China Banking Regulatory Commission Research Articles

Green credit, financing constraints, and corporate investment: From the perspectives of scale and efficiency

Green credit plays a crucial role in resource allocation as it serves as a link between financial systems and environmental protection. This study utilizes the “Green Credit Guidelines” issued by the China Banking Regulatory Commission in 2012 as an exogenous shock, employing the Difference-in-Differences (DID) approach to examine the impact of green credit policies on corporate investment levels. The findings reveal that green credit enhances investment efficiency by reducing the investment scale of high-pollution enterprises. Furthermore, considering the temporal nature of policy impact and strategic responses from enterprises, these effects become evident and increasingly strengthened two years after policy implementation. The financing constraint intermediary mechanism suggests that financing constraints only serve as an intermediary factor between green credit policies and investment efficiency, exerting relatively weak control over short-term investment scales. Additionally, internal and external regulatory mechanisms along with enterprise heterogeneity indicate asymmetric effects resulting from green credit policies. Policy implications derived from this research emphasize the necessity for a rational combination of command-and-control environmental regulations with green credit policies while also improving upon existing green credit measures to prevent strategic corporate behavior.

Green finance and high-pollution corporate compensation - Empirical evidence from green credit guidelines

With the increasing focus on Environmental, Social, and Governance (ESG) and Corporate Social Responsibility (CSR) on a global scale, stakeholders expect businesses to transform and enhance social responsibility. Over time, ESG and CSR have developed into vital performance metrics for businesses. Businesses are actively putting improvement measures into place in response to this new paradigm in order to stay competitive in this changing environment. China's dual commitment to CSR and sustainable development is in line with wider objectives, such as resolving issues of pay inequality. In 2012, the China Banking Regulatory Commission (CBRC) unveiled the “Green Credit Guidelines” (GCG), which take corporate governance's environmental considerations into account. These regulations set standards and specifically target high-pollution corporations. Companies may need to restructure their corporate structures and create efficient governance mechanisms in order to comply with these regulations and reduce carbon emissions. This will have an impact on the compensation packages of executives and regular employees.The most important question is how the “GCG” will affect the wage disparity in highly polluting companies. This study examines the 2012 “GCG” and its potential to reduce internal wage disparities, viewing it as a critical element of green financial policy. The paper uses data from Chinese A-share listed companies from 2007 to 2020. Besides, it uses the Difference-in-Differences method to assess the impact of China's GCG, treating its implementation as a quasi-natural experiment and controlling for concurrent policy effects to precisely identify its net impact on corporate carbon emissions and internal wage disparities.The findings show that “GCG” considerably closed internal wage disparities. Furthermore, the “GCG” has a path of guidance, incentives, and punishments that reduce internal wage disparities and promote a more equitable wage distribution within businesses. According to heterogeneity analysis, policies have a greater impact on the wage gap in businesses that are highly dependent on outside funding and have political connection. In order to achieve a compensation balance and meet the objectives of social responsibility and corporate sustainable development, the government should strengthen the complementary effects of green financial policies.The compensation balance in highly polluting companies has important theoretical and practical ramifications. On the one hand, it represents the convergence of income equality, corporate governance, and environmental responsibility. It helps to expand knowledge of sustainable development, fair compensation, and environmental policies. On the other hand, the widening pay disparity between executives and average employees reflects the exacerbation of income inequality in China, which could potentially impact companies' long-term development. Conversely, a well-balanced pay plan can improve worker productivity and motivation while empowering stakeholders to make wise investment choices.

Does green credit policy affect corporate innovation performance?-A quasi-natural experiment based on Green Credit Guidelines.

For urgent need to the transition to sustainable development, it is of great significance to explore the driving role of green credit policies in innovation performance. This study uses a sample of Chinese A-share listed companies from 2004 to 2019 and constructs a quasi-natural experiment based on the Green Credit Guidelines issued by the China Banking Regulatory Commission in 2012. PSM-DID method is employed to examine the innovation impact of green credit policies in both green credit-restricted and non-restricted industries, thereby exploring the its mechanism of influence on firm innovation performance. The results show that after the implementation of Guidelines, it promotes a company's innovation output, significantly enhances its innovation performance, especially in terms of quantity-based incentives. However, the incentive effect on quality-based incentives is relatively limited. Secondly, by increasing the level of risk-taking within the enterprise and strengthening external environmental regulations, the green credit policy can further enhance its promotion effect on corporate innovation performance. Finally, the promotion effect of green credit policies is more significant for state-owned enterprises and large-scale enterprises. The research results help to break through the bottleneck of corporate innovation with the coordination of environmental protection and economy, which further improve the sustainability of economic development.

