Evolution of the Chinese guarantee network under financial crisis and stimulus program

• Published in: Nature communications Vol. 11; no. 1; p. 2693
• Main Authors: Wang, Yingli, Zhang, Qingpeng, Yang, Xiaoguang
• Format: Journal Article
• Language: English
• Published: London Nature Publishing Group UK 01.06.2020; Nature Publishing Group; Nature Portfolio
• Subjects: 639/766/530/2801; 706/134; 706/689/159; 706/689/680; Bankruptcy; Economic crisis; Economic policy; Evolution; Guarantees; Humanities and Social Sciences; International finance; Loans; multidisciplinary; Resilience; Science; Science (multidisciplinary)
• ISSN: 2041-1723; 2041-1723
• DOI: 10.1038/s41467-020-16535-8

Our knowledge about the evolution of guarantee network in downturn period is limited due to the lack of comprehensive data of the whole credit system. Here we analyze the dynamic Chinese guarantee network constructed from a comprehensive bank loan dataset that accounts for nearly 80% total loans in China, during 01/2007-03/2012. The results show that, first, during the 2007-2008 global financial crisis, the guarantee network became smaller, less connected and more stable because of many bankruptcies; second, the stimulus program encouraged mutual guarantee behaviors, resulting in highly reciprocal and fragile network structure; third, the following monetary policy adjustment enhanced the resilience of the guarantee network by reducing mutual guarantees. Interestingly, our work reveals that the financial crisis made the network more resilient, and conversely, the government bailout degenerated network resilience. These counterintuitive findings can provide new insight into the resilience of real-world credit system under external shocks or rescues. The systemic risk of real-world financial networks is understudied. Here the authors focused on the guarantee network among Chinese firms and found that the global financial crisis during 2007-2008 and economic policies in the aftermath had significant influence on the evolution of guarantee network structure.