Political uncertainty and city bank lending in China: Evidence from city government official changes

Using data hand collected in China between 2001 and 2016, this paper examines how political uncertainty affects city bank lending. Our results show that political uncertainty causes banks to significantly increase loan growth. These results are moderated by the characteristics of government officials, bank characteristics, and the degree of marketization. Our results further show that changes by government officials increase medium-term loan growth, mainly for the real estate and public utilities sector. Finally, we show that city government official changes increase bank lending and, thus, increase credit risk, that is, bank lending has a mediating effect.

Automated summary

Political uncertainty leads to increased bank lending, moderated by government officials' characteristics, bank characteristics, and degree of marketization, resulting in medium-term loan growth in the real estate and public utilities sectors. City government official changes increase bank lending, thereby increasing credit risk with bank lending serving as a mediating factor.