The Political Economy of China’s Housing Boom

This paper establishes causality between the Chinese Communist Party (CCP)’s cadre promotion system and China’s real estate boom. We first show that promotion of city-level communist leaders to higher ranks is largely based on city GDP performances. Then we identify exogenous shocks to the promotion chances, caused by new social tie establishment between city-level officials and their superior, using central government induced personnel changes at the superior level (province leaders). An incumbent city leader who shares the same hometown with a newly appointed provincial leader is more likely to be promoted, regardless of the city’s GDP performance. Cities where leaders have hometown connections with their superior experience higher supplies of residential land relative to industrial or commercial land, while total land supplies were not affected. House price growth rates were also lower in such cities