Political promotion incentives and banking supervision: Evidence from a quasi-natural experiment in China

We document the importance of political promotion incentives for supervisors in banking supervision. Utilizing the merger of the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC) in 2018, we explore the actions of head of the CBRC's regional offices. We find that the increased political promotion incentives are associated with higher frequency, greater amount, and greater severity of penalties in regional banking supervision. The enhanced supervision is more remarkable when the head of the CBRC's regional offices has a higher political rank. After the merger of the two commissions, the regional banking supervision is significantly weakened with the disappearance of political promotion incentives. Furthermore, these enhanced regional supervision triggered by the merger event reduce bank risk. Our findings show that the increased political promotion incentives affect the supervisor's activities and improve the supervision effectiveness.

The evolution of renewable energy environments utilizing artificial intelligence to enhance energy efficiency and finance

The development of a country is inseparable from the material guarantee mainly based on energy, but energy is limited, which may restrict the sustainable development of the country. It is very necessary to accelerate the adoption of programs aimed at switching non-renewable energy sources to ones that are, and giving priority to improving renewable energy consumption and storage capabilities. From the experience of the G7 economies, the development of renewable energy (RE) is inevitable and urgent. The China Banking Regulatory Commission has recently issued a number of directives, such as the “Directives for Green Credit” and “Instructions for Granting Credit to Support Energy Conservation and Emission Reduction,” to help businesses that use “renewable energy expand”. This article firstly discussed the definition of the “green institutional environment” (GIE) and the construction of the index system. Then, on the basis of clarifying the relationship between the GIE, and RE investment theory, a semi-parametric regression model was constructed to empirically analyze the mode and effect of the GIE. Considering the balance between improving model accuracy and reducing computational complexity, the number of hidden nodes opted in this study is 300 so as to lower the time needed to predict the model. Finally, from the perspective of enterprise scale, the level of GIE played a significant role in promoting RE investment in small and medium-sized enterprises, with a coefficient of 1.8276, while the impact on RE investment in large enterprises had not passed the significance test. Based on the conclusions, the government should focus on building a GIE dominated by green regulatory systems, supplemented by green disclosure and supervision systems, and green accounting systems, and should make reasonable plans for releasing various policy directives. At the same time, while offering full play to the guiding role of the policy, its rationality should also be paid attention to, and the excessive implementation of the policy should be avoided, so that an orderly, and good GIE can be created.

Pricing strategies in BigTech lending: Evidence from China

AbstractThis paper analyzes a BigTech lender's pricing strategies in the business‐to‐customer unsecured loan market using a proprietary data set of consumer loans in China. We find that the credit rating constructed by the BigTech lender is informative of the customers' default risk. Moreover, the interest rate decreases and the credit limit increases with the credit rating. Interestingly, the BigTech lender charges different interest rates to its customers based on the customer channel, although it does not provide information about the customers' default risk. Following the passage of the China Banking Regulatory Commission Act, which reduced credit market competition, the BigTech lender increased the current rate and decreased the credit limit. We rationalize these empirical findings in a simple model of credit contract design.

The impact of green credit policy on enterprise risk-taking: an empirical test based on DID

Green finance is a driving force for energy conservation and green development. Based on the "Green Credit Guidelines" policy issued by China Banking Regulatory Commission (CBRC) in 2012 as a quasi-natural experiment, combined with the financial data of Chinese listed companies from 2008 to 2016, we constructed a DID model to study the impact of green credit as a financial instrument on enterprise risk taking. The results show that green credit can significantly improve enterprise risk taking level. This effect is more effective for state-owned enterprises, enterprises with flexible strategies and enterprises with high information transparency. Furthermore, mechanism analysis indicates that green credit can increase enterprise risk taking level by restraining the inefficient investment behavior and stimulating the endogenous power of enterprises' innovation.

