The misallocation of finance in China

Abstract

This study documents the financial misallocation in China from 2000 to 2022. We find that, following the 2008 global financial crisis, there was a rapid increase in overall financial misallocation among enterprises. The degree of financial misallocation across regions varies considerably, with the western region the largest, followed by the central region and the eastern region the smallest. Compared to non-advanced manufacturing enterprises, firms in advanced manufacturing industries experience a higher degree of financial misallocation. Lastly, we briefly explore the mediating role of financial misallocation at the macroeconomic level. This study contributes to a deeper understanding of financial misallocation in developing countries.