Credit Allocation Under Economic Stimulus: Evidence from China

56 Pages Posted: 19 Feb 2018 Last revised: 4 Sep 2018

See all articles by Lin William Cong

Lin William Cong

University of Chicago - Booth School of Business

Haoyu Gao

Central University of Finance and Economics (CUFE)

Jacopo Ponticelli

Kellogg School of Management - Department of Finance

Xiaoguang Yang

Chinese Academy of Sciences (CAS)

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Date Written: August 20, 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 high growth before 2008. We argue that implicit government guarantees favoring state-owned 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 (August 20, 2018). Buffett Institute 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

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Haoyu Gao

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

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Jacopo Ponticelli (Contact Author)

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
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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