Governmental Interactive Strategies for Urban Real Estate Investment in China: An Analysis of the Promotion Tournament Model

Abstract

China’s central government has chosen the real estate industry as a pillar industry for achieving rapid economic growth. Local city governments also generally enlarge their scales of urban real estate investment to boost their political performance within the Chinese promotion tournament. To identify and separate the governmental interactive strategy of a particular city from the spatial dependence effects of urban real estate investment in its neighboring cities, we applied empirical data to various spatial econometric models with different spatial weighting matrices that incorporated the physical distances between cities and the differences in their population sizes and administrative divisions. There is evidence of spatial dependence effects. In terms of both population size and administrative divisions, these effects are mainly the result of governmental interactive strategies in addition to the First Law of Geography. Such strategies are positive and complementary because a city makes corresponding decisions to increase its real estate investments as its neighboring cities increase their scales of urban real estate investment.