The Spatial Correlation Effect of Real-Estate Financial Risk in China: A Social Network Analysis

Abstract

In this paper, we draw on real-estate finance data from 31 provinces in China over the period between 2006 and 2018 in order to develop a comprehensive index of real-estate finance risk. Our principal innovation lies in our use of the social network analysis method to portray the spatial correlation characteristics of real-estate financial risk dynamically. We find that (1) the spatial correlation effect of real-estate financial risks in China is increasing and exhibits multiple superposition characteristics and spatial spillover effects; (2) current trends in real-estate financial risk suggest that the eastern region has a strong contagion potential, that the middle region is highly vulnerable, and that the level of risk in the northwest is high; (3) the spatial network of real-estate financial risks in China can be divided into four functional blocks, namely a strong net-spillover block, a weak net-spillover block, a broker block, and a main damaged block. There is significant gradient transmission between them. The network structure of real-estate financial risks poses serious challenges to the formulation and implementation of regulatory policies. However, it creates favorable conditions for the construction of cross-regional risk prevention mechanisms as well as a practical basis for preventing systemic risks in the new era. (4) Meanwhile, the formation of a spillover network of real-estate financial risks is driven by the high dependence of local fiscal resources on land finance, not by local GDP growth.