The US-China Trade War: Quantify the Negative Shocks to Local Housing Markets and Land-Based Finance in Chinese Cities
Friday, May 10, 202412:00 PM - 1:20 PM (Pacific)
Goldman Room E409, Encina Hall
SCCEI Seminar Series (Spring 2024)
Friday, May 10, 2024 | 12:00 pm -1:20 pm Pacific Time
Goldman Room E409, Encina Hall, 616 Jane Stanford Way
The US-China Trade War: Quantify the Negative Shocks to Local Housing Markets and Land-Based Finance in Chinese Cities
China’s real estate market has experienced two decades of “golden age” with soaring housing prices ever since the housing marketization. Tax-sharing and land reforms eventually made city governments heavily rely on land sales (state-land use-right transfers) to generate fiscal revenues for expenditures; the so-called “land-based finance” or “land finance” sustained through self-fulfilling prophecy of housing price and land value appreciations supported by fast urbanization and economic growth. However, the US-China trade war started in 2018 and caused a drastically negative and exogenous shock to this feedback loop in Chinese cities, however. This research studies the trade war’s impacts on local housing markets and land-based finance. It constructs a shift-share measure transmitting the macro tariff changes to city-specific heterogenous negative shocks. Analyses apply prefecture-city data spanning 2016-2019 and show that the tariffs were destructive to local housing markets and land finance besides hitting production. When cities experienced an extra percentage point (pp) of the weighted average tariff rate, transacted housing dropped by 3% and the prices fell by 1.2%, all else equal. The housing market tumbles deterred developers from buying state lands. The extra pp of the tariffs thus decreased the city government’s land-sale revenues by 7.6%. As Chinese cities faced, on average, a 1.62 pp increase in the average tariffs and, at the extreme, a 10.4 pp change within a year upon the trade war, impacts were substantial in hitting local housing markets and draining local public finance. Land-sale revenue declines between 12% to 79% were not uncommon. Further analysis reveals the more resilient cities in this trade-war were those with less severe overbuilding aka ghost-town phenomenon, a more diversified industrial base or export destinations, or a stronger tertiary sector. Overall, the US-China trade war could have more adversely impacted housing markets and local public finance in smaller cities than in big cities.
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About the Speaker
Dr. Siqi Zheng is the STL Champion Professor of Urban and Real Estate Sustainability at the Center for Real Estate, and Department of Urban Studies and Planning at Massachusetts Institute of Technology (MIT). She is the faculty director of the MIT Center for Real Estate. She established MIT Sustainable Urbanization Lab in 2019, and MIT China Future City Lab in 2017, and is the faculty director of her Lab.Prof. Zheng was the former President of Asian Real Estate Society (2018-2019) and is on its Board now, and she is also on the Board of American Real Estate and Urban Economics Association (AREUEA). She is the Co-Editor of Journal of Regional Science, and Environmental and Resource Economics. She is also the Associated Editor of China Economic Review, and Journal of Economic Surveys, and is on the editorial board of Real Estate Economics, Journal of Housing Economics and Journal of Real Estate Finance and Economics.
Prof. Zheng’s field of specialization is urban and environmental economics and policy, including sustainable urbanization, sustainable real estate, and urbanization in emerging economies. She published in many peer reviewed international journals including the Proceedings of the National Academy of Sciences, Nature Human Behaviour, and the Journal of Economic Literature, Journal of Economic Perspectives, Journal of Economic Geography, European Economic Review, Journal of Urban Economics, Regional Science and Urban Economics, Transportation Research Part A, Environment and Planning A, Ecological Economics, Journal of Regional Science, Real Estate Economics, Journal of Real Estate Finance and Economics. A book she has co-authored with Matthew Kahn, Blue Skies over Beijing: Economic Growth and the Environment in China (Princeton University Press) was published in 2016. Dr. Zheng has completed or been undertaking research projects granted or entrusted by the World Bank, the MassCPR, MITEI, MIT Portugal, MIT MCSC, the Asian Development Bank, the Lincoln Institute of Land Policy, among others. She won the MIT Frank E. Perkins Award for Excellence in Graduate Advising in 2022. She received her Ph.D. in urban development and real estate from Tsinghua University in 2005, and did her post-doc research at the Graduate School of Design at Harvard University. Prior to coming to MIT, she was a professor and the director of Hang Lung Center for Real Estate at Tsinghua University, China.
A NOTE ON LOCATION
Please join us in-person in the Goldman Conference Room located within Encina Hall on the 4th floor of the East wing.