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The Evolution of the Chinese Housing Market and Its Impact on Base Metal Prices

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  • Mark Kruger
  • Kun Mo
  • Benjamin Sawatzky

Abstract

The Chinese housing market has grown rapidly following its liberalization in the 1990s, generating significant economic activity and demand for base metals. In this paper, we discuss the evolution of the Chinese housing market and quantify its importance for the overall Chinese economy and its linkages to base metal prices. We estimate that the housing boom was responsible for roughly a quarter of the 85 per cent increase in base metal prices from 2002 to 2010. Since 2014, however, a substantial inventory overhang has led to a steep correction in the housing market, which in turn has contributed up to a third of the 25 per cent decline in base metal prices. While the drag on metal prices should ease as the Chinese housing market stabilizes, the level of support from this sector will likely remain minimal compared with the experience of the past decade.

Suggested Citation

  • Mark Kruger & Kun Mo & Benjamin Sawatzky, 2016. "The Evolution of the Chinese Housing Market and Its Impact on Base Metal Prices," Discussion Papers 16-7, Bank of Canada.
  • Handle: RePEc:bca:bocadp:16-7
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    References listed on IDEAS

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    1. Calista Cheung & Sylvie Morin, 2007. "The Impact of Emerging Asia on Commodity Prices," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(2), pages 181-224, July-Dece.
    2. Hanming Fang & Quanlin Gu & Wei Xiong & Li-An Zhou, 2016. "Demystifying the Chinese Housing Boom," NBER Macroeconomics Annual, University of Chicago Press, vol. 30(1), pages 105-166.
    3. Kaiji Chen & Yi Wen, 2017. "The Great Housing Boom of China," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(2), pages 73-114, April.
    4. Mali Chivakul & Waikei R Lam & Xiaoguang Liu & Wojciech Maliszewski & Alfred Schipke, 2015. "Understanding Residential Real Estate in China," IMF Working Papers 15/84, International Monetary Fund.
    5. Elif Arbatli & Garima Vasishtha, 2012. "Growth in Emerging Market Economies and the Commodity Boom of 2003–2008: Evidence from Growth Forecast Revisions," Staff Working Papers 12-8, Bank of Canada.
    6. Ilan Kolet & Ryan Macdonald, 2010. "The Fisher BCPI: The Bank of Canada’s New Commodity Price Index," Discussion Papers 10-6, Bank of Canada.
    7. Leon Berkelmans & Hao Wang, 2012. "Chinese Urban Residential Construction," RBA Bulletin, Reserve Bank of Australia, pages 21-26, September.
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    More about this item

    Keywords

    International topics;

    JEL classification:

    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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