24 Jul 2025
Recently, a research paper by Dr Bo Jiang and Dr Liang Fu from the Department of Economics at the International Business School Suzhou (IBSS) of Xi’an Jiaotong-Liverpool University (XJTLU), titled "Corporate Investment and the Shadow Banking Channel of Monetary Policy", has been accepted and published in the international academic journal Emerging Markets Review. The study offers a new perspective on China's monetary policy transition, highlighting a critical phenomenon: when monetary policy tightens, state-owned enterprises (SOEs) face more significant shocks to their investment activities compared to non-state-owned enterprises.
Over the past two decades, China's monetary policy framework has undergone a major transformation from a "quantity-based" to a "price-based (interest rate)" system. Historically, the central bank primarily regulated economic activities by controlling aggregate money and credit supplies (such as M2 and total bank loans), largely because many SOEs showed limited sensitivity to interest rate changes. However, with the advancement of market-oriented reforms in commercial banks, the rise of non-bank financial institutions, and the gradual improvement of the bond market, a new type of monetary policy mediated by interest rates has become dominant. This transformation has raised pressing questions: How does the existence of SOEs affect the transmission efficiency of interest rate-based monetary policy? Has the emergence of shadow banking altered the monetary policy transmission channels?
The research reveals significant ownership-based differences in Chinese enterprises' investment responses to monetary policy tightening. When monetary policy tightens, traditional bank credit declines, while shadow banking loans increase inversely. SOEs, relying on "government guarantees," have an advantage in accessing bank credit and thus mainly depend on traditional bank loans. In contrast, private enterprises, seeking to bypass restrictions in the traditional financial system, rely more on shadow banking for financing. As a result, when monetary policy tightens, SOEs face constrained financing channels, leading to a marked decline in investment, while private enterprises leverage shadow banking to maintain investment with relatively smaller impacts. The study also finds that after monetary policy tightening, the increase in financing costs for SOEs is significantly higher than that for private enterprises, further confirming the divergence in investment behavior caused by financing channel disparities.
This research holds important practical implications, indicating that evaluating monetary policy effects should not focus solely on "aggregate" indicators but also emphasize "structural" differences, particularly the fragmentation of corporate financing channels. In the context of a continuously evolving financial system, to establish interest rates as an efficient macroeconomic regulatory tool, it is urgent to advance financial system reforms to enhance market-oriented allocation efficiency and design more precise monetary policies to improve policy transmission efficiency and target alignment.
Dr Bo Jiang joined the School in October 2021 as an Assistant Professor in Economics. He received his Ph.D. in Economics from George Washington University in August 2021. His primary research fields include shadow banking, monetary policy, and production networks, with research achievements published in international academic journals such as Emerging Markets Review, Empirical Economics, and International Review of Economics and Finance.
Dr Liang Fu is an Assistant Professor of Economics at Xi'an Jiaotong-Liverpool University. He obtained his Ph.D. in economics from the University at Albany - State University of New York in 2022. His research focuses on monetary policy, international finance, and trade. His publications include articles in Emerging Markets Review and Journal of International Money and Finance.
Emerging Markets Review (EMR), published by Elsevier, is a prestigious academic journal in the fields of economics and finance, with a 2024 JCR Impact Factor of 5.6. The journal is dedicated to publishing high-impact empirical and theoretical studies on financial issues in emerging markets.
24 Jul 2025