Application of Business Intelligence Based on the Deep Neural Network in Credit Scoring

In order to solve the economic globalization and the intensification of financial market volatility, this study puts forward the judgment of credit risk of loan enterprises, so as to effectively improve the ability of commercial banks to control credit risk. At the same time, neural network technology is applied to solve nonlinear data modeling. Experiments and evaluation are carried out by using the artificial neural network (ANN) evaluation model. The experimental evaluation model data obtained from the experimental evaluation model show that the prediction effect is good, which proves the effectiveness of this method. According to the data of China Banking Regulatory Commission, at the end of the third quarter of 2016, the balance of nonperforming loans of Chinese commercial banks was 1493.9 billion yuan. By the end of the third quarter of 2021, the balance of nonperforming loans of Chinese commercial banks had reached 28153.5 trillion yuan, a month on month increase of about 42.7 billion yuan. At the end of the third quarter of 2021, the domestic and foreign currency assets of Chinese banking financial institutions were 339.4 trillion yuan, a year-on-year increase of 7.7%. This shows that the credit risk remains high, but it is still at a controllable level. Commercial banks are the center of the modern economic system. Their credit risk is very important to the stability and safe development of national economy. It is also the key factor for its own business sustainability and the protection of the interests of depositors. Therefore, effectively preventing and reducing credit risk is a key field in the financial risk management of commercial banks.

Out of the window? Green monetary policy in China: window guidance and the promotion of sustainable lending and investment

ABSTRACT Chinese monetary and financial authorities have been among the pioneers in promoting green finance. This article investigates the use of one specific monetary policy tool, namely window guidance, by the Peoples’ Bank of China (PBC) and the China Banking Regulatory Commission (CBRC) to encourage financial institutions to expand credit to sustainable activities and curb lending to heavy-polluting industries. ‘Window guidance’ is a relatively informal policy instrument that uses benevolent compulsion to ‘guide’ financial institutions to extend credit and allocate lending in line with official (government) targets. We investigate window guidance targets for the period 2001–2020 and find that ‘green’ targets were included by the CBRC from at least 2006 and by the PBC from 2007 to discourage lending to carbon-intensive and polluting industries and/or to increase support to sustainable activities. In 2014, both authorities stopped discouraging lending to carbon-intensive/polluting industries through window guidance. Sustainable objectives were subsequently also removed from the PBC's list of window guidance priority sectors at the start of 2019, ending the practice of green window guidance in China. Sustainability-enhancing window guidance targets were replaced and formalized through new ‘Guidelines for Establishing the Green Financial System’, reflecting efforts to move away from controls-based towards market-based policy instruments. Based on this analysis, the article draws four lessons for the design of green finance policies for other countries that seek to enhance sustainable finance and mitigate climate change and related risks. Key policy insights The Chinese experience of using window guidance to direct bank lending to support national sustainability targets and goals shows how the instrument can be successfully used in financial markets that are at an early stage of financial market development. The efficacy of window guidance and other directed bank-lending policies is likely to diminish as financial markets mature and direct monetary policy instruments become less powerful. When window guidance is used, it should be linked to clear criteria of success, the achievement of which should be monitored. Green window guidance should be embedded in a broader framework of green finance policies, as well as climate and environmental policies. While today's framing and language on sustainable finance policy in China focuses increasingly on market-based instruments, the Chinese experience of using window guidance offers valuable lessons for other emerging economies in Asia and beyond with financial systems dominated by banks.

Analysis of Chinese Commercial Banks’ Risk Management Efficiency Based on the PCA-DEA Approach

As a special type of enterprises with high risks, Chinese commercial banks’ risk management plays an important role in banks’ business process. Measuring and improving the risk management efficiency of the Chinese commercial banking system has recently attracted increasing interest. Previous studies analyze the business performance of commercial banks from the perspective of the overall management level of banks, and few articles focus on the risk management ability of banks. This paper evaluates the technical efficiencies of Chinese commercial banks’ risk management by the DEA-BCC model with window analysis to come up with some recommendations for policy makers. The technical efficiency is then decomposed into pure technology efficiency and scale efficiency. According to the banking risk supervision indicators released by the China Banking Regulatory Commission, we choose the indicators of 26 commercial banks’ risk management during the period of 2011 to 2019. Principal component analysis (PCA) is applied to delete redundant input indicators. The paper gives a dynamic evaluation of technology efficiency, pure technology efficiency, and scale efficiency. The main empirical results are as follows: (1) the technical efficiency of Chinese commercial banks’ risk management is low, and the differences among three different types of banks are large. (2) The pure technology inefficiency of Chinese commercial banks’ risk management has become a key factor restricting the improvement of the risk management of the Chinese banking industry. (3) The Chinese commercial banks’ risk management faces a serious problem which is economies of scale. (4) The technical efficiencies of Chinese commercial banks’ risk management fluctuate greatly, and management capabilities need to be enhanced urgently.

