By Kenneth Rogoff, Professor of Economics and Maurits C. Boas Chair of International Economics at Harvard University, former Chief Economist at the International Monetary Fund, and Member of SAGE’s Academic Committee, together with Yuanchen Yang
  Nov 1, 2024 — Journal of International Economics, Vol. 152 (Journal Article)
 
ABSTRACT: China's outsized real estate sector has long been a key engine of growth. However, with decades of construction at break-neck speeds having produced a massive increase in the quantity and quality of China's housing stock, the question arises as to whether diminishing returns are beginning to set in. At the same time, there is the question of whether real estate has been a major driver of today's high levels of local government debt, which may create heightened financial vulnerabilities. We investigate these questions using a new database that includes city level estimates of China's housing stock. Our formal statistical results suggest that real estate is indeed running into diminishing returns to growth while at the same time being a significant driver of local government debt, with both effects being driven mainly by China's smaller and less prosperous tier 3 cities (which nevertheless account for 60% of GDP).

KEYWORDS: Real Estate; Economic Growth; Debt Crisis; Chinese Economy
 
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