Excess liquidity and credit misallocation

Evidence from China

Bibliographic Data

ID12917875
AuthorsShiyuan Pan (0000-0002-4923-5666, Zhejiang University of Finance and Economics), Kang Shi (0000-0002-9976-4435, Chinese University of Hong Kong, corresponding author), Lisheng Wang (0000-0002-1240-5342, Chinese University of Hong Kong), Juanyi Xu (0000-0002-7270-554X, Hong Kong University of Science and Technology)
Year2017
Volume10
Issue3
Pages265-286
Publication date2017-09-02
Open AccessNo
TypeARTICLE
VenueChina Economic Journal (JOURNAL)
Journal identifiersISSN: 1753-8963 • E-ISSN: 1753-8971
PublisherRoutledge (PUBLISHER • GB)
DOI10.1080/17538963.2017.1370141
OpenAlexW3122385743
LanguageEN
References cited14

China’s M2/GDP ratio continues to rise despite having reached the highest tier in the world, but there is no consensus on its driving forces. In this paper, we investigate this puzzle empirically, using different levels of data. We first estimate the degree of the excess liquidity in China based on cross-country regressions. Our results show that China’s excess liquidity is 50 percent of that implied by the cross-country benchmark. Province-level evidence shows that credit misallocation between state-owned enterprises (SOEs) and private enterprises (PEs) may lead to credit inefficiency and hence generate excess liquidity. We further validate this finding using manufacturing firm-level data, and show that credit misallocation has deteriorated since the Four Trillion Yuan Stimulus Plan since 2008. These facts unveil more challenges for the ongoing deleveraging campaign and SOE reform

Business · China · Deleveraging · Economics · Financial crisis · Financial system · Inefficiency · Macroeconomics · Market liquidity · Microeconomics · Monetary economics · China's Socioeconomic Reforms and Governance · Global Financial Crisis and Policies · Italy: Economic History and Contemporary Issues

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