern China: starting from far behind, absorbing knowledge from more advanced economies, adapting to local needs, and ultimately coming to rival the best in the world. The fact that it happened in Shenzhen—the Special Economic Zone that launched the experimentation that transformed China from a largely rural economy to a global power—is unsurprising. In 1979, as China was charting the course of its new reform, four cities were declared “Special Economic Zones (SEZs),” pilot projects where the government would experiment with market mechanisms. Shenzhen, a fishing town of just 30,000 people, was one of them. Adjacent to Hong Kong, which was administered at that time by the British and highly internationalized, Shenzhen was in a perfect position to perform the mission of SEZs—attract global companies to trade, bring in foreign direct investment, and obtain for China the tools necessary to forge a modern developed nation.

As investment poured in and factories sprang up, Shenzhen became the beating heart of China’s new economy, and one of the world’s most advanced cities. In just 30-odd years, it grew into a bustling metropolis of nearly 12 million. Its official GDP in 2016 was US$284 billion (RMB 1.88 trillion), with a per capita GDP of US$25,790 (RMB 171,013), more than triple China’s average. Sometimes called China’s Silicon Valley, it is home to some of the world’s most powerful tech companies, including Internet giant Tencent.

As early as 2003, the central government started to consider introducing a property tax. Six cities were selected as pilot experiment cities for mass appraisal of properties. Shenzhen was one of them. Shenzhen’s Center for Assessment and Development of Real Estate was founded that same year to commence the enormous task of citywide valuation. At first, they were more or less on their own and progress was slow. It took three years to designate basic prices in 56 neighborhoods, in order to assign a single price for the whole area.

The initiative coincided with the Lincoln Institute’s foray into China in 2003, when it began developing relationships with government agencies and conducting research projects on topics ranging from property tax and municipal finance to public land management and land expropriation. “We saw the changes as the economy was being opened up, and we figured there would be all sorts of land policy challenges to grapple with,” McCarthy says.

In 2007, the Lincoln Institute and Peking University, China’s oldest and most prestigious university, endeavored to open the PLC, a research institute staffed by both organizations. One of the PLC’s early tasks was to help the Chinese government understand how to create a property tax that works as a system of revenue. The PLC organized training events to disseminate international knowledge of property taxation and computer-assisted mass appraisal to China. The PLC invited experts from the International Association of Assessing Officers, International Property Tax Institute (IPTI), Rating and Valuation Department of Hong Kong, ESRI Canada, and others. To better demonstrate how CAMA worked, the PLC launched a pilot demonstration project that established a CAMA system for the financial district of Beijing. The PLC also mobilized international experts to assist Shenzhen and Hangzhou, and funded study tours for technical personnel, in the United States, Canada, and Hong Kong. The impact was enormous.

“The PLC was translating the professional literature on property valuation, and it was the first time we were encountering some of this stuff,” says Dr. Wang Youjie, head of the Shenzhen center’s mass appraisal department. “They also introduced us to CAMA.”

Aided by access to a developed body of knowledge, progress in Shenzhen rapidly accelerated. By 2010, the center had evaluated prices on a per-building basis for 170,000 buildings, and by 2011 had done basic evaluations for 1.5 million residential properties. “After understanding the theory better, 2010 to 2011 was a breakthrough point for us,” says Xia Lei, director of the Shenzhen Assessment Center.

Also important was the Lincoln Institute’s role as a connector, enlisting top foreign experts to host seminars and perform hands-on training and development work. To date, the Lincoln Institute has mobilized more than 20 property tax experts to China. For the assessment center in Shenzhen, no one was more familiar than Michael Lomax.

For 22 years, Lomax worked as property assessor for British Columbia Assessment, a province-wide assessment office in Canada. He was among the first people the Lincoln Institute brought to China in 2007, when he joined a government delegation. He has continued making trips to China even after leaving British Columbia Assessment in 2012 to take a position with ESRI, which specializes in GIS solutions.

“A lot of my work in China was to illustrate, convey, and help them install worldwide best practices,” says Lomax, who also teaches mass appraisal at the University of British Columbia. Around 2011, he began working more directly with the Shenzhen center and an appraisal firm hired by the city of Hangzhou, Zhejiang, a city not far from Shanghai. Like Shenzhen, Hangzhou is also known for its tech industry, including the headquarters of e-commerce titan Alibaba.

