International Journal of Financial Management

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Regional Heterogeneity, Monetary Shock, and Bank Lending: Evidence from Chinese Real Estate Market


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1 Associate Professor, The Department of Accounting, Economics, and Finance, Houston Baptist University, Texas, USA, United Kingdom
     

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This paper investigates whether the Chinese real estate price rise is a national monetary shock and driven mainly by monetary shocks, or is controlled by the regional governments and driven mainly by local bank lending activities. The paper attempts to reveal how the determinants on residential property prices differ from those of the commercial property prices. Using both cross-sectional OLS regression and dynamic GMM method, it shows that, historically, movements in Chinese house prices have strong regional heterogeneity, meaning that they have mainly been driven by the local (provincial or region-specific) components, rather than nation-wide components. In addition, the local income level is a strong candidate in explaining the housing price movements. The paper extends prior literature by shedding light on the current debate that increases in house prices in China reflect a national phenomenon, rather than a collection of “local bubbles”. In addition, the paper empirically addresses the role of monetary shock and bank lending activities in the Chinese real estate market.

Keywords

Chinese Real Estate, Monetary Policy, Bank Lending, Regional Heterogeneity
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  • Regional Heterogeneity, Monetary Shock, and Bank Lending: Evidence from Chinese Real Estate Market

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Authors

Yongli Luo
Associate Professor, The Department of Accounting, Economics, and Finance, Houston Baptist University, Texas, USA, United Kingdom

Abstract


This paper investigates whether the Chinese real estate price rise is a national monetary shock and driven mainly by monetary shocks, or is controlled by the regional governments and driven mainly by local bank lending activities. The paper attempts to reveal how the determinants on residential property prices differ from those of the commercial property prices. Using both cross-sectional OLS regression and dynamic GMM method, it shows that, historically, movements in Chinese house prices have strong regional heterogeneity, meaning that they have mainly been driven by the local (provincial or region-specific) components, rather than nation-wide components. In addition, the local income level is a strong candidate in explaining the housing price movements. The paper extends prior literature by shedding light on the current debate that increases in house prices in China reflect a national phenomenon, rather than a collection of “local bubbles”. In addition, the paper empirically addresses the role of monetary shock and bank lending activities in the Chinese real estate market.

Keywords


Chinese Real Estate, Monetary Policy, Bank Lending, Regional Heterogeneity

References