| The purpose of this paper is to explore the relationship between land finance and shadow banking.The development of land finance has brought a considerable amount of fiscal revenue and construction funds for the local government.However,with the current contraction of bank credit,the local government has to turn to shadow banks for additional finance support due to its dependence on land finance,which has increased government debts in a disguised form.There are three ways that the shadow bank system participates in the expansion of government debts: city investment bond,political-trust cooperation and entrusted loans.The local government's dependence on land finance,to a certain extent,contributes to the house price increase,which will attract financial institutions to invest in the property market through off-sheet operations.These off-sheet operations are difficult to monitor,making them part of the shadow banking system.Based upon the above,the paper tries to analyze the relationship of land finance and shadow banking using empirical study,namely,running a regression model between shadow banking and house prices as well as the scape of land finance.Empirical results show that land finance does have a positive impact on shadow banks,which is measured by 0.3281;that is,for every 1% land finance increases,shadow banking increases by 0.3281%.Besides,for each 1% additional rise in land finance,there is about 3.57 yuan per square meter increase in house prices on average.Further conclusion is that the direct effect of land finance towards shadow banking is 82.5%,whereas the indirect effect via the real estate market is 17.5%.Evidence provided,three suggestions are put forward in order to cope with the risks that the mechanism might produce:(1)Change land management patterns and raise real cash flows that lands can produce;(2)Accelerate the house property tax reform and improve social security housing;(3)Strengthen information disclosure and collective supervision on shadow banks. |
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