nep-cna New Economics Papers
on China
Issue of 2011‒09‒16
one paper chosen by
Zheng Fang
Ohio State University

  1. Monetary and Fiscal Stimuli, Ownership Structure, and China's Housing Market By Deng, Yongheng; Morck, Randall; Wu, Jing; Yeung, Bernard

  1. By: Deng, Yongheng (National University of Singapore); Morck, Randall (University of Alberta and NBER); Wu, Jing (National University of Singapore and Tsinghua University); Yeung, Bernard (National University of Singapore)
    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.
    Keywords: Monetary stimuli; Fiscal Stimuli; Ownership Structure; Housing Market; China
    JEL: E52 G21 G38 P27 P34
    Date: 2011–09–05

This nep-cna issue is ©2011 by Zheng Fang. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.