Club Convergence of House Prices: Evidence from China's Ten Key Cities

摘要

The latest global financial tsunami and its follow-up global economicrecession has uncovered the crucial impact of housing markets on financial andeconomic systems. The Chinese stock market experienced a markedly fall duringthe global financial tsunami and China's economy has also slowed down by about2%-3% when measured in GDP. Nevertheless, the housing markets in diverseChinese cities seemed to continue the almost nonstop mania for more than tenyears. However, the structure and dynamics of the Chinese housing market areless studied. Here we perform an extensive study of the Chinese housing marketby analyzing ten representative key cities based on both linear and nonlineareconophysical and econometric methods. We identify a common collective drivingforce which accounts for 96.5% of the house price growth, indicating very highsystemic risk in the Chinese housing market. The ten key cities can becategorized into clubs and the house prices of the cities in the same clubexhibit an evident convergence. These findings from different methods arebasically consistent with each other. The identified city clubs are alsoconsistent with the conventional classification of city tiers. The house pricesof the first-tier cities grow the fastest, and those of the third- andfourth-tier cities rise the slowest, which illustrates the possible presence ofa ripple effect in the diffusion of house prices in different cities.