Chinese Real Estate Market Performance: Stock Market Linkages, Liquidity Pressures, and Inflationary Effects

Abstract

The 2009 surge in bank lending in China was accompanied by allegations of substantial funds being funneled into the nation's stock and property markets. This paper uses 1999-2011 data to examine the possible linkages between lending activity, real estate prices, stock prices and inflation. We find empirical support for housing prices responding to increases in liquidity and lending rates along with evidence of co-determination of stock prices and housing prices. House price inflation also appears to consistently impact the overall inflation rate in China based on both causality testing and VAR estimation.