Analyzing the Role of the Real Estate Sector in the Sectoral Network of the Chinese Economy

Abstract

The real estate sector in China has strong connections with other sectors. By employing forecast error variance decompositions from least absolute shrinkage and selection operator vector autoregression (LASSO-VAR) model, this study explores the real estate sector's role in China's sectoral network between January 1, 2000, and June 30, 2023. Our analysis reveals that the total sectoral connectedness ranged between 80% and 90% before 2016, but fluctuated between 55% and 90% from 2016 to June 2023. We also identify that shocks primarily spread from the real estate sector to the financial sector from 2014 to 2019. However, this pattern was reversed, with shocks spreading from the financial sector to the real estate sector from early 2020 to June 2023. Furthermore, we observe that the government's long-term mechanisms for the real estate sector have a significant impact on the connection between the real estate sector and the other sectors.