The speed at which these two cities were working was sometimes astonishing. During one trip to Hangzhou, Lomax spent an entire day critiquing the assessment system built by the local department. The next morning, they asked him to look again. “They had their programmers stay up all night at the hotel to fix all the problems I pointed out,” says Lomax, still a bit in awe. “This might take you six months to do in the West, and they did it in hours.”

The team in Shenzhen was equally impressive. According to Lomax, they took the computerized evaluation methods to the next level. “They are really advanced in fine-tuning the mathematics,” he says. “Shenzhen is far better at valuing properties dynamically, on the fly, than British Columbia.”

In other words, there was a clear opportunity in Shenzhen to advance the GAMA evolution. “It was Michael that gave us the idea of doing GAMA,” says Wang.

From Follower to Leader

ESRI, a global consulting firm specializing in GIS solutions, is helping to build GAMA models in several municipalities. There is Vancouver, where Lomax works; Maricopa County, Arizona, which encompasses Phoenix; and also Shenzhen. These projects are in varying stages of development, but the Shenzhen system is impressive nonetheless. Sitting in on a demonstration of the system is like inhabiting a painting inside a painting, as if you might spot your virtual self if you peeked in the right window. But what it can do in terms of assessment is even more impressive.

Of course, it factors in all the indicators accounted for by a traditional CAMA system: location, number of rooms, floor space, recent market prices, and so on. It can also estimate the value of being near a subway station or close to a school. The three-dimensional nature of the system boosts the functionality. Using vectors, it is possible to model the window vantage point of every single unit in a given building. From the desktop, the appraiser can determine if a resident has a sweeping view of beautiful Lianhuashan Park in central Shenzhen (think New York’s Central Park, except with palm and banyan trees), or just the boring façade of a neighboring high-rise. The system can also track a virtual sun across the sky, estimating how much daylight an apartment gets. In addition to modeling light, it can also model sound—a lower-floor unit facing a busy traffic intersection, for instance, is disadvantaged compared to a unit facing a peaceful courtyard.

The system weights all those factors and synthesizes the final valuation of a property. All told, these factors can amount to a 20 percent difference in value between two units in the same building.

The system is also being used to better execute property transaction taxes. Through this smaller trial, the efficacy of the tool is apparent: of the millions of properties valued so far, only 27,106 challenges have been made as of January this year, and of those only 282 assessments had to be readjusted.

The Shenzhen assessment project is not without challenges. First, the market is young, so there is a relative dearth of transaction data. On top of that, transactions are sometimes reported at artificially low prices, to avert transaction taxes. Finally, the housing market is highly heterogeneous, with fairly distinct groups of housing types.

Limited property transaction data can be among the biggest challenges to implementing a system such as this. In this regard, Shenzhen has a distinct advantage over just about any other city in the world in terms of the knowledge of its properties. The whole place is brand new, and this is especially true for the city center where the slick 3-D model is most impressive. That means the data on all the buildings and floor plans is existing, complete, and rendered in digital formats that are, relatively speaking, easy to adapt to the model.

The team in Shenzhen cleverly innovated around this with a system they call the “holistic” approach. Briefly, it treats those distinct groups of housing first as separate “sub-markets.” Then by establishing relationships among those sub-markets, they are better able to estimate prices across the entire market with fewer data points overall.

The system alone is marvelous from a technical standpoint, but it is also a testament to the advanced nature of the city as whole. In numerous ways, it is an “only in Shenzhen” achievement.

Shenzhen is unique in a purely Chinese context as well. Conjured by the pure political willpower that gave life to the Special Economic Zones, Shenzhen is not directly administered by the central government. However, as a prefecture-level municipality, Shenzhen enjoys closer relationship with the central government than other prefecture-level municipalities. The central government grants more freedom to Shenzhen to try new things.

“In Shenzhen, government agencies, such as the municipal commissions of planning and land, and finance and taxation, are cooperating to share data,” says Director Xia. In a country where interdepartmental data sharing is rare, it is difficult to understate how important this is. “The point is to be creative.”

Geng Jijin, who directed the assessment center before Xia, when development of the model was most intense, puts a more personal spin on it: “Everybody here is from different places in China. We have no choice but to figure out how to get along.”

