Profit or Policy? Cross-Border Syndicated Lending by Chinese State-Owned Banks

Abstract

Chinese banks, particularly the state-owned commercial banks, have significantly increased their presence in overseas syndicated loan markets over the past two decades. The Big Four are of great systemic importance as they are also the four largest banks globally by assets as in 2019. Previous evidence has heavily associated state ownership with bank inefficiency. Using borrower-time fixed effect to isolate demand-side factors, we show that foreign syndicated loans involving the Big Four have higher spreads than otherwise identical loans to the same borrowers during the same period, particularly in advanced economies. We find the opposite result in loans to Middle Eastern, Central Asian, and African Countries. Further analyses suggest that higher premia demanded by the Big Four are more likely to be explained by their increased profit sensitivity, with partial privatization and domestic banking market reform achieving success at least to some extent. Our evidence indicates that these megabanks could be becoming more efficient over time.