Panel econometrics / China's economy
Bank credit and private-state investment
Provincial evidence from China's post-crisis credit expansion.
When bank lending grows, does state-owned-economy fixed-asset investment respond more strongly than private-enterprise investment?
The paper tests a prediction from the literature on China's financial system: state firms have better access to formal credit, while private firms rely more on internal funds. A 2007-2012 province-year panel stacks state and private investment as two observations per province-year.
The baseline difference is large, but the identification tests are uncomfortable. I report both.
01 / Model
One province, two ownership sectors
The interaction coefficient measures how much less, or more, private investment covaries with bank-loan growth than state investment in the same national period.
C is provincial bank-loan growth and G contains macro controls added sequentially. Province, year, and ownership fixed effects absorb persistent regional, national, and sector differences.
02 / Theory
Credit allocation and internal funds
Song, Storesletten, and Zilibotti motivate a private sector with productive firms but tighter formal-credit constraints. Allen, Qian, and Qian document private growth outside strong formal finance, while Cong and co-authors connect stimulus credit to state-linked firms.
If that mechanism appears in provincial aggregates, state investment should have a larger contemporaneous association with bank-loan growth. Private investment may instead move more with retained profits.
03 / Main estimates
The private-state gap survives controls
| Specification | State sensitivity | Private differential | Implied private | N |
|---|---|---|---|---|
| Base | 0.730*** | -0.673*** | 0.057 | 360 |
| + GDP | 0.765*** | -0.673*** | 0.093 | 360 |
| + Deposits | 0.794*** | -0.673*** | 0.122 | 360 |
| + Fiscal expenditure | 0.747*** | -0.598*** | 0.149 | 336 |
| + Government size | 0.521* | -0.598*** | -0.077 | 336 |
The state coefficient remains positive as controls enter. The private interaction is stable and negative, leaving the implied private sensitivity small and statistically insignificant. Standard errors are clustered by province.
04 / Diagnostics
The association is not the identification
| Specification | Private differential | p-value |
|---|---|---|
| Baseline + GDP growth | -0.673 | 0.0037 |
| Full sequential controls | -0.598 | 0.0064 |
| Ownership-specific year FE | -0.002 | 0.996 |
| Lead-loan placebo | -0.783 | <0.001 |
The first rows use contemporaneous bank-loan growth. The placebo uses future loan growth. Its significance and the null ownership-year specification rule out a strong causal interpretation.
05 / Mechanism
Private investment follows profits more closely
In a separate mechanism regression, the private differential on lagged industrial-profit growth is +0.095 (p = 0.026). That is consistent with private investment depending more on internal funds than state investment does.
Taken together, the results fit a state-biased credit-investment pattern during the post-crisis expansion. They do not isolate an exogenous credit-supply shock, and the baseline pattern appears tied to the stimulus years.
06 / Tools
Tools and sources
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