PBoC: to optimize credit supply as economy transitions

PBoC: to optimize credit supply as economy transitions

The People's Bank of China (PBoC) is taking proactive measures to optimize credit supply as the economy transitions. A recent study [1] suggests that in a distrustful credit environment, honest entities are rewarded for their integrity by securing lower spreads on bank loans. This "interest rate reward effect" is influenced by the quality of corporate information disclosure and the intensity of competition within the banking market.

The study, conducted using loan data from Chinese commercial banks to local listed firms, reveals that in high-dishonesty regions, local listed firms obtain bank loans at lower interest spreads, particularly those with stronger political connections, higher information disclosure quality, and operations in highly competitive banking markets. Moreover, the commercial credit supplied by local listed firms significantly increases in high-dishonesty regions, indicating that social dishonesty may reduce public firms’ financing costs.

The PBoC's efforts to regulate the social credit system, culminating in the establishment of a national credit database in 2006, aim to mitigate the adverse effects of inadequate credit on economic development. This system, which contains data on 16 million enterprises and nearly 700 million individuals, serves as the first interbank credit information sharing system in China. By improving the delinquent environment, the PBoC enhances listed firms' commercial credit supply while simultaneously increasing regional economic distortion, strengthening investor protection, and improving IP judicial safeguards.

The study's findings suggest that improving the delinquent environment enhances listed firms' commercial credit supply, offering practical insights into the construction of social credit systems and corporate financing strategies. This supports China's real economy sustainability and aligns with the PBoC's efforts to optimize credit supply during the economic transition.

References:
[1] https://www.sciencedirect.com/science/article/abs/pii/S0275531925003393