Chinese regulators have called for stress tests on loans to a range of industries, including cement and steel, whose fortunes are closely tied to property markets.

The tests, part of a broader investigation into banks' ability to withstand falls in housing prices, point to the government's determination to hold tightening policies in place until the property sector cools off.

The tests will probe the impact of a 60 percent plunge in prices, but analysts warned against reading too much into that extreme scenario, saying the market was likely to weaken but not collapse.

"The banking system has made quite a lot of loans to industries upstream and downstream from the real estate market and their risks are intimately connected to the real estate market," the Shanghai Securities News said.

China stepped up a tightening campaign earlier this year to squeeze any bubbles out of its red-hot property market, but while transactions have fallen, prices have not.

The China Banking Regulatory Commission declined to comment directly on reports of the stress tests.

But on its website it said that tests differed from bank to bank and formed part of continual efforts at risk management.

Hypothetical scenarios examined in stress tests did not reflect regulators' forecasts for the property sector and nor did they herald any change in policy, the CBRC added.

"The tests show the government is not happy with the current prices. Prices haven't been falling deeply enough," said Cao Xute, a property analyst with Sinolink Securities in Beijing.

"If prices don't fall in the next couple of months, the government could tighten further, through monetary and tax measures," he said.

Shares of developers listed on the Shanghai Stock Exchange fell about 3 percent over two sessions after the stress tests were reported, before paring some of those losses at the close of trading yesterday.

Capital spending

Shares of cement producers and steel makers climbed in line with the broader market's 1.4 percent gain.

The property sector is a pillar of China's economy, accounting for about a quarter of all capital spending, so a collapse in housing prices could reverberate widely.

Banks in seven cities, including Shanghai, Beijing and Shenzhen, have been asked to examine the impact of a fall in property values of up to 60 percent, the China Securities Journal reported, and they must submit the results before August 13.

Earlier stress tests showed that Chinese banks could sustain a drop in housing prices of up to 30 percent without a sharp rise in bad debt ratios.