The Development of Mortgage Finance in China

Abstract

This paper compares the current Chinese mortgage market with the markets in several advanced economies that suffered most in the 2008 Global Financial Crisis, exploring the potential and rigidities of development of the secondary mortgage market in China. It finds that, first of all, while the over-securitisation of mortgages in the United States accounted for most for its housing decline and subsequent economic stress, the housing downturn in China is largely the result of the underdeveloped housing finance sector. Second, in the absence of a well-functioning legal system and mature primary mortgage market, China needs to make more effort to improve the diversity of the primary market before establishing a secondary market. Third, in China’s market transition, the nature of housing should be seen as neither an economic engine, as now in China, nor as a financial derivative, as in the United States.