Bank Lending and Housing Prices in China: a Cross Region Study

Motivated by the frequently link between housing price volatility and banking crises, the paper investigates the nexus between housing prices and bank lending in China during 1999-2006, using panel data models covering 31 provinces and major cities. Empirical analysis suggests two main conclusions. First, there is a significant linkage between housing prices and bank lending. In particular, bank lending for housing consumption has a significant positive impact on housing prices inflation. Second, when we allow for regional special influence, bank credit expansion has a different effect on housing prices in the Western, Middle, and Eastern regions.