Urban Network Capital: How do Chinese Cities Grow in a Networked Economy?


After four decades’ rapid growth, China’s economy is entering a consolidation phase in which industrial restructuring activities are substantially intensified. Enormous capital flows between cities have created a complex inter-urban network that becomes intriguing and significant to understand China’s urban dynamics in the new development era. The primary question this research seeks to answer is whether urban growth is driven by a networked economy underpinned by inter-city capital flows. Urban network capital refers to the connections a city has with other cities that enable virtual, rather than physical, exchange of information, thoughts, knowledge and capital. It serves to bridge the gap between mobile capital flows and immobile local market. This research will utilize Mergers and Acquisitions (M&A) of firms in China as a proxy of capital flows to construct an inter-urban capital network. The results of this research will help urban planners and enterprises clarify their cities’ strategic positions and formulate policies to strengthen urban competitiveness.


  1. Unveil China’s underlying inter-urban capital network through tracing the M&A capital flows.
  2. Establish empirical models to examine the relationship between network capital and urban growth.
  3. Provide theoretical implications on the nexus between mobility and immobility in urban development and policy implications on improving urban competitiveness.

Initial Results:

  1. In the economic network space, outperforming cities, particularly Beijing, Shanghai and Shenzhen, hold most of the network resources, while other cities are at a disadvantage to compete, illustrating a centralised core-periphery pattern.
  2. network capital is significantly related to urban growth attuned to flow directions and network positions.
  3. network capital and local agglomeration factors are interactive in the process of economic growth, illuminating an emergent networked agglomeration economy.

Initial Discussions:

  1. Although the transportation cost has been largely reduced, building distant economic linkages requires a higher threshold and additional maintenance costs to overcome the barriers created by information asymmetry and heterogeneous institutional settings. The threshold will grant competitive edges to big enterprises equipped with powerful search abilities and business resources as well as the cities where they are spatially clustering in, which ultimately leads to further regional divergence.
  2. The results add weight to the proposition that urban economic growth is increasingly realised by the growth of capital flow networks, indicating that the network capital is an unneglectable composite of the economic growth function.
  3. Urban development patterns are reshaped by the dynamic interplay between agglomeration and network externalities. the underlying mechanism of urban development should be seen as an evolutionary and adaptive process in which cities interact and adapt to each other attuned to their localised attributes instead of the simple sum of the properties of city nodes and their direct interlinkages.
  4. policy implications should focus on improving cities’ institutional organizing capacity towards important flows in order to ‘borrow’ positive spillovers from strategic networks and counter ‘agglomeration shadows’. Policies demands a ‘place-based’ and ‘coordinative’ perspective under a networked agglomeration economy, particularly in terms of the local moderators of network capital (e.g. policies on local education and R&D development).

The Impact of Public-sector-led Urban Renewal Projects on nearby Housing Prices in Densely Populated Areas

Principal Investigator: K.W. CHAU (PI), S.K. WONG (Co-I)
Funding body: GRF


This study investigates how public-sector-led urban renewal projects affect the prices of housing units in the vicinity of the urban renewal project.

Besides the well-known positive external effect of urban renewal, this project also aims at examining its potential negative impact on nearby older buildings. We conjecture that, other things being equal, the prices of nearby older buildings that are not included in the public-sector-led redevelopment project are likely to be lowered. This is because a significant portion of the market value of an aged building is derived from its real option to redevelop. This value will decline if the building has not been included in a nearby public-sector-led urban renewal project. This study uses empirical data from Hong Kong to test the positive and negative impacts of these urban renewal projects on the prices of nearby housing units.


  1. To investigate the positive impact of urban renewal projects on prices of nearby housing units.
  2. To review theory related to modeling a property’s real option value of redevelopment.
  3. To apply the theory reviewed in (2) to analyze the potential negative impact of urban redevelopment projects on prices of nearby housing units.
  4. To construct a dataset for testing the positive and negative impact of urban redevelopment projects on nearby housing price.
  5. To carry out empirical tests on the positive and negative impact of urban redevelopment projects on nearby housing price.
  6. To test how redevelopment real option affects the formation of housing prices in a high density urban area.