Does the target market affect bank performance? Evidence from the geographic diversification of city commercial banks in China

After the opening up of the banking sector to domestic and foreign capitals which is approved by the Chinese government, the China Banking Regulatory Commission (CBRC) has permitted city commercial banks to diversify geographically. Since this deregulation in 2006, city commercial banks began to geographically diversify to occupy the market and acquire more financial resources. To examine the causal relationship between geographical diversification and bank performance, we construct an exogenous geographical diversification instrument using the gravity-deregulation model and a policy shock. We find that bank geographical diversification negatively affects bank performance. Moreover, we conduct some mechanism tests in the Chinese context. We find that the target market with several large- and medium-sized banks and a high level of local protectionism in the target market decreases the performance of city commercial banks. Finally, cross-sectional analyses show that the impact of geographical diversification on banks’ performance is more notable among city commercial banks that are younger, and have a lower capital adequacy ratio and a higher non-performing loan ratio.

Firm Funding and Investment under Bank Credit Control Policy: Evidence from China

Using the 2014 China Banking Regulatory Commission (CBRC) credit control policy as a quasi-natural experiment, this paper demonstrates that credit supply contraction leads to a significant reduction in firm’s external funding, cash holding, and investment. Analysis of both loan-level and corporate-level data reveal that new bank loans issuance of targeted firms dropped significantly after the regulation. State-owned banks are identified as the main policy implementer. By instrumenting the change of loans issuance with the policy shock, I further discover the amplifying effect of large declines in bond issuance and trade credit for the targeted firms. Cash holdings were used to cushion the financing gap. Investment dropped and inefficient investment increased due to the shock. Interestingly, whereas such impacts were significant for non-state owned enterprises, state-owned enterprises (SOEs) were barely affected. Overall, I conclude that the lending control policy led to less capital resources allocated to non-SOEs but not SOEs. JEL classification numbers: G21, G28, G32, G38. Keywords: Bank lending, Firm funding, Firm investment, SOBs, SOEs, Credit policy, Credit rationing.

Demand for green finance: Resolving financing constraints on green innovation in China

This paper investigates the effects of financing constraints on prompting green innovations using a sample of Chinese listed firms in the period 2001–2017. Also, we explore how green finance policies resolve financing constraints of firms to green innovation. The capability of green innovation is found to be impaired when firms face higher financing constraints, and privately owned enterprises tend to be more vulnerable than state-owned ones in this regard. Although green finance policies can effectively ease financing restraints on green innovation overall, green credits are less likely to be available to privately owned enterprises. However, these enterprises which are deeply affected by financing constraints have relatively high innovation capabilities. We suggest the government to provide more supports to privately owned enterprises for investing in green projects. Further, both financial institutions and privately owned enterprises should be required to disclose more information on green credits and green projects, respectively. In addition, the China Banking Regulatory Commission should design a synthetic mechanism for evaluating green performance.

Do the Green Credit Guidelines Affect Corporate Green Technology Innovation? Empirical Research from China.

Green technology innovation is regarded as an important means to achieve sustainable development. Countries all over the world mainly implement green technology innovation policies from the aspects of environmental regulation and financing constraints. The effect of financing constraint policy on enterprise green technology innovation remains to be investigated. Based on the event of “green credit guidelines” issued by China Banking Regulatory Commission in 2012, this paper collects the panel data of China’s 2825 listed companies from 2007 to 2018, constructs a difference-in-difference model, and studies the impact of green credit guidelines on corporate green technology innovation and its mechanism. The empirical results show: First, green credit guidelines can promote corporate green technology innovation on the whole. Second, the mechanism of green credit on enterprise green technology innovation is identified. Green credit guidelines mainly limited green technology innovation through reducing debt financing, rather than through financing constraints. Third, the impact of green credit guidelines on green technology innovation is heterogeneous. Green credit guidelines have a significant effect on the green technology innovation of state-owned and large enterprises, but have no effect on the green technology innovation of non-state-owned and small ones.

