Rise of Bank Competition: Evidence from Banking Deregulation in China

62 Pages Posted: 15 Dec 2017 Last revised: 24 Sep 2018

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)

Date Written: September 16, 2018

Abstract

Using proprietary individual level loan data and population bank branch data, this paper documents the economic consequences of the 2009 bank entry deregulation in China. We find that the deregulation leads to higher screening standards, lower interest rates, and lower delinquency rates of the loans from the new entrant banks. The incumbent state-owned banks do not respond much to the deregulation. Consequently, for the firms with bank credit access, the deregulation leads to increases in asset investment, employment, net income, and ROA in deregulated cities. These positive effects on loan terms and firm activities are more pronounced for private firms than state-owned enterprises (SOEs). In contrast, the deregulation amplifies bank credit from productive private firms to inefficient SOEs due mainly to SOEs’ soft budget constraint. This unintended adverse effect accounts for 0.31% annual GDP loss.

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 (September 16, 2018). 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

Register to save articles to
your library

Register

Paper statistics

Downloads
170
rank
164,748
Abstract Views
541
PlumX