A Research On The Procylicality Of The Credit Market In China

Subprime mortgage crisis has triggered a reflection among regulators and the academic community, the systematic imbalance caused by the excessive procylicality has become a hot topic. The so-called procylicality, is the phenomenon that some financial variable in the economic cycle fluctuates in the same derection with the macro-economic. And this phenomenon is dramatically revealed in credit markets. Banking system is the main part of the financial system,so the stability of the entire financial system and macroeconomic bases on a sound operation of the banking system. Therefore, this article choose to study the credit market of China, and define of the credit markets as two stages:A, the credit activities of financial institutions coincide with changes in the economic cycle, expand in the economic boom,and shrink in the recession; B,procyclical behavior of credit markets in turn enhance the macroeconomic fluctuation, and promote the formation of the economic cycle.On this basis, to discuss whether the procylicality characteristics exist in the credit market of China.Credit market has the inherent procylicality,and asymmetric information, herd behavior, agency problems, memory inertia and disaster myopia can to different extent explain the inherent procylicality of credit markets. The fair value accounting standard and the capital regulation framework in BaselⅡsignificantly increase this procylicality. This paper interprets the first layer of procylicality definition,that business cycle fluctuation causes credit market fluctuation,from the angles of endogenous causes, fair value accounting and capital regulation.This is the basis for the formation of procylicality mechanism.The "financial accelerator" theory offers a new angle to understand the second layer:"credit market fluctuation enhances macroeconomic fluctuation".After theoretical analysis, firstly,the paper has drawn graphs to show the fluctuation curves of business cycle and credit cycle,based on datas of GDP growth rate and loan growth rate,in1978 to 2009. According to "valley-valley division method",the macroeconomic cycle is divided into five periods, and then on the same basis of the economic cycle division method, the credit cycle is divided into 6 periods.With reference to China economic reform and banking reform process, the paper analyse the fluctuations in the economy and credit market over these years in detail,and then combine the economic cycle and credit cycle, to make a comparative analysis.In the empirical research component, the paper use quarterly data of GDP growth rate and loan growth rate between December 1992 and June 2010,to examine the existence of procylicality in the credit market of China. First of all, unit root tests prove that the two sets of data are first order integration series,followed by a cointegration analysis, which confirms the growth rate of GDP growth and credit variables are cointegrated, in other words,there is a long-term equilibrium relationship between them. After that an error correction model is built to describe the short-term non-equilibrium relationships between the two of them. The result shows that the ECM coefficient is-0.159,which represents the system adjust effort of short-term imbalances. This reflects that there is an error correction mechanism in the credit market of China,and short-term adjustment efforts is obvious. Then, Granger causality test is made on the basis of VAR model,to examine the leading and lagging relationship in the procylicality mechanism. Test results shows that GDP growth rate is one-way Granger cause of credit growth rate. This result indicated that the economic cycle precedes the credit cycle, and it can be interpretted as"procylicality exists in the credit market of China".But but the procylicality effect has not fully raised,and its damege on the economy is limited.In the end, the paper sums up the experience on the procylicality and counter-cyclical regulatory approach both domestic and international.Understanding the situation and problems of banking regulation in China,the paper puts some feasible suggestions for China.