Central–local conflict and property cycle: A Chinese style

This paper reviews how central–local government conflicts pertaining to financial systems, fiscal distribution and land usage have affected the property cycle in China over the past two decades. The literature divides the property cycle in terms of residential construction into 3 stages: Pilot Experimental, Double Track, and Complete Commercialization. At each stage, there are persistent and repetitive conflicts over financial, fiscal and land resources between central and local governments. When the central government takes control, the property market turns to adjustment; when local governments gain advantage, a property boom emerges. As commodity market reform steps forward, the central government’s influence on property adjustment is gradually lessened; while local governments’ impact on property boom is increasingly intensified. Analysis of literature also indicates that China’s property cycle is not well explained by economic fundamentals alone, for government conflicts have invalidated or lessened their impacts on the property sector.