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

63 Pages Posted: 14 Mar 2011

See all articles by Yongheng Deng

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Jing Wu

Institute of Real Estate Studies, NUS; Institute of Real Estate Studies, Tsinghua University

Bernard Yin Yeung

National University of Singapore - Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 2011

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.

Suggested Citation

Deng, Yongheng and Morck, Randall K. and Wu, Jing and Yeung, Bernard Yin, Monetary and Fiscal Stimuli, Ownership Structure, and China's Housing Market (March 2011). NBER Working Paper No. w16871. Available at SSRN: https://ssrn.com/abstract=1784149

Yongheng Deng (Contact Author)

Wisconsin School of Business, University of Wisconsin-Madison ( email )

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Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

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National Bureau of Economic Research (NBER)

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Jing Wu

Institute of Real Estate Studies, NUS ( email )

Institute of Real Estate Studies
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Singapore, 119613
Singapore

HOME PAGE: http://www.ires.nus.edu.sg

Institute of Real Estate Studies, Tsinghua University

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Tsinghua University
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China

Bernard Yin Yeung

National University of Singapore - Business School ( email )

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BIZ 1 Level 6
Singapore, 119245
Singapore
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65 6779 1365 (Fax)

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