“Noon Sunshine-Young Scholars Seminar” is a regular academic exchange platform held by School of Finance. It aims to offer valuable occasions of communications among scholars in our college, between teachers and students, the domestic and the oversea. In this semester, we keep our original intention, set off for a new voyage. We will devote ourselves to fostering the academic atmosphere in the college, and promoting the academic level for both teachers and students.

The fifth session of “Noon Sunshine-Young Scholars Seminar” for the Autumn Semester in 2025 is arranged as follows:

Lecture topic

Not in the Spread: Developer Defaults, Municipal Borrowing, and Bank Absorption in China

Keynote Speaker: Li Keyang

Date

Thursday, October 16th, 2025

Time

12:00-13:30

Lecture Venue

Room 116, School of Finance

Abstract

We examine how corporate defaults propagate into public finance and the banking system by leveraging real estate developer bond defaults in China as plausible exogenous shocks. Using a staggered difference-in-differences design on a city–quarter panel of 263 cities from 2016 to 2022, we show that developer defaults trigger a sharp substitution from land revenues to local government financing vehicle (LGFV) bonds: issuance rises by 67.5%—equivalent to CNY 915 billion annually. Strikingly, borrowing expands without higher spreads, indicating non-market absorption. We trace this to city commercial banks, which absorb local LGFV bonds under government influence and subsequently issue subordinated debt to meet capital requirements. This chain—from real estate distress to municipal borrowing to local banks—highlights a novel fiscal-financial transmission channel. Our findings extend the literature on state-owned banks, local government debt, and systemic risk by demonstrating how fiscal institutions exacerbate financial fragility when market discipline fails.