Chapter 3: The G-Factor: weighing the visible hand of government intervention
In this chapter we analyze the Chinese property market to comment on the applicability of the current property ‘market models’ in economics but also to discuss China, and the current state of its journey to capitalism. Using a straightforward empirical model and employing data collected on the market performance of the real estate industry for the period 2000–10, we find that ‘market models’ explain as little as 1 per cent of the variance in property sales in this seemingly relatively unregulated market. Adding a variable that accounts for government intervention to the model specification creates a ‘regulated market model’. The predictive power of the model soars to 87 per cent. In the ‘regulated market model’ the significance of the price system disintegrates: government supply, and not price, dominates market dynamics. We provide evidence for the important role of government’s ‘visible hand’ in the Chinese property market even in a sector that seems relatively free from government meddling.
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