Credit quality and economic development in China

China’s economy has had significant growth rates in recent years: the banking system has been the main source of financing this process. There are significant differences in the contribution of both regions and economic sectors to national economic growth. The aim of this research is to investigate the relationship between Chinese economic growth and bank loans, by regions and sectors, from 2003 to 2009. The assumption is that the distribution and the quality of loans by banking system reflects the differences in development by regions and sectors in China. The methodology adopted is a linear regression analysis. We use: as dependent variable, per capita gross domestic product; as independent variables, the ratio between loans and population, the ratio between the number of graduates in Regular Senior Secondary Schools and population. Besides, with the aim to consider the impact of credit quality on economic growth, we include in the set of independent variables the ratio between non performing loans on total loans. Finally, to evaluate the phenomenon over time, we also introduced some dummy variables. All variables are on a provincial basis. Data will be from National Supervisors and Bureau of Statistics publications. Our analysis demonstrates that the quality of bank credit is not a significant variable in explaining the evolution of gross domestic product, while the amount of credit and the educational level are statistically significant.