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 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.
As the second largest economy, China intrigues heated debates among policymakers and researchers alike on how fast its economy will grow in the future and how truthfully the official data reflect its actual economic growth. Patrick Higgins and Tao Zha from the Atlanta Fed and Karen Zhong from Shanghai Advanced Institute of Finance develop a replicable econometric model to shed light on these issues.
What caused the enormous credit boom in China? This column by Kinda Hachem and Michael Song offers an unexpected explanation of stricter liquidity regulations on banks leading to a credit boom through competition between small and big banks and their heavy use of shadow banking investment instruments.