| After decades of development, the real estate industry in China went from almost nonexistence during the planned economy era to a high-profiled business in contemporary times. Nowadays, as a highly capital intensive industry, it is interesting to notice that the real estate business is heavily dependent on bank capital, ranging from 70% to 80%(according to the existing literature). Under current circumstances, any variations of the banking system could trigger a direct influence on the real estate industry. More importantly, this high risk industry will impose huge capital risk to the finance industry and could have a profound impact on China's financial and economic safety. Poignant lessons can be learnt from the financial crisis in 2008. Therefore, the real estate price and the whole industry are now in the center of concerns of both the public and leaders.This phenomenon also attracts attention from the academic world. Existing literature is mainly focused on two primary issues:on one hand, scholars are interested in analyzing the influential elements of the determination of optimal capital structure, or deepening the research on the optimal capital structure itself; on the other hand, a lot of attentions are paid to the impacts of the capital structure on enterprise output, including the financial performance, stock performance and the management efficiency, etc. However, obvious deficiencies can be discerned from the current literature. For example, the existing research neglects the difference between industies. Considering the uniqueness of each industry's financial methods, such general study will inevitably result in imprecise conclusions. In addition, traditional research simply separates the financial methods into two categories:namely the equity financing and debt financing. Accordingly, the asset-liability ratio is often used as the main index of capital structure. But even debt financing could be further subcategorized into several types, which vary in financing cost, constraint condition and potential impacts.Based on the above background, this paper will focus on the real estate industry and specifically analyze the impacts of three subcategories of financial methods on corporate performance from the debt financing perspective, which could explain the reasons underlying the phenomenon of this industry's heavy reliance on bank capital. Furthermore, considering this reality, study will also be done to examine the influences of the variations of real estate loans on corporation's choice on financing mode. In fact, according to the empirical testing in this paper, the statistic of the dependence on bank capital is not as high as 80%. Other than the direct reliance on bank loans, there are two other important financial methods, namely the advance money paid by construction enterprises and the money raised through forward sale, which made the statistic appears to reflect a heavy reliance on bank capital. Therefore, even if the interest rate (as the major factor) fluctuates, its influence won't be as significant as the before-mentioned high dependence rate would be. This conclusion could help readjust the current regulation and control measures at the policy orientation level. Another finding of this paper is that, due to the relatively long construction cycle of the real estate industry (generally ranging from one and half years to three years), instead of the current stage's performance, it is the performance of the next stage that will be obviously influenced by the structure of financial methods used in the current stage. This is also in line with the characteristics of the real estate industry. |
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