ABSTRACT
With interest rates held low, excess demand requires administrative allocation, giving free play to the political directives and pressure that, throughout the period of reform, have shaped the provision of loans. In addition to the policy loans backed by the central government, local Party and government officials have frequently requested Chinese banks to make specific loans to enterprises under their aegis. As Lardy remarks: ‘The structure of authority in the Chinese banking system would have made it difficult to limit political intervention in loan allocation, even in the absence of excess demand. But chronic excess demand for loans reinforced the tendency for lending to be based on local political considerations and corruption’ (Lardy 1998: 126). Such practices leave many enterprises that would be better able to support loans unsupplied, leading to unofficial banks repeatedly springing up, often with the involvement of local officials, offering loans at rates well above those set by the state banks.
