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

Wenlang Zhang, Gaofeng Han and Steven Chan
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Wenlang Zhang: Hong Kong Monetary Authority
Gaofeng Han: Hong Kong Monetary Authority
Steven Chan: Hong Kong Monetary Authority

Working Papers from Hong Kong Institute for Monetary Research

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.

Pages: 31 pages
Date: 2014-05
New Economics Papers: this item is included in nep-ban, nep-cna, nep-rmg, nep-tra and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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