But the government's stringent monetary policy could exert enormous pressure on property developers' ability to obtain loans. In the first half of this year, the central bank raised the reserve requirement ratio five times to 17.5 percent from 14.5 percent. This means that banks had to set aside 17.5 percent of their assets for the central bank, and they could not use these funds to issue loans. During this time, the central bank held 1.5 trillion yuan ($220 billion) in frozen funds from banks. In addition, it has issued an order that the aggregate amount of new loans at all financial institutions this year should not exceed 3.63 trillion yuan ($527 billion), the total for last year.

Ding said he believes the government's stringent monetary policy would force a number of small property developers out of the market, despite its positive effects of regulating the real estate market and enhancing the banks' risk controls.

Yi Xianrong, a researcher at the Chinese Academy of Social Sciences, said on his Web blog that the amount of real estate-related loans in the country, including loans issued to property developers and individuals, totaled only 5.1 trillion yuan ($747 billion). Because this amount only accounts for 17 percent of all loans, banks would not suffer a great deal if the housing market were to collapse, he wrote.

Yi also said home prices in China would fall during the rest of the year and into 2009. If the country's overall economic performance goes well, falling home prices will not pose much danger to the banking system. Assuming that all individual loans would be non-performing ones, the non-performing loan ratio of the entire banking system would increase by 11 percent. But this would be no cause for alarm, because the non-performing loan ratio previously had hit 40 percent at its peak, he wrote.

Not everyone shares Yi's view. Qiu Zhicheng, a senior analyst at Haitong Securities Co. Ltd., said the banks should not ignore defaults on mortgage repayments simply because the amount of home mortgage loans was not large enough.

"If non-performing loans rise 5 percent, a bank may go bankrupt," he said to the National Business Daily. He added that at present, only home prices in south China's Pearl River Delta region, and especially in Shenzhen, are falling.

"But the situation is generally good in the whole country," Qiu said. "We have not seen substantial rises in non-performing loans." Nevertheless, he urged banks to take appropriate precautions before risks occur.