Government Ownership and Banks' Lending Behaviour in China from the Central–Local Relationship Perspective: City Commercial Banks

This article analyses the effects of government ownership on city commercial banks' lending behaviour in China from the central–local relationship perspective. The case study of Changsha Bank uses an institutional economic framework to analyse, in particular, the credit appetite of city commercial banks under the current institutional design of China's political and economic system. The central government relies on local governments to develop the local economy. Local governments bargain with the central government by relying heavily on city commercial banks as the local financing platform to serve their own political interests. Therefore, dual dependence exists between the central government and local governments, and is also prevalent between local governments and city commercial banks. This study illustrates the fundamental problems that exist within the post-transformation Chinese financial system design and provides guidance for further market-oriented transformation in China's "new normal" economy.