Implementation model of monetary policy, mismatch of finance, and constraints on enterprise's investment in China

YU Ze1,2 LU Yizhou3 WANG Wenda4

(1.School of Economics at Renmin University of China)
(2.Collaborative Innovation Center for China Economy )
(3. HUAXIA BANK)
(4.Hanqing Advanced Institute of Economics and Finance at Renmin University of China)

【Abstract】In recent years, there is an accelerating rate of decrease in the investment into fixed assets in China. China needs to stabilize its investment for both a stable growth and industrial structure adjustment. This article uses data from listed companies and reveals that one of the main factors that affect corporate investment at the moment is the Chinese model of implementing monetary policy. In such model, the window guidance specifies a size control over consensus loans, resulting in liquidity mismatch. To avoid being limited by the control, commercial banks tend to transfer high-risk loans out of their balance sheet using shadow banking. As a consequence, those big mature corporations, though have few investment opportunities, can access a large amount of loans; while those growing small and medium-sized enterprises (SMEs), though having abundant investment opportunities, cannot access funding due to insufficient collaterals. Under the liquidity mismatch, finance has been detached from the real economy, resulting in a low level of corporate investment. Therefore, China should abandon its control over consensus loans, and regulate the growth rate of commercial loans under the macro-prudential management based on interest rate liberalization.

【Keywords】 investment opportunity; financing constraints ; size of consensus loan ; liquidity mismatch; prudent macro-management ;

【DOI】

【Funds】 Funded by Scientific Research Fund at Renmin University of China (supported by the Fundamental Research Funds for Central Universities) (Grant No.:14XNQ011)

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(Translated by HONG Yuqun)

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This Article

ISSN:1002-5502

CN: 11-1235/F

Vol , No. 09, Pages 52-64

September 2015

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Article Outline

Abstract

  • 1. Introduction
  • 2. Literature review
  • 3. Research hypothesis
  • 4. Empirical methodology and data
  • 5. Empirical result
  • 6. Conclusion and policy suggestions
  • References