Bank Lending and Economic Growth of Chinese Cities

Abstract

Using a city‐level dataset over the period 2004–2006, the present study investigates the relationship between bank lending and the economic growth of Chinese cities. Unlike past studies, we divide bank lending into loans from three types of banks: foreign banks, city banks and other banks. Our findings are threefold. First, the lending of foreign banks exhibits a strong and positive association with the economic growth of Chinese cities. Second, foreign direct investment in the sampled cities enhances the lending effects of foreign banks, but reduces the lending effects of other banks on the economy of Chinese cities. Third, the effects of city competitiveness are similar to those of foreign direct investment; that is, city competitiveness augments the lending effects of foreign banks but reduces the lending effects of other banks.

Keywords: bank lending, Chinese cities, city banks, economic growth, foreign banks

JEL Classification: O43, G21