World prospers China: Chinese private firms with lending before the China–United States trade war

ABSTRACT

This research investigates whether the National 13th Five-Year Plan of China and economic-political uncertainty affects Chinese private firms on bank loan spreads. First, we find that banks charge a significantly lower loan spreads during the period, and slightly reverse the effect with higher economic-political uncertainty. Second, the non-Chinese lenders during the period charge lower loan spreads than Chinese banks. Finally, for private firms with lending from non-Chinese banks, the borrowers without enough search record obtain a favoured bank loan spread, and facilitate Chinese firms for the loan purpose of capital expenditures during the period. Overall, global banks prosper Chinese private firms due to China’s stable national policies.

KEYWORDS:

• Bank loan contracts
• financing cost
• political uncertainty
• emerging market

JEL CLASSIFICATION:

• G21
• G32
• G38

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Since March 2013, Donald Trump criticizes China: ‘After decades of our leaders allowing China to steal our jobs & R&D, the Chinese will “overtake America” in 2016’. The influence of his criticism on the Chinese economy may start from 2015 because he announces to compete on the position of party nominees for President of the United States. The anti-China policy and ‘Make America Great Again’ are the major slogan of his campaigns and occupy the electoral advantage during 2015.

² United States President Donald Trump in March 2018 began setting tariffs and other trade barriers on China with the goal of forcing it to make changes to what the U.S. says are ‘unfair trade practices’. Among those trade practices and their effects are the growing trade deficit, the theft of intellectual property, and the forced transfer of American technology to China. https://en.wikipedia.org/wiki/China%E2%80%93United_States_trade_war#2018

³ We also test the main macroeconomic variables (GDP per capita, inflation, and GDP growth) in China and get similar results. To save space, the results are available upon request.

⁴ We would like to thank the referee for this insightful suggestion.

⁵ The difference in coefficients possibly displays the commercial circumstances, but the main results still hold.

Additional information

Funding

Yin-Siang Huang appreciates financial support from Social Science Fund of Fujian Province, China [Project number: FWKQJ201901]. Any remaining errors are ours.