| Abstract:
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The COVID-19 lockdowns have been met with criticism for negative impacts on economies. Most countries aim to restore market confidence through a series of measures, including stimulating consumption, reducing tax, and encouraging employment. However, due to the Chinese traditional strong tendency to save and invest in real estate, the Chinese government encounters significant challenges to boosting personal consumption.
Real estate assets was the main destination of family savings account for 73.6% of Chinese household wealth allocation in 2017, considerably higher than financial investment (11.3%). In comparison, it only took 34.6% of US family assets in 2016. This could also explain the fly in ointment of the economic stimulus program during the world 2008 financial crisis.
In response to the world 2008 financial crisis, the Chinese government launched the economic stimulus program (Ten Measures to Expand Domestic Demand) and invested CNY 4 trillion (US$586 billion) to improve infrastructure construction, business environment, and capital liquidity. The Chinese government's fiscal and monetary policies should be affirmed in terms of positive roles in stabilizing the national economic environment, making the Chinese suffer less than many developed market-oriented countries. However, the fly in these measures' ointment is that a large amount of liquid capital inflowed into the real estate market.
The importance of the real estate construction industry to China's economic development is undeniable. At the end of 2019, the number of people employed in China's real estate construction industry reached 52.27 million. However, utilizing real estate as a means of revitalizing the economy is not without drawbacks. First, real estate construction's productive activities are mainly one-off, the economic benefits generated from transaction costs on the second-hand market are relatively limited. Secondly, real estate required a large amount of capital commitment which reduces the liquidity of capital. Once individuals decided to purchase a property, they are severely constrained by a mortgage in the years to come. Mortgage repayment is also considered one of the main reasons for the slow growth of personal consumption in China.
This paper is divided into three parts: the first part introduces how the Chinese people's strong tendency to buy property affects the level of consumption and investment; the second part discusses the negative impacts of such tendency on the government's economic stimulus policies during COVID-19; the last part provides suggestions to reduce its adverse influences.
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