Page 22 - THE SOUTH CHINA BUSINESS JOURNAL
P. 22
MMUNITY NEWS
China’s Real
Estate Boom and
Capital Misallocation
By the Stanford Center on China’s Economy and Institutions (SCCEI)
Research has long shown that real estate on average, land investment accounted for 27%
booms allow firms to access more credit and of firms’ investment in a year, 75% of which was
invest more. China has experienced a decades- land unrelated to firms’ core business activities.
long real estate boom that has slowed only As land prices rise, land-holding firms — often
recently. What firms outside the real estate sector SOEs — experienced a decline in their financial
gain from rising land prices and how do they restraints and a rise in their gross level of
deploy new investments? How do negative shocks investment: a 100 RMB increase in total land
in the real estate sector affect firm behavior? value resulted in a 12 RMB rise in gross firm
investment. However, rising land prices induced
The data. To address these questions, firms to invest in land unrelated to their core
researchers obtained a complete dataset of business activities, resulting in a reduction of
land transactions between 2000 and 2015 from other investments and patenting activities.
China’s Land Transaction Monitoring System, Indeed, a one standard deviation increase of
including detailed information on land buyers, land value was associated with a 4–5% decline
land area, total payment, land usage, locations, in patenting activities. Taken together, these
and transaction prices. They then matched results suggest that in response to rising land
the land transactions with a list of all publicly prices, firms switch investments from their core
listed firms and their subsidiaries from the business and patenting activities to speculative
China Stock Market and Accounting Research investments in land.
Database, focusing specifically on service and
manufacturing firms (non-real estate firms). Land-holding firms crowd out other firms in
the credit market. Researchers also find that
Matching firm and land transaction data enabled in the wake of rising land prices, bank lending
researchers to track firm investment patterns significantly favored firms with real estate
over time across several metrics, including how collateral, crowding out loans to non-land-holding
much firms invest and whether a land investment firms. More specifically, an increase in land prices
directly relates to firms’ core business activities. resulted in a decrease of non-land-holding firms’
Researchers were also able to link these gross investment and patenting activities due
investments to changes in firm patenting to reduced access to credit. Problematically,
activities recorded in the Patent Reference researchers find that land-holding firms — often
Database, the amount of credit firms received SOEs — were typically less efficient than their
from banks, and total firm productivity. non-land-holding counterparts.
Rising land prices spur speculative investment. Real estate boom, resource misallocation. As
Between 2000 and 2015, researchers find that a consequence of both the rise of speculative
19 AMCHAM SOUTH CHINA
China’s Real
Estate Boom and
Capital Misallocation
By the Stanford Center on China’s Economy and Institutions (SCCEI)
Research has long shown that real estate on average, land investment accounted for 27%
booms allow firms to access more credit and of firms’ investment in a year, 75% of which was
invest more. China has experienced a decades- land unrelated to firms’ core business activities.
long real estate boom that has slowed only As land prices rise, land-holding firms — often
recently. What firms outside the real estate sector SOEs — experienced a decline in their financial
gain from rising land prices and how do they restraints and a rise in their gross level of
deploy new investments? How do negative shocks investment: a 100 RMB increase in total land
in the real estate sector affect firm behavior? value resulted in a 12 RMB rise in gross firm
investment. However, rising land prices induced
The data. To address these questions, firms to invest in land unrelated to their core
researchers obtained a complete dataset of business activities, resulting in a reduction of
land transactions between 2000 and 2015 from other investments and patenting activities.
China’s Land Transaction Monitoring System, Indeed, a one standard deviation increase of
including detailed information on land buyers, land value was associated with a 4–5% decline
land area, total payment, land usage, locations, in patenting activities. Taken together, these
and transaction prices. They then matched results suggest that in response to rising land
the land transactions with a list of all publicly prices, firms switch investments from their core
listed firms and their subsidiaries from the business and patenting activities to speculative
China Stock Market and Accounting Research investments in land.
Database, focusing specifically on service and
manufacturing firms (non-real estate firms). Land-holding firms crowd out other firms in
the credit market. Researchers also find that
Matching firm and land transaction data enabled in the wake of rising land prices, bank lending
researchers to track firm investment patterns significantly favored firms with real estate
over time across several metrics, including how collateral, crowding out loans to non-land-holding
much firms invest and whether a land investment firms. More specifically, an increase in land prices
directly relates to firms’ core business activities. resulted in a decrease of non-land-holding firms’
Researchers were also able to link these gross investment and patenting activities due
investments to changes in firm patenting to reduced access to credit. Problematically,
activities recorded in the Patent Reference researchers find that land-holding firms — often
Database, the amount of credit firms received SOEs — were typically less efficient than their
from banks, and total firm productivity. non-land-holding counterparts.
Rising land prices spur speculative investment. Real estate boom, resource misallocation. As
Between 2000 and 2015, researchers find that a consequence of both the rise of speculative
19 AMCHAM SOUTH CHINA
