Abstract: This study examines the mechanism of the decreasing of the capital investment in recent pressure of economic downturn (hereafter downturn period) from the perspective of the long-term impact of the RMB 4 trillion economic stimulus packages (hereafter four trillion packages). We find that firms affected more by four trillion packages invest less in the downturn period, and this effect is stronger for non-stated owned enterprises (NSOEs) than for SOEs. We also find that monetary policy has little impact on the relation between the impact of the four trillion packages on firm investment in downturn period, and the effect of four trillion packages and firm investment in downturn period is stronger for firms from lower marketization areas than those from higher marketization areas. Our further analyses show that the channels through which the four trillion packages affects firm investment in downturn period are risk preference and investment opportunity. Our findings suggest that the long-term impact of four trillion packages is the possible reason of the decreasing of recent capital investment.

Key words: RMB 4 trillion economic stimulus packages, investment, monetary policy, marketization