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

Yongheng Deng, Randall Morck, Jing Wu () and Bernard Yeung

No 16871, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E02 E52 G01 G21 G3 G38 P27 P34 (search for similar items in EconPapers)
Date: 2011-03
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

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Working Paper: Monetary and Fiscal Stimuli, Ownership Structure, and China's Housing Market (2011)
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