On Building a Green Credit System for Marine Environment Protection

On August 31, 2016, the People’s Bank of China (PBC), along with six other government agencies, issued the Guidelines for Establishing the Green Financial System, introducing a series of measures to support and encourage green investment and financing. On September 2, the China Banking Regulatory Commission (CBRC) proposed a framework for building a green credit system and comprehensive evaluation of green credit, which lays out the development direction for green lending. Learning from international and domestic research and practical experiences, this paper tries to develop a green credit system for marine environmental protection. Based on the current green credit theory and policy trend, this thesis sets the operating mechanism for green credit, which can enforce contact and cooperation between marine environmental protection departments and financial regulators. All of these can promote enterprises and individual polluters to pay attention to marine environment, strengthen pollution control and maintain ecosystem healthy.

Economic Policy Uncertainty, Bank Risk-taking and Firm Investment

It is a consensus that economic policy uncertainty will inhibit economic development, but there is little discussion on how to mitigate this negative impact. Bank risk-taking can maintain the security of the financial system. Under the special institutional background, the risk-taking of China’s banks may be reflected not only on the business of the in-balance sheet by adjusting the willingness of taking risks and the scale of loan, but also on the business of the off-balance sheet by adjusting the scale of shadow banks. Based on this, employing the quarterly data of listed companies from 2012 to 2018, this paper investi- gates how economic policy uncertainty affects bank risk-taking, and how the effect transmits to firm investment. The empirical results indicate that, from the perspective of in-balance sheet business, economic policy uncertainty prompts banks to relax the approval standards of loan and increase the loan scale, thus encou- raging firms to expand investment. However, from the perspective of off-balance sheet business, economic policy uncertainty makes firms reduce investment by shrinking shadow banks’ scale. By redefining and calculating key variables, deleting macroeconomic variables and eliminating the influence of property right, the conclusions are still robust. Further research finds that, a series of shadow banking governance measures, adopted by the China Banking Regulatory Commission, are important reasons for banks to increase the scale of in-balance sheet business and reduce the scale of off-balance sheet business. The marginal contribution of this paper is as follows: Firstly, we put the loan approval conditions, bank loans and shadow banks into the analysis framework of bank risk-taking. Secondly, it not only analyzes how economic policy uncertainty affects bank risk-taking, but also examines the impact of the structural change of the in-balance sheet and off-balance sheet bank risk-taking on firm investment, which clearly shows the mecha- nism by which economic policy uncertainty affects firm investment through bank risk-taking. Thirdly, this paper discusses whether a series of shadow banking governance measures issued by the China Banking Regulatory Commission are the important reasons for banks to change their risk-taking through the adjustment of the in-balance sheet and off-balance sheet structure.

Does Leverage Regulation Effectively Reduce the Systemic Risk of the Banking System? Simulation Analysis Based on the Endogenous Network Model

