Evolution of the Chinese guarantee network under financial crisis and stimulus program

Yingli Wang,Xiaoguang Yang,Qingpeng Zhang

doi:10.1038/s41467-020-16535-8

Abstract

Our knowledge about the evolution of guarantee network in downturn period is limited due to the lack of comprehensive data of the whole credit system. Here we analyze the dynamic Chinese guarantee network constructed from a comprehensive bank loan dataset that accounts for nearly 80% total loans in China, during 01/2007-03/2012. The results show that, first, during the 2007-2008 global financial crisis, the guarantee network became smaller, less connected and more stable because of many bankruptcies; second, the stimulus program encouraged mutual guarantee behaviors, resulting in highly reciprocal and fragile network structure; third, the following monetary policy adjustment enhanced the resilience of the guarantee network by reducing mutual guarantees. Interestingly, our work reveals that the financial crisis made the network more resilient, and conversely, the government bailout degenerated network resilience. These counterintuitive findings can provide new insight into the resilience of real-world credit system under external shocks or rescues.

Highlights

Our knowledge about the evolution of guarantee network in downturn period is limited due to the lack of comprehensive data of the whole credit system
These state-owned enterprises (SOEs) could meet the loosened credit standard through guaranteeing each other[8]. Many of these SOEs were saved by loans, economic studies suspected that the stimulus program could cause explosion of credit debt and trigger future disruptions in the financial system because of huge loans to low-quality firms[9,10,11]
By harnessing a comprehensive data provided by one of China’s major regulatory bodies ranging 01/2007–03/2012, we investigate the structure and evolution of Chinese guarantee network to answer the following questions: What are the unique topological properties of the Chinese guarantee network? What is the influence of 2007–2008 global financial crisis, China’s stimulus program and the following monetary policy adjustment on the topological structure of Chinese guarantee network? Does the change of topological structure of Chinese guarantee network influence the resilience of the system? To the best of our knowledge, this is the first attempt to quantitatively characterize the evolution of the nationwide guarantee network

Summary

Introduction

Our knowledge about the evolution of guarantee network in downturn period is limited due to the lack of comprehensive data of the whole credit system. The credit condition was loosen to encourage loan applications from firms[6] This stimulus program, though successfully sustained China’s economic growth and largely stabilized the world economy, has resulted in a surge in debt in China, and dramatic structural change of the credit system. These SOEs could meet the loosened credit standard through guaranteeing each other[8] Many of these SOEs were saved by loans, economic studies suspected that the stimulus program could cause explosion of credit debt and trigger future disruptions in the financial system because of huge loans to low-quality firms[9,10,11]. The major change of the monetary policy operations occurred on 20 October 2010, when PBoC raised the interest rates for the first time since the financial crisis These regulations and policy adjustment, to some extent, helped to reduce the impact of the negative consequence of the stimulus program

Methods

Results

Conclusion