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The China Syndrome Affects Banks: The Credit Supply Channel of Foreign Import Competition

Published online by Cambridge University Press:  11 April 2022

Sergio Mayordomo  and
Omar Rachedi Open the ORCID record for Omar Rachedi [Opens in a new window]
Sergio Mayordomo
Affiliation:
Banco de España sergio.mayordomo@bde.es
Omar Rachedi*
Affiliation:
ESADE Business School, Universitat Ramon Llull
*
omar.rachedi@esade.edu (corresponding author)
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Abstract

Did the rise of Chinese import competition in the early 2000s affect banks’ credit supply policies? Using bank-firm-level data on the universe of Spanish corporate loans, we find that banks rebalanced their loan portfolios away from firms facing Chinese import competition and toward profitable firms in nonexposed sectors. Banks supplied more credit also to the construction sector, albeit independently of firms’ profitability. This was not due to banks’ exposure to the housing boom. Rather, the geographical concentration of the manufacturing industries competing with China left local banks with few alternatives other than local construction firms to rebalance their loan portfolios.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 8 , December 2022 , pp. 3114 - 3144
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We thank an anonymous referee, Henrique S. Basso, Jan Bietenbeck, Kizkitza Biguri, Roberto Blanco, Diana Bonfim, Charles Calomiris, Indraneel Chakraborty (a referee), Luisa Farinha, Jarrad Harford (the editor), Bjorn Imbierowicz, Juan Francisco Jimeno, Nicola Limodio, Isabelle Mejean, Enrique Moral-Benito, Steven Ongena, Ralph Ossa, Min Park, José-Luis Peydró, Julien Sauvagnat, Glenn Schepens, Enrico Sette, Javier Suarez, Emanuele Tarantino, Carlos Thomas, Ernesto Villanueva, and participants to several seminar and conference presentations for useful comments. The views expressed in this article are those of the authors and do not necessarily represent the views of the Banco de España or the Eurosystem.

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