IDEAS home Printed from
   My bibliography  Save this paper

If you try, you’ll get by: Chinese private firms’ efficiency gains from overcoming financial constraints


  • Galina Hale
  • Cheryl Long


It appears to be common knowledge that external financing in China is mostly limited to state-owned firms and is hard to obtain for smaller private firms. In this paper we first confirm this pattern for more recent data and then investigate ways in which private firms overcome their financing constraints. We find that private firms reduce their need for external funds through more efficient management of inventory levels and accounts receivable. We further show that the low levels of inventories and accounts receivable in Chinese private firms are not below efficient levels and are unlikely to be a hindrance to their efficient operations. Instead, these low levels of working capital seem to be correlated with higher financial returns as well as higher productivity. We conclude that while limited access to external financing may limit the growth of private sector in the medium and long run, in the short run the lean operating budget may be contributing to Chinese private firms’ efficiency.

Suggested Citation

  • Galina Hale & Cheryl Long, 2010. "If you try, you’ll get by: Chinese private firms’ efficiency gains from overcoming financial constraints," Working Paper Series 2010-21, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2010-21

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Boyreau-Debray, Genevieve & Wei, Shang-Jin, 2004. "Pitfalls of a State-Dominated Financial System: The Case of China," CEPR Discussion Papers 4471, C.E.P.R. Discussion Papers.
    2. Poncet, Sandra & Steingress, Walter & Vandenbussche, Hylke, 2010. "Financial constraints in China: Firm-level evidence," China Economic Review, Elsevier, vol. 21(3), pages 411-422, September.
    3. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 661-691.
    4. repec:cup:jfinqa:v:46:y:2011:i:06:p:1831-1863_00 is not listed on IDEAS
    5. Galina Hale & Cheryl Long & Hirotaka Miura, 2010. "Where to Find Positive Productivity Spillovers from FDI in China: Disaggregated Analysis," Working Papers 142010, Hong Kong Institute for Monetary Research.
    6. Cull, Robert & Xu, Lixin Colin & Zhu, Tian, 2009. "Formal finance and trade credit during China's transition," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 173-192, April.
    7. Galina Hale & Cheryl Long, 2010. "What are the Sources of Financing of the Chinese Firms?," Working Papers 192010, Hong Kong Institute for Monetary Research.
    8. Brandt, Loren & Li, Hongbin, 2003. "Bank discrimination in transition economies: ideology, information, or incentives?," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 387-413, September.
    9. Chong-En Bai & Chang-Tai Hsieh & Yingyi Qian, 2006. "The Return to Capital in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2), pages 61-102.
    10. Cull, Robert & Xu, Lixin Colin, 2003. "Who gets credit? The behavior of bureaucrats and state banks in allocating credit to Chinese state-owned enterprises," Journal of Development Economics, Elsevier, vol. 71(2), pages 533-559, August.
    11. Raymond Fisman & Inessa Love, 2003. "Trade Credit, Financial Intermediary Development, and Industry Growth," Journal of Finance, American Finance Association, vol. 58(1), pages 353-374, February.
    12. Cull, Robert & Xu, Lixin Colin, 2000. "Bureaucrats, State Banks, and the Efficiency of Credit Allocation: The Experience of Chinese State-Owned Enterprises," Journal of Comparative Economics, Elsevier, vol. 28(1), pages 1-31, March.
    13. Wendy Dobson & Anil K. Kashyap, 2006. "The Contradiction in China's Gradualist Banking Reforms," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2), pages 103-162.
    14. Héricourt, Jérôme & Poncet, Sandra, 2009. "FDI and credit constraints: Firm-level evidence from China," Economic Systems, Elsevier, vol. 33(1), pages 1-21, March.
    15. Ge, Ying & Qiu, Jiaping, 2007. "Financial development, bank discrimination and trade credit," Journal of Banking & Finance, Elsevier, vol. 31(2), pages 513-530, February.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Feng, Ling & Li, Zhiyuan & Swenson, Deborah L., 2016. "The connection between imported intermediate inputs and exports: Evidence from Chinese firms," Journal of International Economics, Elsevier, vol. 101(C), pages 86-101.
    2. Ronald McKinnon & Gunther Schnabl, 2012. "China and Its Dollar Exchange Rate: A Worldwide Stabilising Influence?," The World Economy, Wiley Blackwell, vol. 35(6), pages 667-693, June.
    3. Alessandra Guariglia & Simona Mateut, "undated". "Political affiliation and trade credit extension by Chinese firms," Discussion Papers 11/12, University of Nottingham, GEP.
    4. Gunther Schnabl, 2011. "The role of the chinese dollar peg for macroeconomic stability in China and the world economy," Global Financial Markets Working Paper Series 13-2010, Friedrich-Schiller-University Jena.

    More about this item


    Business enterprises ; China;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedfwp:2010-21. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Federal Reserve Bank of San Francisco Research Library). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.