Trade Shocks and Bank Lending: Evidence from Antidumping Investigations of Chinese Firms

Using credit registry data from China, this paper examines the implications of antidumping trade shocks on exporting country’s bank loan market. We find that a onestandard-deviation trade shock leads to a 7.2% increase in the likelihood of default in relative terms. Banks respond to the shock by raising the requirements of collateral or guarantee, shortening loan maturity, while leaving interest rates unchanged. Moreover, banks cut the supply of credit by 1.5% to affected borrowers. Firms that maintain bankfirm relationships are able to shield themselves from this particular demand shock to some extent. Lastly, we find some evidence in support of a spillover of trade shocks to unaffected sectors via banks. Our results suggest that trade shocks affect the allocation of credit via the banking sector.