Co-authored Paper by Professors Cao Tingqiu and Chang Dongfeng Published in Top Journal Economic Research

Recently, the paper Loan Gradient in Production Chains and the Effectiveness of Monetary Policy Transmission, co-authored by Professor Cao Tingqiu, Associate Researcher Chang Dongfeng, doctoral student Pang Nianwei from our school, and Researcher Peng Jiangbo from the People’s Bank of China Jinan Branch, was published as a cover article in Issue 5, 2024 of Economic Research. This paper is the latest achievement of the fiscal and finance discipline direction of socialist economics with Chinese characteristics at the School of Economics.

Taking the loan gradient in production chains under a vertical production structure as the starting point, the paper constructs a theoretical model to clarify the micro-mechanism by which loan gradient affects the effectiveness of monetary policy transmission, and conducts an empirical test based on listed company data. The study finds that under loose monetary policy, banks issue more loans to upstream enterprises than to downstream enterprises, and there is a loan gradient in the production chain. However, upstream enterprises do not smoothly convert loans into industrial investment, but purchase more financial assets. This phenomenon is mainly concentrated in regions with greater economic growth pressure and lower marketization level, as well as industries with higher capital intensity and non-key industries supported by industrial policies. From the perspective of mechanism, derived demand is an important channel for loan gradient to affect the effectiveness of monetary policy. The weak effect of monetary policy on downstream enterprises leads to insufficient derived demand for upstream enterprises, weakening the effect of monetary policy in stimulating upstream industrial investment.

The paper reveals the new characteristics of the current law of money supply and demand, puts forward a new explanation for the poor channel of capital entering the real economy, and has certain policy implications for unclogging the monetary policy transmission mechanism. The paper proposes that unclogging the monetary policy transmission mechanism should be carried out synergistically from both long-term and short-term dimensions. In the long run, the key is to break the realistic foundation of production chain loan gradient. In the short run, increasing targeted support for downstream enterprises in the production chain and unclogging the capital circulation channel from upstream to downstream enterprises will help alleviate the impact of production chain loan gradient and improve the effectiveness of monetary policy transmission.

Professor Cao Tingqiu has long been engaged in research on bank governance, monetary policy, and financial risks. He has published more than 100 papers in prestigious journals such as Social Sciences in China, Economic Research, International Review of Finance, and Corporate Governance: An International Review. He attaches great importance to the combination of theoretical research and practical experience, and has established close academic exchanges and cooperation mechanisms with financial regulation and control departments such as the People’s Bank of China. This paper gives full play to academic and policy advantages, realizes the organic combination of monetary policy theory and macro-control practice, and is another achievement of years of university-government cooperation.