Experimental Work

The following model is estimated using transaction records of units within 200m of completed URA projects:

ln(RPt) = β0 + β1ln(AGE) + β2ln(GFA) + β3ln(FL) + β4T + β5T·COM + β6T·SA + β7T·ln(AGE) + β8ln( AGE) ·DD + εt


RPt = transaction price of a property in the vicinity of a redeveloped site, which is obtained by deflating the nominal transaction price by the relevant HKU-REIS price index at time t; AGE = the age of the property in years;
GFA = Gross Floor Area of the property in m2; FL= floor level of the property; T = dummy variable equals to 1 after the announcement of a redevelopment project and 0 otherwise; COM = commercial floor areas (in thousands of m2) of the redevelopment project; SA = areas of redevelopment site; DD = distance between the redevelopment project and the nearby building
βi= coefficients to be estimated; and ε = error term


Real housing prices decrease with building age [ln(AGE)], but increase with the flat size [ln(GFA)] and floor level [ln(FL)]. The announcement of an urban renewal project (T) has an overall positive impact on nearby property prices. The positive impact increases with size of the URA project [T.SA] and the size of the commercial elements in the project [T.COM]. The urban renewal has a negative impact on redevelopment option value of nearby housing units [T.ln(AGE)] and the effect diminishes as the distance from the URA project increases [T*ln(AGE)*DD].

Granger Causality Analysis of Land Supply and Housing Market Performance: Implications for Long Term Urban Land Policy in Hong Kong

Principal Investigator: L.H. LI (PI), S.K. WONG (Co-PI)
Funding body: PPR


Property prices have since the SARS attack in 2003 risen to a record high level in 2012 in Hong Kong . This unprecedented and sustained increase of housing price is attributable to a lot of factors, among them the allegation of “high land price policy” adopted by the government. Despite the political controversies behind this allegation, it is a fact that land supply in Hong Kong is limited and that impacts on the housing production in the city. However, for a long term and sustainable urban land policy to be formulated, it is imperative to establish the causal relationship between the land supply mechanism and the overall housing market performance (in terms of price movements and housing supply) first. This project looks at this causal relationship since 1980 by means of a Granger Causality model . We need to understand how land supply by the government via the public land sale programmes affects general housing prices, as well as specific sub-sector in the housing market, in terms of magnitude and time lag effect. Since the government has direct control over government land sale, this examination allows the authority to estimate their land supply policy on impact of market housing price level more effectively.


  1. This proposal examines the relationship between the overall land supply mechanism and the housing market. The examination concentrates on the correlation between land supply from government and housing price.
  2. The project intends to establish the causality correlation between land supply from government channel and housing price changes.
  3. This project intends to propose urban land policies that can deal with housing supply and affordable housing issues.


In this project, we use housing units completed on land supplied via government land sale programme as a proxy for land supply. Our dataset consists of the new residential housing supply estimated from the Government land sale and the private housing prices in Hong Kong. The dataset runs from the first quarter (Q1)1987 to the last quarter (Q4) of 2012. Land sale refers to the sale of land to developers from the government for residential development.

Over the 25-year period, the new housing supply generated from government land sale did not Granger-cause housing prices or vice versa in Hong Kong. Our results of an insignificant relationship between new housing supply and housing prices for the entire sample period from 1987 to 2012 is in line with our hypothesis that Government land sales comprise only a small portion of the housing stock.

On the other hand, a significant unidirectional causality result from housing prices to new housing supply is identified in subsample time periods, in particular after the Application List system was formally adopted and fully operational as the official channel for selling land in Hong Kong.


Hence, ceteris paribus whilst the supply of new land sites via the Government land sale programme are more responsive to housing price movements subsequent to the implementation of Application List due to the demand-oriented nature of the system which induces developers to apply for more land when housing prices are increasing. We find that higher housing price does Granger-cause an increase in housing units supplied from government land sale programme during that period.

The analyses of the correlation provide government with adequate empirical data support to streamline different sources of land supply directly or indirectly controlled by the authority. Urban land policy priority can then be formulated so that sustainable land development can be achieved.