Rise of Bank Competition: Evidence from Banking Deregulation in China

Using proprietary individual level loan data, this paper explores the economic consequences of 2009 bank entry deregulation in China. Such leads to higher screening standards, lower interest rates, and delinquency rates for corporate loans from entrant banks. Consequently, deregulated cities, private firms with credit access increase asset investments, employment, net income, ROA. In contrast, performance state-owned enterprises (SOEs) does not improve following deregulation. Deregulation also amplifies productive inefficient SOEs due mainly SOEs’ soft budget constraints. This adverse effect accounts 0.31% annual GDP losses.