Positioning of China's Real Estate Industry Based on Input-Output Analysis

By Zhang, Hong; Gao, Shuai et al. | Journal of Real Estate Portfolio Management, January 1, 2017 | Go to article overview

Positioning of China's Real Estate Industry Based on Input-Output Analysis


Zhang, Hong, Gao, Shuai, Seiler, Michael J., Journal of Real Estate Portfolio Management


The real estate industry in China is interrelated with other industries within the greater national economy. Every year, China's steel (25%), cement (70%), wood (40%), glass (70%), and plastics (25%) are put into the real estate industry. Consider the housing market for example: 100 yuan of housing construction requires a demand of 170 to 220 yuan from related industries, and a 100 yuan increase in the sale of housing is associated with a 130 to 150 yuan increase in the sales in other related industries (Chen and Peng, 2010).

After years of rapid development, the real estate industry has played a very important role in the national economy. Real estate's growth contributes about 20% to the nation's economic growth, and its added value is nearly 10% of GDP. Investment in the real estate industry accounts for 25% of the investment in fixed assets. About 20% of loans from all commercial banks are obtained via the real estate industry (Kuang, 2006). Therefore, it is of great economic and social importance to study the positioning of China's real estate industry.

According to our findings, from an industry linkage effect perspective, China's real estate industry is the primary driving force behind the tertiary industry and the dominant determinant behind the secondary industry. Direct pulling power from the real estate industry applies to both the secondary and tertiary industries, and the total pulling power primarily plays a role in the secondary industry. In terms of the industry spread effect, the real estate industry exhibits a slight pulling effect, as well as having a promotional effect on the national economy. Based on the industry clusters divisional analysis, the real estate industry in China is a final demand and basic industry.

In essence, ''industry positioning'' aims to study the relations among industries and is best examined through input-output analysis. There have been a number of studies examining the industrial economy using input-output analysis. Input-output analysis, also known as the ''input-output method,'' was established by an American economist, Wassily Leontief. Using ready-made regional input-output models, Steinback (2004) estimates the backwardlinkage effects of exogenous output shocks, and showed that conventional Leontief multipliers would lead to biases when dealing with the predetermination of sectoral output, and thus proposed an adjustment method. Zhao (2010) finds that the mode of economic growth in Beijing is remarkably different from that of other cities in China. He conducted a comparative analysis with a regional inputoutput table, concluding that the rapid development of the service sector in Beijing is due to the reform in the demand structure. In order to investigate the economic potential of agricultural sectors, Lindberg and Hansson (2009) disaggregate the input-output table into ''make'' and ''use'' components to study the economic impact and potential of agricultural sectors, finding that livestock sectors stimulate output in the economy.

Malysheva and Sarte (2011) describe the process of industrial shocks spreading throughout the economy and illustrated their impact on aggregate economic activity. A research result by Wood and Lenzen (2009) is useful to shed light on the interaction between the economy and the environment. Roberto and Ranko (1999) analyze the role of the Italian residential construction sector in the national economy using two sets of input-output tables. Specifically, the authors use the input-output tables compiled since World War II in four advanced industrial countries-United States, Japan, Italy, and Finland-to analyze the role of construction in their economies.

Dietzenbacher and Temurshoev (2012) address the question of whether the results of input-output impact analyses differ (and to what extent) when using a framework of current versus constant prices. Chinese academicians also utilize input-output analysis to perform research within the real estate industry, but most studies merely concentrate on the industry linkage effect or the industry spread effect, ignoring the industry clusters component. …

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