Evaluating the Effectiveness and Efficiency of the Four-trillion Yuan Stimulus Package: Evidence from Stock Market Returns of Chinese Listed A Shares

Zhiguo Li and Xiaorong Zhang

Global Economic Review, 2014, vol. 43, issue 4, 381-407

Abstract: Using stock returns of individual Chinese A shares as dependent variables, we confirm that the 2008 global financial crisis hit China through the demand channel and find that the four-trillion yuan stimulus package had a larger and more lasting effect on stimulating the real economy than on encouraging stock market speculation. The package, implemented with tremendous credit expansion in 2009 and 2010, is both effective and efficient in facilitating the financing of firms' working capital, but has weaker effects on the financing of investments. Long-term capital allocation is not efficient in that it goes to firms that idiosyncratically invested heavily before the financial crisis but not to those that are in need of capital for investment determined by industry features. Specifically, state-owned companies are privileged in long-term financing but significantly underperform non-state-owned ones.

Date: 2014
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DOI: 10.1080/1226508X.2014.982319

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