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One of the most prevalent claims bandied about is that China's stimulus went overwhelmingly to state-owned enterprises and set back the development of the private sector. The data on the actual implementation of the stimulus package is spotty, but an analysis of loan trends in China during the past two years (for which the data is more complete) shows that this claim is unlikely to be correct.
Soon after China’s stimulus package began to be implemented, foreign media observers began alleging that the program supported state-owned enterprises to the detriment of the private sector and reinforced the off-cited trend of “state advancing, private sector retreating” (国进民退). This line of criticism has persisted, with prominent analysts continuing to claim that anywhere from 70% to 90% of stimulus package went to state firms.
For review, the Chinese stimulus was 4 trillion renminbi in size. However, only 1.2 trillion was actually provided by the central government, while the rest was pushed onto state-owned banks and local government (who in turn have to borrow from the state-owned banks). The result is that the majority of the stimulus package came in the form of bank loans.
Thus far, the statistics regarding China's stimulus package have proven to be relatively difficult to track down. Some early reports cited a drop in loans to private enterprises. As far as I can tell, the majority of analysts appear to be relying on a speech given by National People’s Congress deputy Li Yongzhong in which he states that 85% of 9.59 trillion loans given out in 2009 went to SOEs.
Unfortunately, Deputy Li does not provide the source for the statistic in his speech. To see whether this statistic is plausible, let's take a moment and try to work through the numbers.
China did indeed go on a massive lending spree as part of its stimulus program. To derive an estimate of the increase in loans, we'll first use the total rmb lending amounts in 2010, 2009, and 2008:
| 2008 | 4.91 trillion rmb |
| 2009 | 9.59 trillion rmb |
| 2010 | 7.95 trillion rmb |
If we assumed the normal growth rate for loans is around 15%. Then the amount of lending attributable to stimulus was 3.9 trillion in 2009 and 1.46 trillion in 2010. Unfortunately, we don't have specific information on which loans were made as part of the stimulus, but we can look at the entire structure of lending in these years.
It's important to note that a significant portion of this loan universe went directly to households, in the form of mortgages and other consumer credit. Loans to households were 2.46 trillion (26% of the total) in 2009 and 2.87 trillion (36% of the total) in 2010. So right off the bat, only 75% of loans in 2009 and 64% in 2010 were available to be given to state-owned enterprises.
Focusing in on business lending, the total reached 6.35 trillion rmb in 2009 and 5.92 trillion in 2010. Fortunately, we now have information on the composition of business lending approach during these years by type (household, small, medium, large).
To determine how much of this business lending actually went to state-owned enterprises, we can multiply each type of lending by an estimate of the percentage of state-owned enterprises in that group. The assumption is that banks made loans to firms within each business category on a roughly proportional basis.
The results of this approach produce an estimate that is dramatically lower than the 70% and 90% estimates given by other analysts. I've included both a high and a low estimate in order to show that even with some variance in our assumptions, the idea that the overwhelming majority of loans went to state-owned enterprises seems unlikely.
Business Loans by Enterprise Type:
| 2009 | 2010 | |
|---|---|---|
| Unit | rmb bn | rmb bn |
| Total Lending | 9,590 | 7,590 |
| Total Business Lending | 6,350 | 5,920 |
| Household Businesses | 660 | 1,100 |
| Small Firms | 1,400 | 1,710 |
| Medium-Size Firms | 1,960 | 1,530 |
| Large Firms | 2,330 | 1,580 |
SOE Percentage Estimate by Business Type:
| 2009 | Low | Low Estimate Amount | High | High Estimate Amount |
|---|---|---|---|---|
| Unit | % | rmb bn | % | rmb bn |
| Household Businesses | 0% | 0 | 0% | 0 |
| Small Firms | 5% | 70 | 15% | 210 |
| Medium-Size Firms | 25% | 490 | 45% | 882 |
| Large Firms | 30% | 699 | 50% | 1165 |
| Total | 1259 | 2257 | ||
| % of Business Loans | 19.8% | 35.5% | ||
| % of All Loans | 13.1% | 23.5% |
| 2010 | Low | Low Estimate Amount | High | High Estimate Amount |
|---|---|---|---|---|
| Unit | % | rmb bn | % | rmb bn |
| Household Businesses | 0% | 0 | 0% | 0 |
| Small Firms | 5% | 85.5 | 15% | 256.5 |
| Medium-Size Firms | 25% | 382.5 | 45% | 688.5 |
| Large Firms | 30% | 474 | 50% | 790 |
| Total | 942 | 1735 | ||
| % of Business Loans | 15.9% | 29.3% | ||
| % of All Loans | 12.4% | 22.9% |
It's certainly possible that in the future more information will come out that shows a higher percentage of lending went to state enterprises during this period. However, given the current information we have, the idea that 70% to 90% of loans went to state-owned enterprises seems unfounded.
Side Note: the percentages of state-owned enterprises in each lending group come from Nick Lardy's estimates that two-thirds of small firms are private (and the rest being of mixed ownership, such as collective or cooperative), while two-fifths of large-size firms are state-owned and fewer than 10 percent are private.