State-owned enterprises and entrusted lending: economic growth and business cycles in China
State-owned enterprises and entrusted lending: economic growth and business cycles in China
A key economic structure in China is the co-existence of state-owned enterprises (SOEs) being bank-favored firms as well as policy tools, and more productive private firms who can borrow from SOEs through entrusted lending. We explore macroeconomic implications of such a structure in China. Our findings suggest SOEs dampen output volatility at the cost of productivity volatility. In contrast, the healthy development of entrusted lending dampens variations of both output and productivity by reallocating credits between firms. Focusing on the recent growth slowdown in China, we further show conducive effects of entrusted lending on economic growth by mitigating capital misallocation.
DSGE, financial friction, resource allocation, shadow lending, SOEs
197-222
Zhang, Shuonan
093a5840-cc2a-4306-9eff-522daca9a79f
January 2024
Zhang, Shuonan
093a5840-cc2a-4306-9eff-522daca9a79f
Zhang, Shuonan
(2024)
State-owned enterprises and entrusted lending: economic growth and business cycles in China.
Economic Inquiry, 62 (1), .
(doi:10.1111/ecin.13174).
Abstract
A key economic structure in China is the co-existence of state-owned enterprises (SOEs) being bank-favored firms as well as policy tools, and more productive private firms who can borrow from SOEs through entrusted lending. We explore macroeconomic implications of such a structure in China. Our findings suggest SOEs dampen output volatility at the cost of productivity volatility. In contrast, the healthy development of entrusted lending dampens variations of both output and productivity by reallocating credits between firms. Focusing on the recent growth slowdown in China, we further show conducive effects of entrusted lending on economic growth by mitigating capital misallocation.
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Economic Inquiry - 2023 - Zhang
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Accepted/In Press date: 28 July 2023
e-pub ahead of print date: 21 August 2023
Published date: January 2024
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Funding Information:
I would like to thank the co-editor William Branch and two anonymous referees whose suggestions greatly improved the paper. I also thank Lester C Hunt, King Y Lim, Yizhi Wang, and my colleagues at the University of Portsmouth and the University of Manchester, as well as participants at WEAI2021 International Conference, RES2021 Annual Conference, 28th SNDE Annual Conference, 22nd INFER Annual Conference, and 7th International Conference on the Chinese Economy (Tsinghua). This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.
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© 2023 The Authors. Economic Inquiry published by Wiley Periodicals LLC on behalf of Western Economic Association International.
Keywords:
DSGE, financial friction, resource allocation, shadow lending, SOEs
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Local EPrints ID: 481797
URI: http://eprints.soton.ac.uk/id/eprint/481797
ISSN: 0095-2583
PURE UUID: af7895d0-fa17-4fec-962c-35129cbf0a3c
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Date deposited: 08 Sep 2023 16:31
Last modified: 17 Mar 2024 04:17
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Shuonan Zhang
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