The Implementation of Central Bank Policy in China: The Roles of Commercial Bank Ownership and CEO Faction Membership

43 Pages Posted: 21 Feb 2023

See all articles by Michel Antoine Habib

Michel Antoine Habib

University of Zurich; Centre for Economic Policy Research (CEPR)

Yushi Peng

Tilburg University

Yanjie Wang

University of Zurich

Zexi Wang

Lancaster University

Date Written: February 17, 2023

Abstract

We examine the roles of bank ownership and CEO political faction membership in facilitating or hindering the implementation of central bank policy in China. Specifically, we examine the response of China’s commercial banks to People’s Bank of China (PBC) guidelines intended to decrease mortgage lending and to slow down the rise in residential property prices. We find that both bank ownership and faction membership matter. Central government-owned banks whose CEOs are members of the specialist finance faction within the Chinese Communist Party (CCP) respond most strongly to PBC guidance, whereas provincial or city government-owned banks whose CEOs are members of a generalist faction respond least strongly. The implementation of PBC policy has real effects: in those cities where central government-owned banks with specialist CEOs constitute a larger percentage of total bank branches, house prices grew more slowly, as did the number of residential real estate transactions and the number of new listings. Where in contrast provincial and city government-owned banks with generalist CEOs dominate, the number of transactions grew faster; the rate of house price appreciation and the number of listings were however unaffected. We conclude that China’s different levels of government and the CCP’s different factions enjoy some discretion in responding to PBC guidance and that they exploit the discretion they are afforded to vary the strength of their response.

Keywords: Government bank ownership, CEO political faction membership, Central bank policy, Window guidance, Mortgage lending, Real estate markets

JEL Classification: E58, G21, R30

Suggested Citation

Habib, Michel Antoine and Peng, Yushi and Wang, Yanjie and Wang, Zexi, The Implementation of Central Bank Policy in China: The Roles of Commercial Bank Ownership and CEO Faction Membership (February 17, 2023). Swiss Finance Institute Research Paper No. 23-14, Available at SSRN: https://ssrn.com/abstract=4364918 or http://dx.doi.org/10.2139/ssrn.4364918

Michel Antoine Habib (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Yushi Peng

Tilburg University ( email )

P.O. Box 90153
Tilburg, Noord-Brabant 5000 LE
Netherlands

Yanjie Wang

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Zexi Wang

Lancaster University ( email )

Lancaster University Management School
Bailrigg
Lancaster, LA1 4YX
United Kingdom

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