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Are pro-SME credit policies effective? Evidence from shadow banking in China

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  • Guo, Shen
  • Lin, Guiting
  • Ouyang, Alice Y.

Abstract

This study examines the effectiveness of credit policies that favor small-and-medium-size enterprises (SMEs) with a focus on China's shadow banking market of entrusted loans. By constructing a pro-SME credit policy index and using the transaction-level entrusted loan data, we find that China's pro-SME credit policies led to a decline in the amount and interest rate of entrusted loans. This result indicates that credit policies encourage banks to lend more to SMEs, thus reducing SMEs' borrowing from the entrusted loan market. Specifically, window guidance and facilitating policies lower SMEs' reliance on entrusted loans more than regulatory subsidies. The heterogeneity analysis shows that firms not affiliated with lending firms, privately-owned firms, and firms in real estate and manufacturing sectors benefit more from the pro-SME credit policies. Our results suggest that helping SMEs gain access to formal banking credit is an effective way to reduce their reliance on the shadow banking system.

Suggested Citation

  • Guo, Shen & Lin, Guiting & Ouyang, Alice Y., 2023. "Are pro-SME credit policies effective? Evidence from shadow banking in China," Economic Modelling, Elsevier, vol. 119(C).
    • Handle: RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003522
    DOI: 10.1016/j.econmod.2022.106115
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    Cited by:

    1. Li, Weixue & Wang, Sipei & Cheung, Adrian (Wai Kong) & Xu, Changsheng, 2024. "Shadow banking, investment and interest rate transmission: Evidence from macroprudential policy in China," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 115-133.
    2. Lei, Ningze & Huang, Liqiang, 2023. "Corporate financing from shadow banking and bond credit spreads," Finance Research Letters, Elsevier, vol. 58(PB).
    3. Jiang, Chun & Chang, Ya-Qi & Ge, Xinyu & Si, Deng-Kui, 2023. "Identifying the impact of bank competition on corporate shadow banking: Evidence from China," Economic Modelling, Elsevier, vol. 126(C).

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    More about this item

    Keywords

    Small-and-medium-size enterprises financing; Credit policies; Bank credit; Shadow banking; China;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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