Herrala: Credit availability in China: an empirical study of listed companies

Risto Herrala and Yandong Jia                                                                             
Incomplete draft, September 2011

 

Abstract
We study empirically credit supply to about 1800 Chinese listed non-financial companies during an eleven year period 2000-2010. The analysis sheds light on the operation of the credit channel, which plays a central role in monetary policy transmission in the Chinese economy. The analysis is based on a novel empirical approach, which builds on the theoretical literature on credit constraints.
    Our estimations confirm a marked improvement in credit availability across the Chinese industrial landscape. As a general trend, we find a significant increase of the sensitivity of credit supply to firm characteristics which indicates that, increasingly, credit supply is influenced by proper economic analysis of creditworthiness rather than government policy objectives.  The estimations yield strong evidence that banks have started to favor large firms over smaller ones. There has also been a shift in the effect of geography on credit availability. Earlier on, companies in eastern China had better credit availability than companies elsewhere, but such geographical differences are no longer observed. Worryingly, we find a strong improvement in credit availability to government firms relative to other firms.