The spectacular ongoing housing boom in China has generated great concerns around the world about the risk of a housing bust on the Chinese economy and the world economy. This column by four Harvard economists compares this housing boom with that experienced by the U.S. in 2000s and dissects its distinct characteristics — its fundamental support, enormous construction, and the delicate role played by government policies.
China's 4 Trillion Yuan stimulus in November 2008 may have been successful in allowing China to escape from the Great Recession. But the massive increase in local government debt in the implementation of the stimulus package also led to crowd out of the more productive private sector investment. Yi Huang of Graduate Institute in Geneva and his coauthors Marco Pagano and Ugo Panizza discuss this "dark side" of the Chinese stimulus.
The paper examines China's rising domestic content in exports using firm and customs transaction-level data. China's domestic content in exports increased from 65 percent in 2000 to 70 percent in 2007. The key reason for China’s ascent on global value chains is due to individual processing exporters substituting domestic products for imported materials, induced by the country’s trade and FDI liberalizations.
The re-lending business is a particular activity of shadow banking in China, in which some non-financial firms borrow in order to lend, acting as de facto financial intermediaries. Julan Du and Chang Li from the Chinese University of Hong Kong and Yongqin Wang from Fudan University document this type of shadow banking in China using three different identification strategies. They also explore the factors that influence the firms' re-lending activities.
We provide a theory to explain China’s excessive housing price growth in the most recent decades, despite a high vacancy rate and a high rate of return to capital. We argue that China’s housing prices contain a significant and rapidly growing bubble component. This growing housing bubble generates a substantial degree of welfare losses and resource misallocation in the capital market, which are prolonging economic transition and hindering aggregate economic growth.