Credit Allocation Under Economic Stimulus: Evidence from China

By Lin William Cong, Haoyu Gao, Jacopo Ponticelli, Xiaoguang Yang. The Review of financial studies, 2019

431 citations recorded by the source corpus.

We study credit allocation across firms and its real effects during China’s economic stimulus plan of 2009–2010. We match confidential loan-level data from the nineteen largest Chinese banks with firm-level data on manufacturing firms. We document that the stimulus-driven credit expansion disproportionately favored state-owned firms and firms with a lower average product of capital, reversing the process of capital reallocation toward private firms that characterized China’s high growth before 2008. We argue that implicit government guarantees for state-connected firms become more prominent during recessions and can explain this reversal. Received August 23, 2017; editorial decision November 15, 2018 by Editor Philip Strahan.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/cd1ba7bcd79eb851ce896156400750115a3db19a

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In Accounting

1. Chun Chang
2. Zhuo Chen
3. C. Liu
4. Wei Xiong
5. Zhiguo He
6. Zheng Song
7. Arvind Krishnamurthy
8. Björn Imbierowicz

In Finance

1. Chun Chang
2. Jingyi Zhang
3. Zhuo Chen
4. C. Liu
5. Wei Xiong
6. Zhiguo He
7. Zheng Liu
8. Zheng Song

Citations in the corpus

• Risks in China's Financial System (2018, positive): “Cong and Ponticelli (2016) also show that new credit was allocated disproportionally more towards state-owned, low productivity firms than to privately-owned, high-productivity firms, reversing the prior trend of efficient reallocation.”
• The financing of local government in China: Stimulus loan wanes and shadow banking waxes (2020, background): “12Heavy infrastructure investment in 2009, which could be considered as part of the long-standing urbanization plan in China, is consistent with the rising land prices around 2009-2010 (Deng et al. (2015)), even without heated residential lending (to the household sector).”
• Reserve requirements and optimal Chinese stabilization policy (2017, background): “It is well known that shadow banking involves a tradeoff between reduced intermediation costs and increased risks to financial and macroeconomic stability (Gorton and Metrick, 2010; Verona, Martins and Drumond, 2013; Elliott et al., 2015). China’s shadow bank lending increased by over 30 percent per”
• Special Deals with Chinese Characteristics (2019, neutral): “See also Cong et al. (2018) and Huang, Pagano, and Panizza (2019) for evidence of capital misallocation after 2008.”