Who received interest-free loans during the COVID-19 pandemic?

Abstract

During the COVID-19 pandemic, the Chinese government implemented a series of policies to encourage banks to provide interest-free loans (IFLs) to small businesses. Using a unique dataset, we find that firms with closer relationships with their banks are more likely to obtain IFLs, particularly in areas with greater banking competition. Our results suggest that banks engage in this behavior to gain a competitive advantage in the local credit market.