TITLE:
The Political Economy of Financial Repression Policy-Dominated China’s Overheated Housing Market
AUTHORS:
Anqi Lei
KEYWORDS:
Financial Repression Policy, Real Estate Market Overinvestment, Bank Potential Risks, SOEs and Private Firm Financing, Government Administration
JOURNAL NAME:
Chinese Studies,
Vol.6 No.4,
October
26,
2017
ABSTRACT: Chinese government has adopted financial repression
policy for a very long time as a necessary step to stimulate domestic growth
and help eliminate domestic and external risks. In China, a series of financial repression policies have been
implemented, such as explicit or indirect capping of interest rates and
protection of state-owned enterprises. However,
its side effects are inevitable
simultaneously. Under these financial repression policies, state-owned
enterprises (SOEs), banks and governments could be the three biggest
beneficiaries since they can easily get founds and profits to finance
themselves through the policies while private and small firms are actually
discriminated and can get very little benefit from the policy. At the same
time, the long-term implementation of repression policy has triggered domestic
housing speculation since 2008 when financial crisis caused by U.S subprime
crisis swept the world, which then further fueled an expansion in debt that
makes Chinese banks quite risky. Thus, in the past several years, the over high
housing price and the huge amount of bank loans in real estate sector in
China’s real estate market has become a controversial topic and arouse people’s
attention all over the world. Policy makers and scholars are worried that
China’s overheated housing market may lead to bank debt crisis in the near
future like the U.S. Therefore, in this paper, we tried to answer two main
questions: What kinds of
side-effects have been caused by China’s financial repression policy after its
economy boom? What kind of role did China’s financial repression policies play
in inducing its domestic overheated housing market? Is the bank credit, or
debts problem induced by housing purchasing and investing severe enough to lead
to a higher level of credit risk in China?