The Implementation of Central Bank Policy in China: The Roles of Commercial Bank Ownership and CEO Faction Membership

Michel Antoine Habib, Yushi Peng, Yanjie Wang and Zexi Wang
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Michel Antoine Habib: University of Zurich; Centre for Economic Policy Research (CEPR)
Yushi Peng: London School of Economics and Political Science
Yanjie Wang: University of Zurich
Zexi Wang: Lancaster University Management School

No 23-14, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We examine the roles of bank ownership and CEO political faction membership in facilitating or hindering the implementation of central bank policy in China. Specifically, we examine the response of China’s commercial banks to People’s Bank of China (PBC) guidelines intended to decrease mortgage lending and to slow down the rise in residential property prices. We find that both bank ownership and faction membership matter. Central government-owned banks whose CEOs are members of the specialist finance faction within the Chinese Communist Party (CCP) respond most strongly to PBC guidance, whereas provincial or city government-owned banks whose CEOs are members of a generalist faction respond least strongly. The implementation of PBC policy has real effects: in those cities where central government-owned banks with specialist CEOs constitute a larger percentage of total bank branches, house prices grew more slowly, as did the number of residential real estate transactions and the number of new listings.Where in contrast provincial and city government-owned banks with generalist CEOs dominate, the number of transactions grew faster; the rate of house price appreciation and the number of listings were however unaffected. We conclude that China’s different levels of government and the CCP’s different factions enjoy some discretion in responding to PBC guidance and that they exploit the discretion they are afforded to vary the strength of their response.

Keywords: Government bank ownership; CEO political faction membership; Central bank policy; Window guidance; Mortgage lending; Real estate markets (search for similar items in EconPapers)
JEL-codes: E58 G21 R30 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2023-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cna, nep-mon and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2314

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