One way to illustrate this wealth effect is to
dig deeper into city level data.
We classifed 11
cities in Zhejiang province into “rich” and “poor”
groups based on their per capita output in 2015.
Both rich and poor cities have seen a recovery in
consumer confdence indicators since 2016, but
a more sizable consumer confidence recovery
was witnessed in the comparatively poorer cities.
The economic fundamentals cannot account for
the divergence in output growth. In fact, real
output growth was higher in the richer cities than
in the poorer ones. Instead what was decisive
was the path of property prices. The
comparatively richer cities imposed tighter
property price regulations in those cities whereas
the poorer ones have instead allowed prices to
At this micro level, it appears to show
that consumption is tied to wealth effects from
property price gains