The Spillover Effects of a Downturn in China’s Real Estate Investment

November 5, 2012

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Format: Chicago

Ashvin Ahuja, and Alla Myrvoda. The Spillover Effects of a Downturn in China’s Real Estate Investment, (USA: International Monetary Fund, 2012) accessed November 8, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Real estate investment accounts for a quarter of total fixed asset investment (FAI) in China. The real estate sector’s extensive industrial and financial linkages make it a special type of economic activity, especially where the credit creation process relies primarily on collateral, like in China. As a result, the impact on economic activity of a collapse in real estate investment in China—though a low-probability event—would be sizable, with large spillovers to a number of China’s trading partners. Using a two-region factor-augmented vector autoregression model that allows for interaction between China and the rest of the G20 economies, we find that a 1-percent decline in China’s real estate investment would shave about 0.1 percent off China’s real GDP within the first year, with negative spillover impacts to China’s G20 trading partners that would cause global output to decline by roughly 0.05 percent from baseline. Japan, Korea, and Germany would be among the hardest hit. In that event, commodity prices, especially metal prices, could fall by as much as 0.8–2.2 percent below baseline one year after the shock.

Subject: Commodity prices, Exports, Imports, Industrial production, International trade, Metal prices, Prices, Production

Keywords: China, China investment bust, Coal demand, Commodity price, Commodity prices, Exports, FAVAR, Fixed asset investment, Global, Imports, Industrial production, Input-output datum, Investment, Investment decline, Metal prices, Price, Real estate investment, Spillovers, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/266
Stock No:

WPIEA2012266
ISBN:

9781475549003
ISSN:

1018-5941

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