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Title: Local Crowding Out in China

Author(s): Yi Huang, Marco Pagano and Ugo Panizza

Publication Date: September 2016

Keyword(s): China, credit constraints, Crowding out, investment and Local public debt

Programme Area(s): Financial Economics, International Macroeconomics and Finance and Macroeconomics and Growth

Abstract: In China, between 2006 and 2013, local public debt crowded out the investment of private �rms by tightening their funding constraints, while leaving state-owned �rms' investment una�ected. We establish this result using a purpose-built dataset for Chinese local public debt. Private �rms invest less in cities with more public debt, the reduction in investment being larger for �rms located farther from banks in other cities or more dependent on external funding. Moreover, in cities where public debt is high, private �rms'investment is more sensitive to internal cash �ow.

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Bibliographic Reference

Huang, Y, Pagano, M and Panizza, U. 2016. 'Local Crowding Out in China'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11489