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Biased Lending and Non-performing Loans in China's Banking Sector

Ding Lu (), Shandre Thangavelu and Qing Hu

Journal of Development Studies, 2005, vol. 41, issue 6, 1071-1091

Abstract: This article uses a panel data set of public listing companies in China empirically to explore the relationship between banks' lending behaviour and non-performing loans. Our results show that state-owned enterprises (SOEs) got more loans than other firms, other things being equal, and SOEs with high default risks were able to borrow more than the low-risk SOEs and non-SOEs. This suggests that Chinese banks had a systemic lending bias in favour of SOEs, particularly those with high default risks, during the period under investigation. The causes and implications of this behaviour are discussed.

Date: 2005
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Handle: RePEc:taf:jdevst:v:41:y:2005:i:6:p:1071-1091