We study empirically credit availability of listed firms in China for the years 2003-11 to uncover underlying trends in economic policies. The estimations indicate increasing favoritism of state-owned firms in credit availability, consistent with a drive toward "state capitalism." Initially, favoritism applied mainly to firms owned by the central government, but the difference between central and local government firms gradually diminished to insignificance. These results signal that economic policies pushed the Chinese economy from the path toward a market economy and state capitalism, and that the economic importance of local governments was growing.
A cornerstone of the Chinese growth model has been the opening up of its economy to private competition. Some observers claim that China has changed course since joining the WTO by increasingly promoting 'state capitalism', the large State Owned Enterprises, thereby compromising a growth model that has served it well. Due to the opaqueness of the Chinese system, even such a major shift in policy has been difficult to verify.We are able to look inside the covert policy process by studying the credit supply to Chinese listed companies, the drivers of the growth miracle, of the past decade. The econometric analysis corroborates the policy shift: we find a significant improvement in credit supply conditions of government firms relative to other firms during the latter part of the decade. The estimations also provide evidence of other major trends in credit supply that reflect the Chinese government's policy objectives.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.