NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Financing of Local Government in China: Stimulus Loan Wanes and Shadow Banking Waxes

Zhuo Chen, Zhiguo He, Chun Liu

NBER Working Paper No. 23598
Issued in July 2017, Revised in October 2018
NBER Program(s):Corporate Finance, Development Economics, Economic Fluctuations and Growth, International Finance and Macroeconomics, Political Economy

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.

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Document Object Identifier (DOI): 10.3386/w23598

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