By analyzing a hand-collected transaction-level dataset on the finance leases of China’s public firms for the period 2007–19, this article sheds light on China’s leasing market, the second largest in the world. We find that banks use their affiliated leasing firms to provide credit to clients in order to circumvent the government’s targeted credit tightening policy. In contrast to conventional view of regulatory arbitrage, our evidence shows that, rather than hiding risk and gambling for profit, banks-affiliated leasing firms have prudent risk control and efficient pricing. These bank-affiliated institutions are used by banks to play strategic role in relationship banking. Moreover, the ownership of the lessor also matters for the financing choice of the lessee.

We exploit information in sovereign CDS spreads and the international trade network to provide causal evidence of the propagation of global economic shocks. We show that trade links are an important source of shock transmission using the natural experiments of the Japanese tsunami and the COVID-19 lockdown in China. We then confirm more general and gradual information flows along the trade network by showing extensive country-level credit/equity cross-sectional return predictability. News about country fundamentals flows primarily from importers to exporters, depends on both direct and indirect links in the trade network, and is magnified by the exporting country's financial vulnerability.