How Strong are the Linkages between Real Estate and Other Sectors in China?

Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 11/2014

Research in International Business and Finance, Volume 36, January 2016, Pages 52-72

31 Pages Posted: 24 May 2014 Last revised: 29 Jul 2022

Date Written: May 23, 2014

Abstract

This working paper was written by Wenlang Zhang (Hong Kong Monetary Authority), Gaofeng Han (Hong Kong Monetary Authority) and Steven Chan (Hong Kong Monetary Authority).

International experience points to the critical role of stable property markets in maintaining financial stability. In China, the real estate sector has become increasingly important for the economy, but existing evidence has likely understated its importance as its linkages with other sectors have not been taken into account. This paper attempts to shed some light on these linkages which occur through both real and financial channels. Our analysis based on input-output tables shows that the linkages between the real estate and other sectors have strengthened through real channels, and that the real estate sector has been much more important to the economy’s output than suggested by the share of its value added in total value added. The real estate industry is also closely linked to other sectors through various financial channels, including serving as collateral in credit expansion. We quantify these financial linkages by studying the spill-overs of credit risk across sectors using data of listed firms. In general, we find that corporate credit risk has risen in recent years, and that credit risk in the real estate sector can potentially have large-scale spill-over effects onto other sectors. Consequently, shocks to the property market could have much larger impact on the Chinese economy than suggested by headline figures.

Suggested Citation

Institute for Monetary and Financial Research, Hong Kong, How Strong are the Linkages between Real Estate and Other Sectors in China? (May 23, 2014). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 11/2014, Research in International Business and Finance, Volume 36, January 2016, Pages 52-72, Available at SSRN: https://ssrn.com/abstract=2441108 or http://dx.doi.org/10.2139/ssrn.2441108

Hong Kong Institute for Monetary and Financial Research (Contact Author)

(HKIMR) ( email )

Units 1005-1011, 10th Floor, One Pacific Place
88 Queensway
Hong Kong
China

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
179
Abstract Views
1,147
Rank
302,119
PlumX Metrics