Structural monetary policy and credit accessibility: a quasi-experiment of CERF in China

ABSTRACT

Can structural monetary policy (SMP) bolster green finance and carbon reduction? This paper uses the implementation of the Carbon Emission Reduction Facility (CERF) in China as a novel quasi-experimental framework and identifies firms with green credit projects as the treatment group through textual analysis. Employing a PSM-DID method, we find that the CERF significantly enhances loan accessibility for treated firms. This effect is more pronounced among financially constrained firms, private-owned enterprises, and those located in central and western China. Furthermore, the policy mainly facilitates short-term loans. Our findings underscore the benefits of SMP in promoting sustainable finance and providing additional credit to firms that are disadvantaged under aggregate monetary policy.

KEYWORDS:

• Structural monetary policy
• Carbon Emission Reduction Facility
• loan accessibility
• textual analysis

JEL CLASSIFICATION:

• E52
• Q58
• G31

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Within the toolkit of the People’s Bank of China (PBC), SMP has emerged as a pivotal component. SMP aims to drive loan provision to key areas that are in dire need of banking support, in which the green and low-carbon sectors have been prioritized to fuel economic growth and achieve the carbon peaking and carbon neutrality goals. See China Monetary Policy Report 2023–2: 18–20 (http://www.pbc.gov.cn/en/3688229/3688353/3688356/4756453/5099512/2023113010350373875.pdf).

² According to PBC news (http://www.pbc.gov.cn/en/3688229/3688299/3688305/4385345/index.html), under this facility, the PBC provides low-cost funds to financial institutions and guide the financial institutions to extend carbon-reduction loans at rates close to the loan prime rate (LPR) of the same maturity. For qualified carbon emission reduction loans, the PBC provides the commercial lenders with funds worth 60% of the principal at the rate of 1.75%.

³ The full name of CSMAR is China Stock Market & Accounting Research.

⁴ The document is sourced from a notice released by the China Banking Regulatory Commission in 2013 that precisely lists the categories and names of qualified green credit projects. The keywords collected from the document are specific and closely related to carbon emission reduction. Examples for each category of qualified projects are displayed in the Supplementary Material. For full contents, see https://www.cbirc.gov.cn/en/view/pages/ItemDetail.html?docId=68036&itemId=981.

⁵ This method is employed to alleviate the concern that the firms with and without qualified projects may be inherently different. We align control variables, the dependent variable, and both the one-period and two-period lagged dependent variables of treated firms with their counterparts using the nearest neighbour PSM method.

⁶ $\mathit{Trea}{t}_i$ and $\mathit{Pos}{t}_t$ are excluded to avoid perfect collinearity.

⁷ Such policies include the United Nations Principles for Responsible Banking, a globally significant agreement signed by over 330 banks worldwide.

⁸ The alternative measure of loan accessibility is the sum of long-term loans and short-term loans divided by total assets.

⁹ We respectively employ entropy balance weighting method and PSM aligning the control variables of treated firms with their counterparts.

¹⁰ Nowadays China is pursuing cheaper and more abundant financial resources for private firms. See the 2024 Report on the Work of the Government

(https://english.www.gov.cn/news/202403/13/content_WS65f0dfccc6d0868f4e8e5079.html).

¹¹ Central and western areas progress more slowly than eastern regions, and firms in these areas find it harder to acquire bank loans.

¹² There are abundant natural resources in central and western China, including land and renewable energy sources. Richness in resources offers substantial opportunities for green finance and low-carbon transformation.

Additional information

Funding

This study is supported by the National Natural Science Foundation of China (Grant number: 72203037, 72003031), and the Fundamental Research Funds for the Central Universities in UIBE (Grant number: 20QD14).