Are pro-SME credit policies effective? Evidence from shadow banking in China

Shen Guo, Guiting Lin and Alice Y. Ouyang

Economic Modelling, 2023, vol. 119, issue C

Abstract: This study examines the effectiveness of credit policies that favor small-and-medium-size enterprises (SMEs) with a focus on China's shadow banking market of entrusted loans. By constructing a pro-SME credit policy index and using the transaction-level entrusted loan data, we find that China's pro-SME credit policies led to a decline in the amount and interest rate of entrusted loans. This result indicates that credit policies encourage banks to lend more to SMEs, thus reducing SMEs' borrowing from the entrusted loan market. Specifically, window guidance and facilitating policies lower SMEs' reliance on entrusted loans more than regulatory subsidies. The heterogeneity analysis shows that firms not affiliated with lending firms, privately-owned firms, and firms in real estate and manufacturing sectors benefit more from the pro-SME credit policies. Our results suggest that helping SMEs gain access to formal banking credit is an effective way to reduce their reliance on the shadow banking system.

Keywords: Small-and-medium-size enterprises financing; Credit policies; Bank credit; Shadow banking; China (search for similar items in EconPapers)
JEL-codes: G21 G23 G28 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003522

DOI: 10.1016/j.econmod.2022.106115

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