IS THERE EVIDENCE OF A REAL ESTATE COLLATERAL CHANNEL EFFECT
ON LISTED FIRM INVESTMENT IN CHINA

Is There Evidence of a Real Estate Collateral Channel Effect on Listed Firm Investment in
China?
Jing Wu, Joseph Gyourko, and Yongheng Deng
NBER Working Paper No. 18762
February 2013
JEL No. E22,G11,G31,R11,R3,R39
ABSTRACT
Previous research on the United States and Japan finds economically large impacts of changing real
estate collateral value on firm investment. Working with unique data on land values in 35 major Chinese
markets and a panel of firms outside the real estate industry, we estimate investment equations that
yield no evidence of a collateral channel effect. One reason for this stark difference appears to be
that some of the most dominant firms in China are state-owned enterprises (SOEs) which are unconstrained
in the sense that they do not need to rely on rising underlying property collateral values to obtain all
the financing necessary to carry out their desired investment programs. However, we also find no
collateral channel effect for non-SOEs when we perform our analysis on disaggregated sets of firms.
Norms and regulation in the Chinese capital markets and banking sector can account for why there
is no collateral channel effect operating among these firms. We caution that our results do not mean
that there will be no negative fallout from a potential real estate bust on the Chinese economy. There
are good reasons to believe there would be, just not through a standard collateral channel effect on
firm investment.
Jing Wu
Institute of Real Estate Studies
Tsinghua University
100084 Beijing, P.R.China
ireswujing@tsinghua.edu.cn
Joseph Gyourko
University of Pennsylvania
Wharton School of Business
3620 Locust Walk
1480 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6302