China's central bank, the People's Bank of China, says the real estate industry is absorbing too much of the country's capital, causing government attention.

"Real estate financing is making up a bigger and bigger share of the country's financial sector. The health of real estate financing is of critical importance to the health of the financial sector. We must pay close attention to developments in both the real estate industry and home financing sectors," Wu Xiaoling, deputy governor of the central bank, told a seminar on Tuesday.

Housing prices have continued to soar, despite the government's year-long efforts to stabilize prices and this has sparked grave concern that a housing bubble might burst.

According to Wu, Chinese banks' lending to the real estate sector stood at 3.07 trillion yuan (US$380 billion) by the end of 2005, accounting for 14.84 percent of all Renminbi lending by China's financial institutions. This is equivalent to 16.75 percent of the country's gross domestic product (GDP) in 2005.

The lending to individual house buyers by China's commercial banks in 2005 totaled 1.84 trillion yuan (US$230 billion), which account for 8.9 percent of the banks' total Renminbi lending. It is equivalent to 10 percent of the GDP.

Wu maintained that China has established a suitable market-driven real estate system and a bank-loan-dominated housing finance system following two decades of reforms and experiments.

However, she said the country's housing finance system is still dogged by many unsolved issues, such as lack of proper form of lending for lower-income house buyers and the over-concentration of risk in the banks.

The deputy governor noted that the bursting of the housing bubbles in Hong Kong and Japan produced a disastrous effect on their economies, and central banks in the region have been closely watching the sector since then.

"The central bank must accelerate its research on housing finance and work for the healthy development of the sector," she said.

Editor: Yan