The Road Ahead

The job of creating the GAMA system in Shenzhen is not yet finished. Partly because Shenzhen grew at such a breakneck pace, a significant portion of buildings from the newly annexed localities are rather poorly documented. According to Director Xia, bringing these properties into the system is a top priority going forward. Given the scale of Shenzhen, it will likely take a few years to work through the challenge.

The implementation of a property tax goes beyond the purview of the Shenzhen Assessment Center. It is a policy problem and the center does not make policy, Wang says, adding “If the policy is put forward, Shenzhen is ready for it.”

It is anyone’s guess when that might happen, given the politically sensitive nature of property tax in China. While there have been two pilot taxes in Shanghai and the southwestern city of Chongqing, they have been very limited and undertaken mainly as a signal that property taxes are coming. Pressure is, however, building. In the absence of a property tax, and as the net revenues from land lease sales that local governments rely on have declined, local budgets have become increasingly strained.

In the meantime, the assessment center is already helping to spread knowledge beyond its very special borders. Delegations have been sent from all around China to view the system, including from across the river in Hong Kong and all the way from Taiwan.

Lincoln Institute President McCarthy, for his part, is ready to see knowledge and experience flow west. Places such as Boston, where there has long been controversy over building near Boston Common due to the shadows it would cause, could use a system that models the sun.

Actually spreading the new GAMA system will likely be difficult, and there is no telling how long it might take. But nobody would have predicted that a fishing village could become a metropolis in three decades flat.

Tom Nunlist is editorial director at Sinomedia and managing editor of CKGSB Knowledge, on behalf of Cheung Kong Graduate School of Business in Beijing.

The author extends special thanks to Carolyn Wang, a mass appraiser at the Shenzhen Assessment Center, who helped arrange reporting in Shenzhen. This piece would not have been possible without her expert help and remarkable patience. 

Image Credit: Shenzhen Assessment Center

References

Chen, Xiangming, and Tomas de’Medici. 2009. “The ‘Instant City’ Coming of Age: China’s Shenzhen Special Economic Zone in Thirty Years.” Inaugural Working Paper Series, No. 2, Spring 2009. Hartford, CT: Center for Urban and Global Studies at Trinity College.

The Economist. 2012. “Time for a Property Tax: A Way to Stabilise Both China’s Wild Property Market and Its Weak Local Finances.” February 4. www.economist.com/node/21546014.

Shenzhen Municipal E-Government Resources Center. 2017. “Shenzhen Government Online.” http://english.sz.gov.cn/.

Wang, Da Wei David. 2016. Urban Villages in the New China: Case of Shenzhen. New York, NY: Palgrave Macmillan.

Xiao, Cai, Wang Yu, and Hu Yuanyuan. 2017. “Overall Govt Debt Risks ‘Under Control.’” China Daily USA, July 13. http://usa.chinadaily.com.cn/epaper/2017-07/13/content_30102302.htm.

The strong complementarity between the Lincoln Institute’s expertise and China’s land policy challenges provided the rationale for the Lincoln Institute’s activities in the People’s Republic of China. China’s rapid economic growth over the past 35 years involved the usual structural changes in the economy (a declining share of agriculture; an expanding share of manufacturing and services; growing trade; and increasing urbanization), but it has also involved an institutional transformation, as the centrally planned economy moved pragmatically to a greater reliance on market mechanisms. This institutional change has been especially challenging in the case of land, because of the dual land tenure system whereby land is owned either by the state or collectively. China’s growth has produced many land-related problems ranging from property rights and urban growth, to property taxation and municipal finance reform, to land conservation and housing affordability. The Lincoln Institute’s extensive international experience with these issues and China’s impressive track record in using international expertise to inform its policy implementation led us in the early 2000s to believe that cooperation between the Lincoln Institute and China had great potential.

Lincoln Institute’s activities in the People’s Republic of China were initiated in 2001, and its China Program was formally established on July 1, 2003. Activities were originally carried out by staff and consultants based in the United States who travelled to China. Professors Chengri Ding and Gerrit Knaap of the University of Maryland were heavily involved in the China Program’s beginnings. These early years saw the initiation of training programs, sponsorship of research with government agencies, support of research fellowships, and the organization of research conferences and policy symposia. Early areas of focus were property taxation, farmland preservation, and urban planning. The idea of creating a center in partnership with a Chinese university soon emerged as the travel and logistical challenges of managing the program from abroad became evident. In addition, the Lincoln Institute’s change in status from an educational institution to a private operating foundation in 2006 required greater programmatic involvement of its own staff in all of its activities.

