State-owned banks in credit stimulus: evidence from China

This paper studies the role of the four largest, traditional, state-owned banks (Big Four SOBs) during China's nationwide credit stimulus years (2009-10). We find that cities with a larger share of branches owned by the Big Four SOBs experienced larger local lending growth in credit stimulus. While the industrial/tradable sector was hit hardest by the global financial crisis, Big Four SOBs only fostered the expansion of the tertiary sector, which further led to temporary GDP growth. Consistently, we find that listed companies in cities with greater Big Four branch density also received more loan funding and invested more, yet their profitability showed no improvement in both the short and long run.