The China Syndrome Affects Banks: The Credit Supply Channel of Foreign Import Competition (Updated February 2020)

60 Pages Posted: 21 Mar 2019 Last revised: 26 Feb 2020

Date Written: February 25, 2020

Abstract

Did the rise of Chinese import competition in the early 2000s affect banks’ credit supply policies? Using bank-firm-level data on the universe of Spanish corporate loans, we find that banks rebalanced their loan portfolios away from firms facing Chinese import competition and towards profitable firms in non-exposed sectors. Banks supplied more credit also to the construction sector, yet independently of firms’ profitability. This is not due to banks’ exposure to the housing boom. Rather, the high geographical concentration of the manufacturing industries competing with China left local banks with fewer alternatives to local construction firms for rebalancing their loan portfolios. The portfolio rebalancing had large real effects: it depressed further the economic activity of firms competing with Chinese imports, and contributed to the construction sector boom of the early 2000s.

Keywords: trade shock, credit register, banks’ portfolio reallocation, bank loans, real effects

JEL Classification: G21, G32, F65

Suggested Citation

Mayordomo, Sergio and Rachedi, Omar, The China Syndrome Affects Banks: The Credit Supply Channel of Foreign Import Competition (Updated February 2020) (February 25, 2020). Banco de Espana Working Paper No. 1908 (2019), Available at SSRN: https://ssrn.com/abstract=3357402 or http://dx.doi.org/10.2139/ssrn.3357402

Sergio Mayordomo (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Omar Rachedi

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
35
Abstract Views
513
PlumX Metrics