Credit Allocation Under Economic Stimulus: Evidence from China

58 Pages Posted: 19 Feb 2018 Last revised: 7 Feb 2020

See all articles by Lin William Cong

Lin William Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management

Haoyu Gao

Renmin University of China

Jacopo Ponticelli

Northwestern University - Kellogg School of Management; NBER

Xiaoguang Yang

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science

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Date Written: November 1, 2018

Abstract

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 19 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 lower average product of capital, reversing the process of capital reallocation towards 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.

Keywords: credit, credit allocation, credit expansion, firms, China, capital, growth, recessions

Suggested Citation

Cong, Lin and Gao, Haoyu and Ponticelli, Jacopo and Yang, Xiaoguang, Credit Allocation Under Economic Stimulus: Evidence from China (November 1, 2018). Global Poverty Research Lab Working Paper No. 17-108, Available at SSRN: https://ssrn.com/abstract=3126489 or http://dx.doi.org/10.2139/ssrn.3126489

Lin Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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

Haoyu Gao

Renmin University of China

Mingde main building
Haidian district, No. 59,
Beijing, Beijing 100872
China

Jacopo Ponticelli (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2211 Campus Dr
Evanston, IL 60208
United States

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/ponticelli/index.html

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Xiaoguang Yang

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science ( email )

Beijing
China

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