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Price and Volume Divergence in China’s Real Estate Markets: The Role of Local Governments

Author

Listed:
  • Jeffery (Jinfan) Chang
  • Yuheng Wang
  • Wei Xiong

Abstract

During the COVID-19 pandemic (2020-2022), Chinese cities witnessed a paradox: residential land and new house prices surged while transaction volumes plummeted. We attribute this to local governments’ active price management through supply controls, land acquisitions by local government financing vehicles (LGFVs), and limits on new home sales permits. Cities more dependent on land sales and land-backed debt before the pandemic experienced greater price increases and price–volume divergence, with LGFVs buying more land at higher prices than other buyers. These interventions helped sustain fiscal financing but deepened developers’ financial distress, revealing unintended consequences of local governments’ fiscal strategies during downturns.

Suggested Citation

  • Jeffery (Jinfan) Chang & Yuheng Wang & Wei Xiong, 2026. "Price and Volume Divergence in China’s Real Estate Markets: The Role of Local Governments," The Review of Financial Studies, Society for Financial Studies, vol. 39(2), pages 343-386.
    • Handle: RePEc:oup:rfinst:v:39:y:2026:i:2:p:343-386.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaf089
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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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