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Monetary and Fiscal Stimuli, Ownership Structure, and China's Housing Market

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  • Yongheng Deng
  • Randall Morck
  • Jing Wu
  • Bernard Yeung

Abstract

In the recent financial crisis, macroeconomic stimuli produced mixed results across developed economies. In contrast, China's stimulus boosted real GDP growth from an annualized 6.2% in the first quarter of 2009 trough to 11.9% in the first quarter of 2010. Amidst this phenomenal response, land auction and house prices in major cities soared. We argue that the speed and efficacy of China's stimulus derives from state control over its banking system and corporate sector. Beijing ordered state-owned banks to lend, and they lent. Beijing ordered centrally-controlled state-owned enterprises (SOEs) to invest, and they invested. However, our data show that much of this investment was highly leveraged purchases of real estate. Residential land auction prices in eight major cities rose about 100% in 2009, controlling for quality variation. Moreover, higher price rises occur these SOEs are more active buyers. We argue that these centrally-controlled SOEs overbid substantially, fueling a real estate bubble; and that China's seemingly highly effective macroeconomic stimulus package may well have induced costly resource misallocation.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16871.

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Date of creation: Mar 2011
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Handle: RePEc:nbr:nberwo:16871

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Citations

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Cited by:
  1. Johansson, Anders C. & Feng, Xunan, 2013. "The State Advances, the Private Sector Retreats: Firm Effects of China’s Great Stimulus Program," Working Paper Series 2013-25, Stockholm China Economic Research Institute, Stockholm School of Economics.
  2. Fardoust, Shahrokh & Lin, Justin Yifu & Luo, Xubei, 2012. "Demystifying China's fiscal stimulus," Policy Research Working Paper Series 6221, The World Bank.
  3. Yi Wen & Xin Wang, 2013. "Multiplier Effects of Government Spending: A Tale of China," 2013 Meeting Papers, Society for Economic Dynamics 214, Society for Economic Dynamics.
  4. Xin Wang & Yi Wen, 2013. "Is government spending a free lunch? -- evidence from China," Working Papers, Federal Reserve Bank of St. Louis 2013-013, Federal Reserve Bank of St. Louis.
  5. Wen, Yi & Wu, Jing, 2014. "Withstanding great recession like China," Working Papers, Federal Reserve Bank of St. Louis 2014-7, Federal Reserve Bank of St. Louis.
  6. Joseph Fan & Randall Morck & Bernard Yeung, 2011. "Capitalizing China," NBER Working Papers 17687, National Bureau of Economic Research, Inc.
  7. Wang, Yizhong & Chen, Carl R. & Huang, Ying Sophie, 2014. "Economic policy uncertainty and corporate investment: Evidence from China," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 26(C), pages 227-243.
  8. Shang-Jin Wei & Xiaobo Zhang & Yin Liu, 2012. "Status Competition and Housing Prices," NBER Working Papers 18000, National Bureau of Economic Research, Inc.
  9. Jing Wu & Yongheng Deng & Hongyu Liu, 2014. "House Price Index Construction in the Nascent Housing Market: The Case of China," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 48(3), pages 522-545, April.
  10. Joseph P. H. Fan & Randall Morck & Bernard Yeung, 2012. "Translating Market Socialism with Chinese Characteristics into Sustained Prosperity," NBER Chapters, in: Capitalizing China, pages 1-32 National Bureau of Economic Research, Inc.
  11. Coulson, N. Edward & Tang, Mingzhe, 2013. "Institutional and demographic influences on the presence, scale and geographic scope of individual Chinese real estate investment," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 43(2), pages 187-196.

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