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The role played by the real estate industry in economic growth is underscored by China’s example. In comparison to the well-known contribution to economic growth of China’s special economic zones, the impact of foreign direct investment, and the impetus provided by town and village enterprises in the hinterland, the story of the real estate cluster and its impact on the economy is relatively unknown. Major construction projects in the office and residential real estate sectors, industrial construction and massive infrastructure projects have been instrumental in providing the necessary conditions for other sectors to flourish, and in and of themselves have had a significant direct and indirect impact on the overall growth rates. Commercial real estate growth has been exceeding 25% per annum in recent years, with the first half of 2003 alone witnessing completion of approximately 80 million sq.m. of office space. China's overall real estate investment (including housing) grew by 33.5 percent year- on-year to 198 billion yuan (US$24.9 billion) during the first four months of this year, according to China’s National Bureau of Statistics. There have been major spillover effects in the economy with sectors such as furniture, appliances and other home furnishings growing at rates in excess of 25% and the State Council Information Office, which oversees the official government information portal,
estimates that the real estate industry contributes 1.5 to 2% to the overall growth rate of GDP.
While the commercial real estate sector may be a manifestation of derived demand, dependent on how well the industrial and services sectors are doing or are expected to do in the future, the housing sector is driven by a number of extra-economic and demographic factors, in addition to the economic ones such as income and the interest rate environment. This attribute of the housing sector coupled with its size and its multiplier effect on the economy gives it the role of a leading indicator of the imminent state of health of the economy at large.
We examine the multi-faceted value that the real estate cluster is capable of delivering to the economy and society. We look at the spillover effects that it generates, review some of the theoretical and conceptual issues involved, and make an assessment of the new institutional and market innovations required, as well as the reforms that are needed in India to enhance the role of the industry as an engine of growth for the economy and as a tool of long-term wealth creation. Based on the statistics thrown up by the recently concluded survey by the Census of India, we argue that the sector offers immense potential for creation of value through public private partnership. See Box 1: Value Creation by Housing and Real Estate.