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MMUNITY NEWS
How Participation in China’s Poverty
Alleviation Campaign Affected Firm
Performance and Access to Credit
INSIGHTS The data. Past research shows that government
intervention significantly influences lending by state
China’s leadership launched the banks in China. Local governments can often dictate
Targeted Poverty Alleviation (TPA) loan amounts, loan recipients, and even the loan
program in 2013 to deliver targeted aid terms. As such, this study analyzes the causal impact
projects to poor areas in their bid to end of firm participation in TPA on loan outcomes for
extreme poverty in China by 2020. firms. More specifically, the author developed an
analytical strategy based on the profiles of the firms’
Massive firm involvement in TPA started top executives, then compared the loan outcomes of
in 2016 at the urging of local officials firms before and after they participated in the TPA
whose promotions were implicitly tied program with those of firms that did not participate
to achieving anti-poverty targets. during the sample period (from 2010 to 2020). The
author accessed the Chinese Research Data Service
Productive private firms were more (CNRDS) platform, a widely used database on
likely to participate in the TPA. Their China’s publicly listed firms, to obtain information
access to credit from state banks rose on loans provided to each individual firm between
by 27% and their borrowing costs 2010 and 2020. The platform also provides annual
declined by 0.06 percentage points. data on the financial statements, production, and
profits and losses of firms as well as decisions to
Participating firms used new loans to make corporate investments in the TPA program,
expand production, which increased including the first year that firms participated in the
their return on assets by 1.5 percentage program, and the amount of money they invested in
points. A 1% increase in TPA spending the TPA. The author supplemented the CNRDS with
led to a 0.03% increase in firm value. more detailed loan-level data provided by Wind, a
business information company in China. The total
Given the greater involvement of dataset used in the research included 13,479 firm-
productive private firms in TPA, year observations.
preferential treatment by state banks
for participating firms generated TPA participation improved firm credit
general improvements in credit access and reduced borrowing costs.
allocation, which spurred industry-wide
welfare gains. Impoverished Areas. The author first found that the benefits of TPA
participation (specifically in the form of improved
China’s leadership launched the Targeted Poverty access to bank credit and loan terms — detailed
Alleviation (TPA) program in 2013 to deliver below) were more salient for privately-owned
tailored aid projects to poor areas in their bid enterprises than for state-owned firms. Such an
to eradicate extreme poverty in China by 2020. outcome aligns with expectations because private
Promotion of local leaders was implicitly tied to firms in China generally face heightened need to
their achievement of anti-poverty targets, and local cater to government interests to secure lending
governments actively urged enterprises to take part in from state-owned banks. According to the analysis,
the program. Massive firm involvement in TPA started TPA participation led to a statistically significant
in 2016. How did corporate participation in TPA affect increase in total new loans approved for those firms
company access to state credit allocation, and what participating in the TPA compared to firms that did
were the economic outcomes for these firms? not participate in the TPA. Specifically, company
investment in the TPA led to a 27% increase in total
new loans for participating firms compared to non-
participating firms. The researcher also found that for
every 1 RMB spent on the TPA program, firms gained
78.5 RMB in new loans. Detailed loan-level analysis
further revealed that the interest rate on the newly-
23 AMCHAM SOUTH CHINA
How Participation in China’s Poverty
Alleviation Campaign Affected Firm
Performance and Access to Credit
INSIGHTS The data. Past research shows that government
intervention significantly influences lending by state
China’s leadership launched the banks in China. Local governments can often dictate
Targeted Poverty Alleviation (TPA) loan amounts, loan recipients, and even the loan
program in 2013 to deliver targeted aid terms. As such, this study analyzes the causal impact
projects to poor areas in their bid to end of firm participation in TPA on loan outcomes for
extreme poverty in China by 2020. firms. More specifically, the author developed an
analytical strategy based on the profiles of the firms’
Massive firm involvement in TPA started top executives, then compared the loan outcomes of
in 2016 at the urging of local officials firms before and after they participated in the TPA
whose promotions were implicitly tied program with those of firms that did not participate
to achieving anti-poverty targets. during the sample period (from 2010 to 2020). The
author accessed the Chinese Research Data Service
Productive private firms were more (CNRDS) platform, a widely used database on
likely to participate in the TPA. Their China’s publicly listed firms, to obtain information
access to credit from state banks rose on loans provided to each individual firm between
by 27% and their borrowing costs 2010 and 2020. The platform also provides annual
declined by 0.06 percentage points. data on the financial statements, production, and
profits and losses of firms as well as decisions to
Participating firms used new loans to make corporate investments in the TPA program,
expand production, which increased including the first year that firms participated in the
their return on assets by 1.5 percentage program, and the amount of money they invested in
points. A 1% increase in TPA spending the TPA. The author supplemented the CNRDS with
led to a 0.03% increase in firm value. more detailed loan-level data provided by Wind, a
business information company in China. The total
Given the greater involvement of dataset used in the research included 13,479 firm-
productive private firms in TPA, year observations.
preferential treatment by state banks
for participating firms generated TPA participation improved firm credit
general improvements in credit access and reduced borrowing costs.
allocation, which spurred industry-wide
welfare gains. Impoverished Areas. The author first found that the benefits of TPA
participation (specifically in the form of improved
China’s leadership launched the Targeted Poverty access to bank credit and loan terms — detailed
Alleviation (TPA) program in 2013 to deliver below) were more salient for privately-owned
tailored aid projects to poor areas in their bid enterprises than for state-owned firms. Such an
to eradicate extreme poverty in China by 2020. outcome aligns with expectations because private
Promotion of local leaders was implicitly tied to firms in China generally face heightened need to
their achievement of anti-poverty targets, and local cater to government interests to secure lending
governments actively urged enterprises to take part in from state-owned banks. According to the analysis,
the program. Massive firm involvement in TPA started TPA participation led to a statistically significant
in 2016. How did corporate participation in TPA affect increase in total new loans approved for those firms
company access to state credit allocation, and what participating in the TPA compared to firms that did
were the economic outcomes for these firms? not participate in the TPA. Specifically, company
investment in the TPA led to a 27% increase in total
new loans for participating firms compared to non-
participating firms. The researcher also found that for
every 1 RMB spent on the TPA program, firms gained
78.5 RMB in new loans. Detailed loan-level analysis
further revealed that the interest rate on the newly-
23 AMCHAM SOUTH CHINA
