Rise of Bank Competition: Evidence from Banking Deregulation in China

60 Pages Posted: 15 Dec 2017 Last revised: 26 Mar 2019

See all articles by Haoyu Gao

Haoyu Gao

Central University of Finance and Economics (CUFE)

Hong Ru

Nanyang Technological University (NTU)

Robert M. Townsend

Massachusetts Institute of Technology (MIT)

Xiaoguang Yang

Chinese Academy of Sciences (CAS)

Multiple version iconThere are 2 versions of this paper

Date Written: March 21, 2019

Abstract

Using proprietary individual level loan data, this paper explores the economic consequences of the 2009 bank entry deregulation in China. Such deregulation leads to higher screening standards, lower interest rates, and lower delinquency rates for corporate loans from entrant banks. Consequently, in deregulated cities, private firms with bank credit access increase asset investments, employment, net income, and ROA. In contrast, the performance of state-owned enterprises (SOEs) does not improve following deregulation. Deregulation also amplifies bank credit from productive private firms to inefficient SOEs due mainly to SOEs’ soft budget constraints. This adverse effect accounts for 0.31% annual GDP losses.

Keywords: Banking Deregulation; Credit Allocation; Growth; China

JEL Classification: G21, G28, L50, O40

Suggested Citation

Gao, Haoyu and Ru, Hong and Townsend, Robert M. and Yang, Xiaoguang, Rise of Bank Competition: Evidence from Banking Deregulation in China (March 21, 2019). Available at SSRN: https://ssrn.com/abstract=3087081 or http://dx.doi.org/10.2139/ssrn.3087081

Haoyu Gao

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Hong Ru (Contact Author)

Nanyang Technological University (NTU) ( email )

S3-B1A-07
50 Nanyang Avenue
Singapore, 639798
Singapore
(+65) 67904661 (Phone)

HOME PAGE: http://https://hongru.mit.edu/

Robert M. Townsend

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Xiaoguang Yang

Chinese Academy of Sciences (CAS) ( email )

52 Sanlihe Rd.
Datun Road, Anwai
Beijing, Xicheng District 100864
China

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