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Housing Wealth, Financial Wealth and Consumption in China

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  • Jie Chen
  • Feng Guo
  • Aiyong Zhu

Abstract

The paper investigates the relationship between changes in asset wealth and the trend movements of household consumption in urban China. Using the vector error correction cointegration model, we demonstrate that there is a unique long‐run cointegrating relationship between household consumption, disposable income, financial wealth and housing wealth in urban China. We find that housing wealth is the only factor that restores the long‐run equilibrium relationship when the cointegrated system is disturbed by an external shock. In addition, our permanent–transitory variance decomposition analysis indicates that nearly all variance in the movement of consumption is permanent, supporting the classical random walk hypothesis of consumption behavior. However, a large proportion of variance in the short‐run movements of housing wealth is found to be transitory.

Suggested Citation

  • Jie Chen & Feng Guo & Aiyong Zhu, 2009. "Housing Wealth, Financial Wealth and Consumption in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(3), pages 57-74, May.
    • Handle: RePEc:bla:chinae:v:17:y:2009:i:3:p:57-74
    DOI: 10.1111/j.1749-124X.2009.01150.x
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    Cited by:

    1. María Jesús Herrerias & Vicente Orts, 2010. "Is the Export-led Growth Hypothesis Enough to Account for China's Growth?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(s1), pages 34-51.
    2. Vittorio Peretti & Rangan Gupta & Roula Inglesi-Lotz, 2012. "Do House Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201216, University of Pretoria, Department of Economics.
    3. Guo, Feng & Huang, Ying Sophie, 2010. "Does "hot money" drive China's real estate and stock markets?," International Review of Economics & Finance, Elsevier, vol. 19(3), pages 452-466, June.
    4. Beatrice D. Simo-Kengne & Rangan Gupta & Manoel Bittencourt, 2013. "The Impact of House Prices on Consumption in South Africa: Evidence from Provincial-Level Panel VARs," Housing Studies, Taylor & Francis Journals, vol. 28(8), pages 1133-1154, November.
    5. Chi-Wei Su & Xiao-Cui Yin & Ran Tao, 2018. "How do housing prices affect consumption in China? New evidence from a continuous wavelet analysis," PLOS ONE, Public Library of Science, vol. 13(9), pages 1-14, September.
    6. Feng Guo & Ying Huang, 2010. "Hot Money and Business Cycle Volatility: Evidence from China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(6), pages 73-89, November.
    7. Shu-hen Chiang, 2014. "Housing Markets in China and Policy Implications: Comovement or Ripple Effect," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 22(6), pages 103-120, November.
    8. Jie Chen & Feng Guo & Aiyong Zhu, 2011. "The Housing-led Growth Hypothesis Revisited," Urban Studies, Urban Studies Journal Limited, vol. 48(10), pages 2049-2067, August.
    9. Shan Yu & Can Cui, 2021. "Difference in Housing Finance Usage and Its Impact on Housing Wealth Inequality in Urban China," Land, MDPI, vol. 10(12), pages 1-16, December.
    10. Yang Liu, "undated". "The Inter-Relations Between Chinese Housing Market, Stock Market And Consumption Market," Review of Socio - Economic Perspectives 202051, Reviewsep.

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