Preliminary discussions to explore a partnership with Peking University began in 2005 and continued through 2006, culminating in a formal agreement to establish the Peking University–Lincoln Institute Center for Urban Development and Land Policy (PLC) on October 9, 2007—one decade ago. On the university side, this process was overseen by the then-executive vice president of Peking University, Professor Lin Jianhua, who skillfully facilitated the establishment of the PLC. It provides support for education, training, and research in urban economics, urban policy, land management, land policy, property taxation, local government finance, urban and regional planning, and urban affairs. Its mission has been to study land, urban, and fiscal policies; to disseminate results from its studies and research; and to facilitate education, training, policy analysis, and research involving scholars, policy makers, and practitioners. In mid-2007, Joyce Man was appointed director of Lincoln Institute’s Program on the People’s Republic of China and became the founding director of the PLC. In late 2007, office space at Peking University was quickly prepared and local staff hired under her direction, enabling the PLC literally to open its doors in January 2008. Its establishment was memorialized in an inauguration ceremony on April 21, 2008 with featured speakers Arnold C. Harberger, distinguished professor at UCLA, and Gang Yi, vice president of the People’s Bank of China.

From its beginning, the PLC annually offered several specialized training courses for government officials on topics proposed by government departments. Involved government agencies have included State Administration and Taxation, Ministry of Land and Resources, Ministry of Finance, Ministry of Housing and Urban-Rural Development, and the Ministry of Transportation. Topics have ranged from real estate appraisal techniques and property tax administration, to transit-oriented development and affordable housing. In addition, the PLC has arranged many symposia attended by international experts and government officials to review international experience in particular public policy areas. Topics have included local public finance, property rights, urban transport, housing markets, and urban planning. Participating agencies, in addition to those just mentioned, include the Development Research Center of the State Council and the National Development and Reform Commission. Chinese officials have proved to be skillful at drawing on good practices from international experience and incorporating them in new policies adapted to the special conditions in China.

The Lincoln Institute has a long track record of providing education and training on land related issues directly to academics and practitioners. Given the scale of China, the PLC shifted audience to focus on those who train others. This approach, called Training the Trainers, aims to enhance the capacity and awareness of young scholars throughout China to address issues related to urban development and land policy. This annual PLC program targets assistant and associate university professors and professional researchers. It increases competence through intensive professional seminars. The one- to two-week sessions are generally attended by about 60 participants, the majority of whom have doctorate degrees and a high level of English proficiency. Instructors are leading international experts who offer participants an invaluable international perspective. The sessions have normally taken place in Beijing, but in recent years the sessions have also been offered by video conference to include participants in other locations. Since the PLC’s founding, nearly 600 scholars have benefitted from this training program.

In addition to training and education, the PLC has supported land-related research in a variety of ways. Using an open call for proposals and expert panels to review submissions, the PLC has annually granted about 10 dissertation fellowships to support the research of Ph.D. students in China and seven research fellowships to senior researchers in China. Similarly, the PLC has granted about three international research fellowships annually to scholars outside of China. All of these fellowship recipients have gathered to discuss their draft reports at an annual research conference in China, whose attendees include international experts and notable Chinese scholars of land policy. An overall objective of the training and research program has been to create a community of scholars knowledgeable about land-related policy issues and the state of current research on such topics, and these in-person conferences, training sessions, and symposia have contributed mightily to this objective.

Staff and faculty of the PLC have also carried out research on urban and land issues, and three contributions deserve special mention. First, in 2010 PLC staff realized that municipal indebtedness was growing and poorly understood. Many municipalities had created local government financing vehicles that used urban land as collateral to borrow funds from banks. This debt was not included in local government accounts. The PLC produced some of the first estimates of the surprising size of this indebtedness, and subsequent work by the National Audit Office confirmed the magnitudes. Second, although it was widely recognized that housing prices in China’s major cities had been rapidly rising, available housing price indices understated the increase. The PLC worked jointly with Professor Siqi Zheng, then of Tsinghua University, to develop a new housing price index based on the repeat sales method used in the Case-Shiller housing price index for the United States. Launched in 2014, this China Quality-Controlled Urban Housing Price Index is recognized as the most accurate index currently available. Third, Professor Canfei He, Associate Director of the PLC, has over the past several years produced a body of empirically based research on the economic geography of China’s cities, including how the restructuring of China’s export-oriented industries is affecting patterns of urban growth. His work has improved understanding of the determinants of urban growth across China’s provinces.

