The Political Economy of China’s Housing Boom

Abstract

This paper provides causal evidence that the Chinese Communist Party’s cadre promotion system contributed to China’s real estate boom between 2003 and 2015. We first show that promotions of city-level communist leaders to higher ranks were largely based on city GDP performances. We then identify exogenous shocks to their promotion chances, caused by new social tie establishments between city-level officials and their superiors, using provincial party leader changes initiated by the central government. An incumbent city leader who shared the same hometown with a newly appointed provincial leader was 50% more likely to be promoted than average, regardless of the city’s GDP performance. Cities where leaders had hometown connections experienced 40% higher supplies of residential land, while industrial and commercial land supplies both dropped by 30% and total land supplies were not affected. House price growth rates were also 50% lower than average in such cities.

Keywords: Political economy, China, housing, land policy

JEL Classification: R31, P48, O18, R38, R33