The Role of the Real Estate Sector in the Structural Dynamics of the Chinese Economy: An Input–Output Analysis

• Author: Eric Girardin,Umair Shad,Yongming Huang,Jamal Khan
• Published date: 01 January 2021
• Date: 01 January 2021
• DOI: http://doi.org/10.1111/cwe.12363

©2021 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 61–86, Vol. 29, No. 1, 2021 61

*Yongming Huang, Professor, Institute for Region and Urban−Rural Development, and Center for Industrial

Development and Regional Competitiveness, Wuhan University, China . Email: hym@whu.edu.cn; Jamal

Khan (corresponding author), PhD Candidate, Institute for Region and Urban−Rural Development, Wuhan

University, China. Email: jamalkhan_87@yahoo.com; Eric Girardin, Professor, Aix-Marseille University,

Centre National de la Recherche Scientif‌i que, Ecole des Hautes Etudes en Sciences Sociales, Aix-Marseille

School of Economics, France. Email: eric.girardin@univ-amu.fr; Umair Shad, Assistant Registrar, Hazara

University, Pakistan. Email: umair.shad@yahoo.com. This work is supported by Social Science Foundation

Project of China Ministry of Education (No. 17YJC790184) .

The Role of the Real Estate Sector in the

Structural Dynamics of the Chinese Economy:

An Input−Output Analysis

Yongming Huang, Jamal Khan, Eric Girardin, Umair Shad*

Abstract

Market-oriented housing reforms and the rapid urbanization process have led to spectacular

growth in the Chinese real estate sector (RES). However, the changes in the role played

by this sector in the structural dynamics of the Chinese economy have not been examined

sufficiently. Accordingly, we analyze the intersectoral structural changes to the Chinese

RES, its linkages with the rest of the economy, and its growth sources, using four Chinese

input−output tables from 2002 to 2017. We depart from existing work on the RES by using

the causative matrix approach and structural decomposition analysis, and obtain three main

results. First, the RES, which received little non-RES feedback during the 2002−2007 period,

has subsequently received much more substantial feedback. Second, the impact of the RES

on China’s economic growth stems mainly from its forward linkages. Third, the growth in

the RES has been driven mainly by domestic demand expansion. Our results highlight that

the Chinese RES, which plays a key role in value chains, is highly dependent on its own

f‌i nal demand and a fall in its demand would impede economic development. An important

implication of these results is that developing the national economy by stimulating the RES

would not be as effective as developing the RES through stimulating the national economy.

Key words: causative matrix, linkage, real estate sector, structural decomposition

JEL codes: E51, R02, R15

I. Introduction

China’s real estate sector (RES) has been profoundly transformed over the last two

decades, and is widely considered to be one of the major drivers of the country’s

Yongming Huang et al. / 61–86, Vol. 29, No. 1, 2021

©2021 Institute of World Economics and Politics, Chinese Academy of Social Sciences

62

economic growth. Such transformations stem from various sources. Starting in the late

1990s, the introduction of market-oriented housing reforms has contributed decisively

to the transformation of that sector. Large-scale rural−urban migration, accelerated

urbanization, and rapid industrial growth of the new millennium, followed by sharp rise

of the new economy over the last decade, have also created an enormous demand for

housing, and industrial and commercial buildings, inducing a rapid development of the

RES services (Mak et al., 2012). As a consequence, investment in the RES increased

from 4 percent of GDP in 1997 to 13 percent 20 years later.1 However, the RES is much

more important to the Chinese economy than these RES investment figures would

imply2 (Wang and Liu, 2004; Eftimoski and McLoughli, 2019). On the one hand,

the RES is linked with upstream sectors such as steel, cement, chemicals, plastics,

electrical, and other manufacturing sectors (Wu et al., 2020). On the other hand, the

RES is associated with downstream sectors such as household appliances, furniture, and

upholstery (Li et al., 2008).

Housing reforms, along with rapid urbanization and real estate investment, are

likely to have led to very substantial changes in the intersectoral linkages of the RES

with downstream and upstream sectors, in turn impacting the push and pull capabilities

of the RES in the Chinese economy. The sizeable direct and indirect effects of the RES

therefore show the importance of analyzing the structural changes in the intersectoral

linkages of the RES with the rest of the economy, and of measuring the growth sources

of the output of the RES. This would help policymakers to understand the evolving

role of the RES in the Chinese economy, enabling them to design policies better able

to stimulate and regulate aggregate economic growth, while taking into account the

linkages of RES with other sectors as well as its push and pull effects.

We pursue three objectives in this study. First, we aim to measure the changes to the

intersectoral feedback relationships of the RES with non-RES sectors over the last two

decades. Our second objective is to gauge the real estate intensities3 of different sectors

and variations over time, to explore the changes in the push and pull effects of the RES

along with the movements in its backward and forward linkages. Our third objective is

to assess the contribution of the RES output to the national economy, to analyze the past

1Real estate sector investment has signif‌i cantly contributed to GDP growth with an average contribution of

2 percent from 2003 to 2017. The value-added share of the RES also rose from 1.9 percent (ranked 17th)

in 1997 to 7.1 percent (ranked second) two decades later. The sector employed 4.66 million people in 2018

but its share in total employment increased more than 20 times to reach 2.7 percent in 2018 (Eftimoski and

McLoughli, 2019).

2The RES has been strongly linked to China’s f‌i nancial system through various channels (Bai et al., 2016) and

is closely associated with consulting and other service sectors (Li et al., 2008).

3Real estate intensity means the extent to which a non-RES takes input from the RES.