SUCCESS OF CHINA'S COOLING MEASURES: RESIDENTIAL PRICE CHANGES IN CHINA

Abstract

In China, government intervention in the housing market was announced after 2010 to curb the spirally high real estate prices. However, the real dilemma for the Chinese government and the policymakers is the impact of real estate on the macro economy. As such, it heightens the importance of studying these housing policies impact on the property market. Currently, there are restrictions on buying properties (XianGou), selling (XianShou), borrowing from commercial institutions (XianDai), and supply-side policies. Thus, this paper seeks to explore whether there is a problem with these cooling measures of not being able to curb the high prices. It is hypothesized that the housing policies are effective in decreasing the high prices. Applying the difference in difference (DID) test, the paper will explore the impact of the cooling measures on the aggregate price levels while controlling for the year, monthly as well as city fixed effects. The results have shown that these restrictions indeed have a negative impact on the aggregate price level for the treated cities. For the cooling measures XianGou, XianShou, XianDai, Supply, the prices of the treated cities were 2.43, 1.95, 2.46, 2.48 percent lower than cities without the policies respectively. The robustness test supports the negative impact of the cooling measures. Despite so, the effect of the cooling measures decreases on a yearly basis (extended study). In summary, the paper will provide evidences to the current literature by looking at the effectiveness of the cooling measures on the aggregate price level of the Chinese cities.