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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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  • Yongheng Deng & Randall Morck & Jing Wu & Bernard Yeung, 2011. "Monetary and Fiscal Stimuli, Ownership Structure, and China's Housing Market," NBER Working Papers 16871, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16871
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    Cited by:

    1. 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.
    2. Gregory C. Chow & Linlin Niu, 2015. "Housing Prices in Urban China as Determined by Demand and Supply," Pacific Economic Review, Wiley Blackwell, vol. 20(1), pages 1-16, February.
    3. Wang, Yizhong & Wei, Yueling & Song, Frank M., 2017. "Uncertainty and corporate R&D investment: Evidence from Chinese listed firms," International Review of Economics & Finance, Elsevier, vol. 47(C), pages 176-200.
    4. 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, vol. 48(3), pages 522-545, April.
    5. Burdekin, Richard C.K. & Weidenmier, Marc D., 2015. "Assessing the impact of the Chinese stimulus package at home and abroad: A damp squib?," China Economic Review, Elsevier, vol. 33(C), pages 137-162.
    6. Anders C. Johansson & Xunan Feng, 2016. "The state advances, the private sector retreats? Firm effects of China’s great stimulus programme," Cambridge Journal of Economics, Oxford University Press, vol. 40(6), pages 1635-1668.
    7. Huang, Daisy J. & Leung, Charles K. & Qu, Baozhi, 2015. "Do bank loans and local amenities explain Chinese urban house prices?," China Economic Review, Elsevier, vol. 34(C), pages 19-38.
    8. repec:eee:chieco:v:50:y:2018:i:c:p:85-100 is not listed on IDEAS
    9. Joseph Fan & Randall Morck, 2012. "Capitalizing China," NBER Books, National Bureau of Economic Research, Inc, number morc10-1, October.
    10. Daniel Berkowitz, 2016. "Recasting the Iron Rice Bowl: The Reform of China's State Owned Enterprises," Working Paper 5858, Department of Economics, University of Pittsburgh.
    11. Christopher Daniel Watson, 2017. "People’s Republic of China, An Introduction to the Party and Its Socialist Base: Is the Banking and Financial Industry a ‘Natural Monopoly’?," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 3(1), pages 23-28, March.
    12. Wu, Guiying Laura & Feng, Qu & Li, Pei, 2015. "Does local governments’ budget deficit push up housing prices in China?," China Economic Review, Elsevier, vol. 35(C), pages 183-196.
    13. repec:eee:chieco:v:48:y:2018:i:c:p:205-222 is not listed on IDEAS
    14. Wang, Yizhong & Chen, Carl R. & Huang, Ying Sophie, 2014. "Economic policy uncertainty and corporate investment: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 26(C), pages 227-243.
    15. Wang, Xin & Wen, Yi, 2013. "Macroeconomic Effects of Government Spending in China," Working Papers 2013-013, Federal Reserve Bank of St. Louis, revised 13 Aug 2017.
    16. Wen, Yi & Wu, Jing, 2014. "Withstanding great recession like China," Working Papers 2014-7, Federal Reserve Bank of St. Louis, revised 21 Oct 2017.
    17. repec:eee:jaecon:v:66:y:2018:i:1:p:318-338 is not listed on IDEAS
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    More about this item

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • P27 - Economic Systems - - Socialist Systems and Transition Economies - - - Performance and Prospects
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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