The PLC has done a very credible job in meeting its original objectives and it has proven to be a sustainable institution enduring through the many changes in China and the world that have occurred since its founding. One reason for its success is that the PLC is not the Lincoln Institute’s “office in Beijing” but was conceived of and operated as a true joint center between Peking University and the Lincoln Institute. Another reason is that it has been skillfully led, originally by Joyce Man and now by Zhi Liu. In addition, land-related issues in China have proven to be extremely challenging, not amenable to simple and quick solutions, and often linked to other policy issues. Accordingly, revenue from land—whether from conversion of rural to urban use or from land-based taxes—is inexorably linked to local fiscal health, and land conversion from rural to urban use is a key determinant of the location and speed of urban growth. My hope when the PLC was established was that it would work itself out of a job by helping Chinese policy makers resolve many land-related issues or at least dramatically reduce their salience. This hope has proven elusive, and it appears that the PLC still has much work to do.

On October 14, we will celebrate the 10th anniversary of the Peking University–Lincoln Institute Center for Urban Development and Land Policy, more affectionately known as the PKU–Lincoln Center, or PLC. To commemorate the occasion, we are dedicating this issue of Land Lines to illustrate some of the PLC’s land policy work in contemporary China. While it is impossible to cover the broad set of activities and issues addressed by the PLC, we hope that the stories presented here will represent the relevance and rigor of our work. Since its founding, the PLC has both observed and participated in land policy formation in China. In this message, I will reflect on the future of the PLC in light of our experiences over the last decade and the current trends we’ve observed. In addition, we’ve asked Lincoln Institute President Emeritus Gregory K. Ingram to provide a retrospective reflection on the Lincoln Institute’s program in China. Dr. Ingram and Peking University President Lin Jianhua were the PLC’s principal architects, bringing the center to fruition in October 2007. 

It is hard to imagine a more extraordinary decade in China’s remarkable economic history than the last one. Ten years ago, China’s annual GDP growth was 14.2 percent, a near-peak in the post-reform era, culminating a 25-year run of double-digit average increases in real GDP. This growth rate, more than double that of global GDP, propelled the nation’s global economic stature so that China now challenges the United States for worldwide economic dominance. 

Importantly, this growth was fueled by land. Huge infrastructure investments facilitated industrial expansion around major cities, which grew by leaps and bounds using land-based financing. China now has more than 100 cities with over 1 million residents and some 15 “megacities” or urban agglomerations with populations over 10 million. In 2007, only Shanghai and Beijing were home to this many people, according to the United Nations Department of Economic and Social Affairs.  

During the decade, the economy lost some momentum, and policy makers adjusted to a “new normal” of roughly 7 percent annual real GDP growth—but this is still twice the rate of global GDP growth, positioning China to double the size of its economy in the next decade. The dizzying performance of the last few decades drove major population migrations from rural to urban areas. When the PLC launched in 2007, China was urbanizing at an unprecedented pace, adding more than 20 million urban residents annually. In 2007, 45 percent of China’s population was urban, up from 20 percent in 1980. Today, the population is 57 percent urban and is expected to reach 60 percent by 2020. A significant share of new urban growth occurred in the increasing number of megacities such as Beijing, Shanghai, and Shenzhen.

China’s unprecedented growth and mass urban migration generated both intended and unintended consequences. For example, the rapid expansion of megacities is beginning to level off. Many young professionals have begun gravitating toward second- and third-tier cities instead. When surveyed, recent migrants indicated four main reasons for their moves: high housing costs in megacities, stress from the frenetic pace of life, difficulty managing the care of aging parents, and air pollution. Over the next decade, the PLC will observe and track this trend to determine the implications for land and housing policies in both the megacities and the second- and third-tier cities that are receiving new migrants. 

