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China's Current Real Estate Cycle and Potential Financial Risks

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  • Xiaojing Zhang
  • Tao Sun

Abstract

The real estate cycle and financial stability are closely correlated. In light of global real estate bubbles, China's real estate cycle has attracted wide attention since 1998. The present paper analyzes three driving factors in the context of the current real estate cycle; namely, economic growth, macroeconomic environment and institutional establishment. Supported by econometric analysis using quarterly data from 1992–2004, the present paper indicates that real estate will develop steadily and that housing prices will consistently rise in the relative long run. Based on quantitative analysis, it is concluded that the implications of the current real estate cycle for financial stability include risks of real estate credit exposure, government guarantees and maturity mismatch. Some corresponding policy implications are discussed, such as advancing banking reform, encouraging the rational behavior of local governments and strengthening the regulation of foreign capital flows in and out of China's real estate industry. (Edited by Xinyu Fan)

Suggested Citation

  • Xiaojing Zhang & Tao Sun, 2006. "China's Current Real Estate Cycle and Potential Financial Risks," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(4), pages 57-74, August.
    • Handle: RePEc:bla:chinae:v:14:y:2006:i:4:p:57-74
    DOI: 10.1111/j.1749-124X.2006.00030.x
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    References listed on IDEAS

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    1. Davis, E. Philip & Zhu, Haibin, 2011. "Bank lending and commercial property cycles: Some cross-country evidence," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 1-21, February.
    2. Quigley, John M., 2001. "Real Estate and the Asian Crisis," Journal of Housing Economics, Elsevier, vol. 10(2), pages 129-161, June.
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    1. Yuexiang Jiang & Luyuan Zheng & Jiazhen Wang, 2021. "Research on external financial risk measurement of China real estate," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5472-5484, October.
    2. Yang Yang & Michael Rehm & Mingquan Zhou, 2021. "Housing Price Volatility: What's the Difference between Investment and Owner‐Occupancy?," The Economic Record, The Economic Society of Australia, vol. 97(319), pages 548-563, December.
    3. Tommaso Gabrieli & Keith Pilbeam & Tianyu Wang, 2018. "Estimation of bubble dynamics in the Chinese real estate market: a State space model," International Economics and Economic Policy, Springer, vol. 15(2), pages 483-499, April.
    4. Li, Victor Jing & Cheng, Andy Wui Wing & Cheong, Tsun Se, 2017. "Home purchase restriction and housing price: A distribution dynamics analysis," Regional Science and Urban Economics, Elsevier, vol. 67(C), pages 1-10.

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