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

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