The Financing of Local Government in China: Stimulus Loan Wanes and Shadow Banking Waxes

78 Pages Posted: 22 Feb 2017 Last revised: 27 Aug 2019

See all articles by Zhuo Chen

Zhuo Chen

Tsinghua University; Tsinghua University - PBC School of Finance

Zhiguo He

University of Chicago - Finance

Chun Liu

Tsinghua University - School of Economics and Management

Multiple version iconThere are 2 versions of this paper

Date Written: August 26, 2019

Abstract

The upsurge of shadow banking is typically driven by rising financing demand from certain real sectors. In China, the four-trillion-yuan stimulus package in 2009 was behind the rapid growth of shadow banking after 2012, expediting the development of Chinese corporate bond markets in the post-stimulus period. Chinese local governments financed the stimulus through bank loans in 2009, and then resorted to non-bank debt financing after 2012 when faced with rollover pressure from bank debt coming due. Cross-sectionally, provinces with greater bank loan growth in 2009 experienced more municipal corporate bond issuance during 2012–2015, together with more shadow banking activities including Trust loans and wealth management products. China's post-stimulus experience exhibits similarities to financial market development during the U.S. National Banking Era.

Keywords: Local Government Financing Vehicles, Municipal Corporate Bonds, Shadow Banking in China, Railroad Finance, Trust Companies

JEL Classification: E61, G21, H72, O17

Suggested Citation

Chen, Zhuo and He, Zhiguo and Liu, Chun, The Financing of Local Government in China: Stimulus Loan Wanes and Shadow Banking Waxes (August 26, 2019). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2920030 or http://dx.doi.org/10.2139/ssrn.2920030

Zhuo Chen (Contact Author)

Tsinghua University ( email )

43 Chengfu Road
Beijing, 100083
China

Tsinghua University - PBC School of Finance

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Zhiguo He

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://www.zhiguohe.com

Chun Liu

Tsinghua University - School of Economics and Management ( email )

Beijing, 100084
China

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