Monetary Policies and Bank Lending to China’s Real Estate Industry

Yigang Wei () and Zezhou Wu ()
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Yigang Wei: Tsinghua University
Zezhou Wu: The Hong Kong Polytechnic University

Chapter Chapter 92 in Proceedings of the 19th International Symposium on Advancement of Construction Management and Real Estate, 2015, pp 1121-1129 from Springer

Abstract: Abstract This research seeks to answer the question of whether the provision of bank loan is constrained in China’s real estate industry, when encountering a monetary stringency policy, and to comment on the effects of government’s financing controls on the property industry. This research is conducted mainly based on an examination of a mixture of banking and real estate related indicators from 1998 to 2010. A narrative approach is presented. Empirical findings confirm that bank lending to developers is driven by real estate investment—the demand for credit; rather than the traditional belief that supply of credit drives real estate investment. Further, it is found that housing price has a long-term bi-directional relation with development loan, which explains the incentive of bank lending behavior to the property industry. A narrative analysis indicates that restrictive monetary policies fail to constrain the abusive lending to the property industry. The futileness of monetary policies is mainly attributed to two aspects: the rapid increase of deposits and the development of the financial market, for example, the use of foreign loans and the issue of bonds through which banks increase liability under the backdrop of the tightened monetary policy. Since tightening the availability of bank loan is the main strand of approaches for the control of real estate activities in China, this research suggests the government to improve the policy by monitoring ongoing changes in financial development and the problems of affluent excessive deposits.

Keywords: Real Estate; Monetary Policy; Housing Price; Bank Credit; Bank Lending (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-662-46994-1_92

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DOI: 10.1007/978-3-662-46994-1_92

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