Business fixed investment of Chinese manufacturing firms in the post-financial crisis era

ABSTRACT

I document the investment decline of Chinese manufacturing firms after 2011, following the end of the 4 trillion fiscal stimulus program and expansionary monetary policies for combating the 2008–2009 financial crisis. I employ a difference-in-difference strategy to show that state-owned enterprises (SOEs) acted as investment stabilizers. In the post-crisis era, SOEs’ investment rates fell less compared to their private counterparts. Moreover, they had a smaller chance of exiting the market than private firms. In the face of monetary tightening, SOEs enjoyed a much smaller increase in the interest rates of their long-term debts. Although these may fuel the growth of the SOE sector relative to the private sector, and thus raised concerns for capital misallocation, the adverse effect on reallocation was dampened by shadow banking.