Macroprudential policy leakage: Evidence from shadow banking activities of Chinese enterprises

Using entrusted loan data of Chinese listed enterprises, we study whether the implementation of macroprudential policy leads to enterprise policy arbitrage. Our findings reveal that tightening macroprudential policies significantly contribute to the promotion of shadow banking activities among Chinese enterprises, confirming the existence of policy leakage. When the overall credit is tight, non-affiliated loans and loans to privately-owned enterprises increase significantly. Tightening policies also have a more substantial effect on the borrowing cost of non-affiliated and privately-owned enterprise borrowers. To enhance the effectiveness of macroprudential policy, our results suggest the necessity of providing appropriate credit supports for small and medium enterprises.