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SOEs as intermediation: Leakage effect under financial repression

Author

Listed:
  • Yao, Zhiyong
  • Gu, Dingwei
  • Cao, Wen

Abstract

This article sheds new light on the puzzle why and how China's economy and private sector can grow so remarkably despite serious financial repression and credit control. We show that there exists a “leakage effect”: State-owned enterprises borrow from banks with the official interest rate, and then relend their loans to private firms with the (black) market interest rate. When doing so, all parties involved are better off, and the inefficiency of financial repression is mitigated.

Suggested Citation

  • Yao, Zhiyong & Gu, Dingwei & Cao, Wen, 2019. "SOEs as intermediation: Leakage effect under financial repression," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 349-361.
    • Handle: RePEc:eee:pacfin:v:53:y:2019:i:c:p:349-361
    DOI: 10.1016/j.pacfin.2018.12.001
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    References listed on IDEAS

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    Cited by:

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    2. Guiting Lin & Alice Y. Ouyang, 2024. "Macroprudential policy leakage: Evidence from shadow banking activities of Chinese enterprises," Contemporary Economic Policy, Western Economic Association International, vol. 42(1), pages 160-182, January.

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    More about this item

    Keywords

    Relending activities; Financial repression; Leakage effect; Informal financing;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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