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Chinese Corporate Debt and Credit Misallocation

Author

Listed:
  • Ninghua Zhong

    (School of Economics and Management Tongji University 1239 Siping Road, Shanghai P.R. China 200092)

  • Mi Xie

    (School of Economics and Management Tongji University 1239 Siping Road, Shanghai P.R. China, 200092)

  • Zhikuo Liu

    (China Public Finance Institute & School of Public Economics and Administration Shanghai University of Finance and Economics 777 Guoding Road, Shanghai P.R. China, 200433)

Abstract

This paper analyzes various data, especially that of 4 million Chinese manufacturing company samples during the period of 1998 to 2013, to present detailed evidence regarding two questions of China's leverage issue. First, where is the leverage? We find that within the 16-year period, most sample firms have been significantly deleveraged, with the average leverage ratio declining from 65 percent in 1998 to 51 percent in 2013. In contrast, only several thousand companies have significantly leveraged, mostly large-scale, state-owned, listed firms. Second, has the change of leverage been supported by the firms’ fundamentals? We find that for private firms, changes of firm characteristics are consistent with their leverage changes, whereas firm-level factors can hardly explain the leverage of state-owned enterprises. We provide further evidence from aggregate-level data, which suggest that the huge amount of credit being allocated to the state sector is the reason for the declining credit efficiency in China.

Suggested Citation

  • Ninghua Zhong & Mi Xie & Zhikuo Liu, 2019. "Chinese Corporate Debt and Credit Misallocation," Asian Economic Papers, MIT Press, vol. 18(1), pages 1-34, Winter/Sp.
    • Handle: RePEc:tpr:asiaec:v:18:y:2019:i:1:p:1-34
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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/asep_a_00652
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    References listed on IDEAS

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