How Strong are the Linkages between Real Estate and Other Sectors in China?

HKIMR Working Paper No.11/2014

31 Pages Posted: 24 May 2014

See all articles by Wenlang Zhang

Wenlang Zhang

Independent

Gaofeng Han

Hong Kong Monetary Authority; University of California, Santa Cruz - Department of Economics

Steven Wai-Wah Chan

Hong Kong Monetary Authority

Date Written: May 23, 2014

Abstract

International experience points to the critical role of stable property markets in maintaining financial stability. In China, the real estate sector has become increasingly important for the economy, but existing evidence has likely understated its importance as its linkages with other sectors have not been taken into account. This paper attempts to shed some light on these linkages which occur through both real and financial channels. Our analysis based on input-output tables shows that the linkages between the real estate and other sectors have strengthened through real channels, and that the real estate sector has been much more important to the economy’s output than suggested by the share of its value added in total value added. The real estate industry is also closely linked to other sectors through various financial channels, including serving as collateral in credit expansion. We quantify these financial linkages by studying the spill-overs of credit risk across sectors using data of listed firms. In general, we find that corporate credit risk has risen in recent years, and that credit risk in the real estate sector can potentially have large-scale spill-over effects onto other sectors. Consequently, shocks to the property market could have much larger impact on the Chinese economy than suggested by headline figures.

Suggested Citation

Zhang, Wenlang and Han, Gaofeng and Chan, Steven Wai-Wah, How Strong are the Linkages between Real Estate and Other Sectors in China? (May 23, 2014). HKIMR Working Paper No.11/2014, Available at SSRN: https://ssrn.com/abstract=2441108 or http://dx.doi.org/10.2139/ssrn.2441108

Gaofeng Han

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

University of California, Santa Cruz - Department of Economics ( email )

Santa Cruz, CA 95064
United States

Steven Wai-Wah Chan

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

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