Administrative decentralization and credit pricing: evidence from China’s separately listed cities

This paper examines whether administrative decentralization lowers borrowing costs. Exploiting China’s SLCs (separately listed cities) – Shenzhen, Ningbo, Qingdao, Dalian, and Xiamen – as a within-province comparison, we compare SLCs with non-SLCs (the rest of their provinces) sharing the same provincial bond framework. Using province-by-year fixed effects on 2,876 bonds (2021–2025), we find that SLCs carry a positive and significant credit spread premium of approximately 0.0383% points. This premium survives leave-one-pair-out sensitivity analysis, exact permutation test (252 assignments, p = 0.028), wild cluster bootstrap (p = 0.010), and a battery of alternative specifications including province-by-quarter fixed effects, within-pair differenced specifications, and issuer-year and province-year weighted regressions. Heterogeneity analysis reveals that the premium is larger in provinces with low fiscal sustainability and general bonds, consistent with a “guarantee hierarchy fragmentation” interpretation: SLCs are excluded from the provincial implicit guarantee network that benefits non-SLCs. Our findings challenge the conventional view that fiscal autonomy automatically reduces borrowing costs, highlighting the role of institutional design in credit market discipline.