Abstract
Using proprietary data from the China Development Bank (CDB), this paper examines the effects of government credit on firm activities. Tracing the effects of government credit across different levels of the supply chain, I find that CDB industrial loans to state-owned enterprises (SOEs) crowd out private firms in the same industry but crowd in private firms in downstream industries. Overall, a $1 increase in CDB SOE loans leads to a $0.20 decrease in private firm assets. Moreover, CDB infrastructure loans crowd in private firms. I use the exogenous timing of predicted municipal politicians' turnover as instruments for CDB credit flows.
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