How Much Has Private Credit Lending Reacted to Monetary Policy in China? The Case of Wenzhou

This study investigates empirically what the major factors are which have driven Wenzhou’s informal credit market and how much that market is responsive to monetary policies and the formal banking conditions nationwide. The main findings are: (i) the informal credit lending rates are highly receptive to monetary policies; (ii) the market is dominantly demand driven; (iii) the informal lending is substitutive to bank savings in the short run but complementary to banking lending in the long run; and (iv) the market is complementary to excessive investments in the local real estate market.