The housing market, a significant tailwind for economic development over the last decade, has become a major impediment to growth in recent years. China’s fast-rising house prices are an artifact of widespread speculation by a fast-growing middle class looking for good yields on long-term investments. In past years, this investment was encouraged by the national government, which recognized that property development would significantly drive up GDP. However, increasing shortages of affordable housing are now becoming a big problem in many cities, locking out first-time home buyers. This trend has been accompanied by a decline in land-based financing for municipalities as land reforms have curtailed the practice. Recently, the central government signaled a new policy direction when President Xi Jinping stated that “Houses are built for living, not for speculation.” At the same time, lenders have begun rationing credit to cool housing demand. The PLC will continue to track the housing sector to see whether it can help craft a “soft landing” for it. 

Urbanization in China, as in other countries, was accompanied by a dramatic decline in poverty as well as increased inequality in the early years. But in this regard, China departed from some international patterns: Although inequality, as measured by the Gini coefficient, rose steadily from the 1980s until 2010, it has been declining since 2012. We expect that this is not the only way that China’s transformation will break from common development patterns. The habit of breaking from common, historic development patterns is testament to China’s ability to study and learn from the experiences of other countries, a process in which the PLC has played a role.

In the last decade, the PLC contributed to policy debates by nimbly and quickly mobilizing international experts connected to global Lincoln Institute networks. In the coming decade, we expect to respond similarly to requests for high-level international exchange from government and institutional counterparts including the Budget Affairs Commission of the National People’s Congress, Ministry of Finance, the Ministry of Land and Resources, Ministry of Housing and Urban and Rural Development, State Administration of Taxation, Development Research Center of the State Council, China Center for International Economic Exchange, and China Land Survey and Planning Institute in topical areas such as property taxation, municipal finance, land policy, housing policy, and land conservation.

A hallmark contribution of the PLC over the last decade has been knowledge dissemination and policy advice on the property tax law, property value assessment, and local tax administration. While the National Property Tax Law is not on the legislative timetable this year, there is mounting political pressure to introduce a property tax. We expect that the approval of the national property tax law will generate future demand for technical support to implement the new tax, particularly in smaller cities, especially for property value assessment and municipal administrative systems. The PLC will promote research to lighten administrative burdens on municipal governments by studying, for example, how combining drone technology and property registration data can quickly establish cadastral systems for cities with weak technical capacity. The PLC also will investigate the applicability of other land value capture instruments, such as negotiable developer obligations, as another way to build a fiscal base for local governments.

China has encountered the limits of carbon-fueled growth and is now becoming a world leader in renewable energy generation. This orientation toward “green growth” also characterizes new government policies that emphasize qualitative aspects of economic and urban development over quantitative measures. The “sponge cities” program, for example, illustrates the national commitment to use green infrastructure to improve water management in cities. The national government will pilot the program in a select group of cities, the way it introduces many new policies, before establishing it on a national stage. The PLC will participate in the pilot city programs, studying implementation and suggesting ways to improve policy approaches before the program is deployed nationally.

The PLC has helped advance the evolution of urban land and housing policies in China through its intellectual output—through research, dissemination of knowledge, and international exchange. In ten years, the PLC built a network of hundreds of urban development and land policy experts through its flagship Training the Trainers course. The program will remain a primary way that we expand our academic and policy networks in China. Currently, our networks heavily represent senior scholars and policy makers. This has exacerbated a bias in China’s research funding system, which favors established scholars, leaving young academics with very limited funding opportunities. Recently, we decided to cultivate a pipeline of young scholars in China using our domestic research support. Following recommendations from our board of directors, we plan to hire established academics to mentor our young scholars. Beginning this year, we will bring on affiliated research advisers on a part-time basis, to supervise projects and foster higher quality research from our young scholars. In addition, we will bring young PLC fellows and graduate students or affiliated scholars to the Lincoln Institute in Cambridge to conduct research as visiting scholars and work closely with the U.S. staff. Through these efforts, we hope to replenish academic and policy networks to serve China in perpetuity.

The Lincoln Institute of Land Policy is tremendously proud of the work of the PLC. The enormous role that land and land policy have played in China’s unprecedented transformation over the last decade has fascinated, daunted, challenged, and sometimes overwhelmed us. We are honored and humbled to have the opportunity to work with Peking University and its visionary leadership. We look forward to future decades of collective efforts to find the answers to some of our most vexing social, economic, and environmental problems in land.