The SOE Premium and Government Support in China’s Credit Market

65 Pages Posted: 30 Oct 2019 Last revised: 19 Mar 2021

See all articles by Zhe Geng

Zhe Geng

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Jun Pan

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); National Bureau of Economic Research (NBER); China Academy of Financial Research (CAFR)

Date Written: March 15, 2021

Abstract

Studying China’s credit market, we find improved price efficiency and paradoxically, worsening segmentation as, amid government-led credit tightening, perceived government support for state-owned enterprises (SOEs) causes the credit spreads of non-SOEs to explode relative to their SOE counterparts, deepening the already existing SOE premium. This segmentation, driven by the emergence of government support in credit pricing beyond the SOE label, also divides the content of price discovery, with non-SOE significantly more informative of credit quality and SOE more sensitive to government support. Examining its real impact, we find that non-SOEs are losing their long-standing advantage over SOEs in profitability and efficiency.

Keywords: SOE Premium, Government Support, Credit Risk, Price Discovery, Chinese Corporate Bond

JEL Classification: G12, G14, G18

Suggested Citation

Geng, Zhe and Pan, Jun, The SOE Premium and Government Support in China’s Credit Market (March 15, 2021). Available at SSRN: https://ssrn.com/abstract=3473544 or http://dx.doi.org/10.2139/ssrn.3473544

Zhe Geng

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Jun Pan (Contact Author)

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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