“The Financing of Local Government in China: Stimulus Loan Wanes and Shadow Banking Waxes”

“The Financing of Local Government in China: Stimulus Loan Wanes and Shadow Banking Waxes”

Zhuo Chen, Zhiguo He, Chun Liu

NBER Working Paper No. 23598

This paper links China’s recent fast-growing shadow banking activities to the four trillion stimulus package in 2009. Chen et al. zoom in on the composition shift of the liability side of China’s local governments, and show that the rollover pressure of bank loans that were taken on by local government finance vehicles in 2009 pushed them toward non-bank debt financing after 2012.