Events

Professor Kai Li
Chair Professor of Finance
PBC School of Finance
Tsinghua University

This paper examines how finance leases, the dominant form of leasing in China, shape capital allocation in a bank-dominated financial system characterized by SOE-biased credit. Using contract-level data from Chinese listed firms and the national chattel registry, we document that state-owned enterprises (SOEs) dominate the supply of lease financing, while lessees tend to be more productive and financially constrained firms, particularly private enterprises (POEs). Finance leases provide greater effective collateral capacity than bank loans owing to stronger repossession rights, and these benefits are largely ownership-neutral, unlike traditional bank credit. We incorporate this financing technology into a two-sector general-equilibrium model and a calibrated dynamic heterogeneous-firm framework to quantify its effects on capital allocation and aggregate productivity. Our findings suggest that finance leases function as a productive form of shadow banking that relaxes collateral constraints and mitigates ownership-based credit distortions, highlighting the potential value of differentiated, function-based prudential regulation.