Working Paper: CEPR ID: DP7132
Authors: Sandra Poncet; Walter Steingress; Hylke Vandenbussche
Abstract: This paper uses a unique micro-level data-set on Chinese firms to test for the existence of a 'political-pecking order' in the allocation of credit. Our findings are threefold. Firstly, private Chinese firms are credit constrained while State-owned firms and foreign-owned firms in China are not; Secondly, the geographical and sectoral presence of foreign capital alleviates credit constraints faced by private Chinese firms. Thirdly, geographical and sectoral presence of state firms aggravates financial constraints for private Chinese firms ('crowding out'). Therefore it seems that ongoing restructuring of the state-owned sector and further liberalization of foreign capital inflows in China can help to circumvent financial constraints and can boost the investment of private firms.
Keywords: China; Firm Level Data; Foreign Direct Investment; Investment; Cash-Flow Sensitivity; Pecking Order
JEL Codes: E22; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| type of ownership (private vs. state-owned or foreign) (H13) | degree of financial constraints faced by firms (G32) |
| presence of foreign capital (F21) | credit constraints for private Chinese firms (G32) |
| presence of state-owned firms (L32) | credit constraints for private firms (G21) |