How big is China’s real estate bubble and why hasn’t it burst yet?
ABSTRACT:This paper represents an international, comparative, empirical study of the relationship between financial crises and real estate development, with a focus on China. We review recent major crises around the world from 1980 to 2014.We then discuss the ways real estate crises develop into financial crises (considering that most recent financial crises actually trace their origins to real estate bubbles). We also look at China’s current economic situation, and identify potential threats to the country’s economic development by comparing it with other countries’ historical experiences. A comprehensive analysis of the relationship between real estate and finance predicts an upcoming burst in China’s bubble economy. We explore the deep-seated underlying Chinese systemic causes and characteristics that explain why China’s economic bubble has yet to burst and the possible financial consequences of the real estate bubble in China.Our findings suggest that a financial crisis often emerges from a weak financial system which is too closely linked to the country’s real estate sector. These linkages allow real estate crises to mushroom into financial crises. In turn, these financial crises balloon into macroeconomic crises. China’s current situation is extremely alarming, though the country shows remarkable resilience to crisis as the government seems to possess the tools and capacity to avoid a hard landing. The findings of this research advance our understanding of the consequences of China’s real estate bubble and sound a clear warning to China’s policymakers.
Keywords:
China,Real estate bubble,World financial crises
1. Introduction
After the gradual establishment of the modern financial system(around 1720) and throughout numerous major financial crises,real estate sectors globally have developed strong links with financial sectors, and thus affect entire macroeconomics at home and abroad (The Economist, 2014). This paper shows how real estate crises have historically triggered a large portion of the major financial crises occurring over the past two decades. These financial crises subsequently spread to other sectors, stifling economic development as a whole. A recent scholarly study of housing prices,credit and outstanding mortgage debt data from 40 countries from 2000 to 2009 shows that over 87 percent of the countries that experienced a real estate boom (and 91% of the countries experiencing both a real estate boom and a credit market boom) ended up suffering from a financial crisis or a severe drop in GDP growth (Crowe et al., 2013). China has experienced both remarkable real estate and credit market booms in the past decade. Yet, China still defies the odds—having so far avoided serious financial crisis and an economic hard landing. What makes China’s case different from that of other countries? To answer this question, we need to understand the causes of financial crises.
Studies conducted on the linkages between the real estate sector and overall economic conditions have a long history. The real estate sector incredible represents an integral component of the overall economy and forms close connections with financial markets (Ermisch, 1990). Economic peaks and troughs correlate closely with fluctuations in property prices (Quigley, 1999). However,the majority of studies in this area focus on how financial crises affect the real estate sector—rather than the other way around(DiPasquale and Wheaton, 1996; Case and Shiller, 1998). Few studies explore causality between real estate crises and financial sector crises, which in turn cause macroeconomic crises.
Three different types of models attempt to explain the causes of financial crises (Renaud, 2000). The first type focuses on fiscal, monetary and exchange rate policy explanations for financial crises—for example, looking at the role played by large budget deficits, inflationary monetary policy or pegged exchange rates in these financial crises (Krugman, 1979, 1999). The second type of model centres on the logic of bank runs. These models show how (rational) expectations of future crises can lead to crises today (Obstfeld, 1981).These models stress the need for credible policy and adequate capitalisation (of the central bank or financial institutions depending on the exact model discussed). The third type of model focuses on structural and institutional problems inherent in the design of financial institutions themselves. These models look at the effects that collateral requirements, lending regulation and supervision,and other factors have on economic incentives. The misalignment of incentives and economic fundamentals invariably (in these models)lead to financial crises—often as the result of developing asset-price“bubbles” (Velasco, 1999). Such bubbles represent significant misalignment of nominal asset prices from fundamentals, and may rationally occur as economic actors’ short-term incentives diverge from their long-term interests.
However, none of the models (or other existing studies) describe the direct causal relationship between real estate crises and financial crises (which we will discuss in Section 2 of our paper). In Section 3, Our paper will demonstrate China’s systematic real estate bubble through the perspective of property prices, the supply of cash M2 (Broad money: the amount of money) and vacancy rates(for residential housing) and the linkage between real estate markets and financial sector performance during crises in China. We compare and contrast various aspects of these crises across time and major countries that have experienced a real estate boom and bust. We also discuss the causal relationship between real estate crises and financial crises. We show how real estate crises explode into financial crises and negatively impact
剩余内容已隐藏，支付完成后下载完整资料
英语译文共 12 页，剩余内容已隐藏，支付完成后下载完整资料
资料编号：[487153]，资料为PDF文档或Word文档，PDF文档可免费转换为Word
以上是毕业论文外文翻译，课题毕业论文、任务书、文献综述、开题报告、程序设计、图纸设计等资料可联系客服协助查找。
