Finance Leases: A Hidden Channel of China’s Shadow Banking System

58 Pages Posted: 29 Jan 2021

See all articles by Jinfan Zhang

Jinfan Zhang

Chinese University of Hong Kong (Shenzhen)

Ting Yang

North China University of Technology

Yanping Shi

University of International Business and Economics (UIBE) - School of International Trade and Economics

Date Written: October 8, 2020

Abstract

By analyzing a hand-collected transaction-level dataset on the finance leases of China’s public firms for the period 2007-2019, this paper sheds light on China’s financial leasing industry. We find that banks use their affiliated leasing firms to provide credit to constrained clients in order to circumvent the government’s targeted monetary tightening policy, which offsets the expected decline in traditional bank loans in overcapacity industries and hampers the effectiveness of the monetary policy. Although this regulatory arbitrage may cause systemic risk at the macro level, bank-affiliated leasing firms exhibit much tighter risk control than other non-bank-affiliated leasing firms at the micro level, indicating that banks use finance leases as a channel to support their low-risk clients rather than to make excessive profit.

Keywords: Finance Lease, Shadow Banking, Relationship Lending, Regulation Arbitrage, Monetary Policy

JEL Classification: G23, G21, G28

Suggested Citation

Zhang, Jinfan and Yang, Ting and Shi, Yanping, Finance Leases: A Hidden Channel of China’s Shadow Banking System (October 8, 2020). Available at SSRN: https://ssrn.com/abstract=3725600 or http://dx.doi.org/10.2139/ssrn.3725600

Jinfan Zhang (Contact Author)

Chinese University of Hong Kong (Shenzhen) ( email )

Shenzhen
China

Ting Yang

North China University of Technology ( email )

Jinyuanzhuang No.5, Shijingshan District, Beijing
Beijing
China

Yanping Shi

University of International Business and Economics (UIBE) - School of International Trade and Economics ( email )

10 East Huixin Street
Chaouang District
Beijing, 100029
China

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