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Research on the Influence of Real Estate Development on Private Investment: A Case Study of China

Author

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  • Jiangtao Li

    (Institute of Management, Beijing Academy of Social Sciences, Beijing 100101, China
    These authors contributed equally to this work.)

  • Jianyue Ji

    (School of Economics, Ocean University of China, Qingdao 266100, China
    Institute of Marine Development, Ocean University of China, Qingdao 266100, China
    These authors contributed equally to this work.)

  • Huiwen Guo

    (School of Economics, Ocean University of China, Qingdao 266100, China)

  • Lei Chen

    (Faculty of Education and Social Work, University of Auckland, Auckland 1023, New Zealand)

Abstract

Private investment in China, as a developing country, is an important source of financing for Chinese SMEs (Small and Medium-Size Enterprises) and has played a major role in the development of the real economy. However, in 2016, the growth rate of private investment in China dropped from 10.18% to 3.17%, which had a significant impact on the real economy. At the same time, China’s real estate market has developed rapidly, attracting a large number of capital inflows. The relationship between real estate development and private investment in China is worth considering. This study first, theoretically analyzes the influence mechanism of real estate industry on private investment, pointing out that within a modest development range, the development of real estate industry can promote private investment through the industrial linkage, urbanization, and balance sheet effects, but when real estate is overdeveloped, it has an inhibitory effect on private investment through vampire effect, raising costs and reducing demand effect. In other words, real estate has different effects on private investment in different developmental periods. Therefore, there is a non-linear relationship between the two variables. Second, the relevant provincial panel data of 31 provinces in mainland China from 2003 to 2015 were selected. Using the dynamic panel system Generalized Method of Moments (GMM), this study estimated the correlation between real estate development and private investment. The empirical results showed that the development of the real estate industry has a significant impact on the level of private investment; the two showing an “inverted U-shaped” relationship. At present, in some provinces in China, the real estate industry has exceeded the inverted U-shaped threshold. To boost the vitality of private investment in promoting real economic growth, the development of the real estate industry should be restricted, and house prices should be properly regulated.

Suggested Citation

  • Jiangtao Li & Jianyue Ji & Huiwen Guo & Lei Chen, 2018. "Research on the Influence of Real Estate Development on Private Investment: A Case Study of China," Sustainability, MDPI, vol. 10(8), pages 1-17, July.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:8:p:2659-:d:160579
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    Cited by:

    1. Wan, Junmin & Qiu, Qiqi, 2023. "Industrial investments and housing prices in China," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 832-852.
    2. Wang, Lei & Li, Shouwei & Wang, Jining & Meng, Yi, 2020. "Real estate bubbles in a bank-real estate loan network model integrating economic cycle and macro-prudential stress testing," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 542(C).
    3. Wenqin Gong & Yu Kong, 2022. "Nonlinear Influence of Chinese Real Estate Development on Environmental Pollution: New Evidence from Spatial Econometric Model," IJERPH, MDPI, vol. 19(1), pages 1-22, January.
    4. Chun Fu & Can Zhou, 2023. "Examining the Impact of Real Estate Development on Carbon Emissions Using Differential Generalized Method of Moments and Dynamic Panel Threshold Model," Sustainability, MDPI, vol. 15(8), pages 1-16, April.

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