Working Paper: NBER ID: w23598
Authors: Zhuo Chen; Zhiguo He; Chun Liu
Abstract: China’s four-trillion-yuan stimulus package fueled by bank loans in 2009 has led to the rapid growth of shadow banking activities after 2012. Local governments financed the stimulus through bank loans in 2009, and resorted to non-bank debt financing after 2012 given the rollover pressure from bank debt coming due, a manifestation of the stimulus-loan-hangover effect. Cross-sectionally, provinces with greater bank loan growth in 2009 experienced more Municipal Corporate Bonds issuance during 2012-2015, together with more shadow banking activities including Entrusted loans and Wealth Management Products. We highlight the market forces behind the regulation changes on local government debt post 2012.
Keywords: China; Local Government Financing; Shadow Banking; Stimulus Package
JEL Codes: F62; F63; G23; O16; O17; O53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2009 stimulus loans (H81) | MCB issuance (G24) |
| bank loans (G21) | shadow banking activities (G21) |
| bank loans (G21) | local government debt (H74) |
| local government debt (H74) | shift to non-bank debt financing (G21) |
| MCB issuance (G24) | rollover pressure (L97) |