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State-owned enterprises and entrusted lending: A DSGE analysis for growth and business cycles in China

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  • Shuonan Zhang

    (Portsmouth Business School)

Abstract

In this paper, we build and estimate a DSGE model to study how state-owned enterprises (SOEs) and entrusted lending affect growth and business cycles in China. Our model is featured SOEs being bank-favoured firms as well as policy tools, and more productive private firms (POEs) who can borrow from SOEs through entrusted lending. Our findings suggest SOEs dampen output volatility at the cost of TFP volatility. As policy tools, SOEs cause the expense larger than the dampening effect while a reverse case is found for SOEs being bank-favoured firms. In contrast, entrusted lending could dampen variations of both output and TFP by reallocating credits between SOEs and POEs, hence mitigating the cost of SOEs. Focusing on the recent growth slowdown in China, we further show that entrusted lending was conducive to both economic growth and TFP growth by mitigating capital misallocation.

Suggested Citation

  • Shuonan Zhang, 2020. "State-owned enterprises and entrusted lending: A DSGE analysis for growth and business cycles in China," Working Papers in Economics & Finance 2020-01, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    • Handle: RePEc:pbs:ecofin:2020-01
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    More about this item

    Keywords

    State-owned Enterprises; Shadow Lending; Resource Allocation; Financial Friction; Business Cycles;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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