University of Cambridge > > Land Economy Departmental Seminar Series > Understanding the Risk of China’s Local Government Debts and Its Linkage with Property Markets

Understanding the Risk of China’s Local Government Debts and Its Linkage with Property Markets

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The intertwining of local Chinese housing markets with government fiscal policies coincides with the significant economic growth in China over the past 25 years. This connection is the direct result of China’s central government reforms to its fiscal system that have encouraged local governments to rely on land sales and development to fund required infrastructure projects. Since China does not allow local governments to directly participate in the municipal bond market, these governments rely on a unique funding mechanism known as Local Government-Backed Investment Units (LGBIU). We study the linkage between the solvency of local government debt and local housing market risk. Our results indicate that areas with higher expected house price growth issue debt with lower risk premiums. Furthermore, bonds issued by LGBI Us from areas that experience greater changes in housing prices have a corresponding decline in observed yield spreads. Thus, the results suggest that investors do price local housing risk into Chinese municipal bond risk premiums.

Speaker biography:

Brent W. Ambrose is the Smeal Professor of Real Estate, Director of the Institute for Real Estate Studies, and Director of the Smeal College Ph.D. Program at the Smeal College of Business at the Pennsylvania State University. Prior to joining Penn State University, Dr. Ambrose was the Director of the Center for Real Estate Studies and Professor of Finance at the University of Kentucky where he held the Kentucky Real Estate Professorship. In 2010, Dr. Ambrose was President of the American Real Estate and Urban Economics Association (AREUEA) and served as the Executive Vice President of AREUEA from 1996 to 2003. Currently, Dr. Ambrose is the co-editor of Real Estate Economics (the journal of the American Real Estate and Urban Economics Association) and serves on the editorial boards of the Journal of Real Estate Finance and Economics, the Journal of Real Estate Research, and the International Real Estate Review, and is a member of the board of directors for the Real Estate Research Institute and the American Real Estate and Urban Economics Association. Dr. Ambrose specializes in real estate finance, corporate finance, and fixed income security analysis. His research interests include issues related to Real Estate Investment Trusts (REITs), loss mitigation programs associated with mortgage default and foreclosure, Government Sponsored Enterprises (GSEs), fixed-income securities, and consumer credit contracts. Dr. Ambrose holds a Ph.D. and M.B.A. from the University of Georgia and a B.S. in Business from Wake Forest University.

This talk is part of the Land Economy Departmental Seminar Series series.

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