Deleveraging of the banking system is an important task of financial supply-side structural reform in China, and also a key measure to prevent and resolve financial risks in recent years. With reference to Basel III, China Banking Regulatory Commission formally introduced the leverage regulation indicator in 2011. According to the official data, the leverage ratio of China’s major commercial banks has been higher than the minimum regulatory requirement of 4%, but it is also an indisputable fact that the risk of China’s banking system continues to gather after the financial crisis. So does leverage regulation effectively reduce the systemic risk of the banking system? The answer to this question is related to the effectiveness of the leverage as a macro prudential regulatory tool. However, limited by the lack of empirical data, the complexity of the economic and financial system and other factors, the current literature on the effectiveness of leverage as a macro prudential regulatory tool is rare. Therefore, based on the model of Bluhm, et al. (2014), this paper constructs an endogenous network model with leverage constraints, and simulates the risk contagion mechanism and effect under leverage ratio constraints. It is found that in the normal period, leverage regulation will bring the effect of increasing the proportion of risk assets of some banks and decreasing the average degree of network connection between banks. In the crisis period, leverage regulation will increase the number of initial bank failures under exogenous shocks, but will reduce the depth and breadth of risk contagion. On the whole, it is true that the minimum leverage requirement of 4% will lead to a more stable banking system, but the excessive leverage requirement may cause the rise of the systemic risk. In order to maintain the stability of the banking system to the greatest extent, we can implement counter-cyclical and differentiated leverage regulation strategies for banks. At the same time, timely liquidity assistance to the market and improving the loan asset recovery rate of defaulting banks during the crisis will help to enhance the financial stability effect brought by leverage regulation. The possible marginal contribution of this paper is as follows: Firstly, compared with the existing litera- ture on the effectiveness evaluation of macro prudential tools, based on the analysis of the endogenous network model, this paper opens the “black box” of leverage regulatory tools affecting the stability of the banking system, and explains the effect and mechanism of leverage regulation. Secondly, the existing endogenous network model usually fails to consider the impact of the introduction of leverage regulation conditions on the stability of the banking system in normal and crisis periods, which is emphasized in this paper. Thirdly, the study of this paper has strong policy significance. The comparative analysis of the regulatory effect of leve- rage under different market parameter combinations provides theoretical support for regulators to formulate more effective leverage regulatory strategies.

The Pricing Strategies of Unsecured Consumer Loans

This paper analyzes lenders' pricing strategies in the business-to-customer (B2C) unsecured loan market by using a proprietary dataset of approximately 3 million unsecured consumer loans from a B2C online retailer in China. We find that lenders' decisions to invite customers are based on customers' credit rating and age and that lenders increase credit limits and charge higher interest rates for solicited riskier borrowers than for unsolicited riskier borrowers. This phenomenon was exacerbated after the passage of the China Banking Regulatory Commission (CBRC) Act. We develop a model of revolving credit contract design. The model's predictions are consistent with our empirical findings.

Evolutionary Game Analysis of Campus Credit Strategy Selection Under Incomplete Information Conditions

Since the China Banking Regulatory Commission issued relevant policies on standardizing the credit card business of college students in 2009, college students' credit cards have gradually withdrawn from campus business. In recent years, with the rapid development of the Internet, Online campus loan began to take the college student market as the goal, and quickly entered the university campus through recruiting student cadres to carry out carpet promotion activities inside the campus. And seized the current situation of college students' lack of financial knowledge and the psychology of comparative consumption, the business volume expands rapidly. The subsequent malignant events, such as 10g naked slip, huge profits and fund-raising, college students jumping off buildings to commit suicide due to their inability to repay the loan, also have a negative impact on the society. In view of the above phenomena, this article combines existing research on existing problems of campus loans, and establishes an evolutionary game model between the campus online platform and college student borrowers from the perspective of evolutionary games. The game model has two stable points (1, 1), (0, 0), namely, the campus platform chooses to deceive the borrower, the borrower chooses to break the trust, and the campus platform chooses not to deceive the borrower, and the borrower keeps the trust. This paper discusses the influence of the changes of the relevant parameters in the model on the choice of the game strategy, and puts forward some suggestions to establish a two-way scoring mechanism for online lending, increase the financial knowledge reserve and income of college students, and help them establish a correct consumption view to standardize the campus online lending work.

How government regulation of interbank financing impacts risk for Chinese commercial banks

The rapid development of interbank financing in China has exposed financial institutions to increasing risk. In 2013, the China Banking Regulatory Commission implemented regulation on interbank financing for commercial banks. We assess the effectiveness of this regulation in reducing (i) the risk of commercial banks relative to non-bank financial institutions, where the latter are not subject to the regulation, and (ii) the risk of major commercial banks, which are more disposed to engage in interbank finance, relative to minor commercial banks. Our data are for the period 2006–2016 for 30 commercial banks (13 major, 17 minor) and 56 non-bank financial institutions. To control for other factors, we make use of a difference-in-difference estimation approach. Our measure of risk is the z-score, for which a higher value means a lower risk of bankruptcy. We find in support of the effectiveness of the regulation with z-scores for commercial banks rising relative to those of non-bank financial institutions and z-scores of major banks rising relative to those of minor banks following implementation of the regulation.