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What are the Sources of Financing of the Chinese Firms?

  • Galina Hale

    (Federal Reserve Bank of San Francisco and Hong Kong Institute for Monetary Research)

  • Cheryl Long

    (Colgate University)

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 take a closer look at internal and external, formal and informal, financing sources of Chinese firms during the period of rapid economic reform in 1997-2006. To this end we analyze balance-sheet data from Chinese Industrial Surveys of Medium-sized and Large Firms for 2000-2006 and survey data from the Large-Scale Survey of Private Enterprises in China that was conducted in 1997, 2000, 2002, 2004, and 2006. The following stylized facts emerge from our analysis: (1) State-owned firms continue to enjoy significantly more generous external finances than other types of Chinese firms; (2) Chinese private firms have resorted to various ways to overcome financial constraints, including increasingly more mature informal financial markets, cost-saving through lower inventory and other working capital requirements, and greater reliance on retained earnings; (3) There are substantial variations in financial access among private firms: While the small private firms face more financial constraints, the more established large private firms seem to have access to finances that are more equal to their SOE counterparts; and, (4) There is some evidence that financial access of small private firms, especially to formal bank loans, has improved moderately in the past decade.

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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 192010.

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Length: 33 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:hkm:wpaper:192010
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  1. 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.
  2. Ge, Ying & Qiu, Jiaping, 2007. "Financial development, bank discrimination and trade credit," Journal of Banking & Finance, Elsevier, vol. 31(2), pages 513-530, February.
  3. 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.
  4. Albert Park and Kaja Sehrt & Albert Park and Kaja Sehrt, 1999. "Tests of Financial Intermediation and Banking Reform in China," William Davidson Institute Working Papers Series 270, William Davidson Institute at the University of Michigan.
  5. Héricourt, Jérôme & Poncet, Sandra, 2009. "FDI and credit constraints: Firm-level evidence from China," Economic Systems, Elsevier, vol. 33(1), pages 1-21, March.
  6. Wendy Dobson & Anil K Kashyap, 2006. "The Contradiction in China’s Gradualist Banking Reforms," Working Papers Series 08, Rotman Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
  7. Cull, Robert & Lixin Colin Xu & Tian Zhu, 2007. "Formal finance and trade credit during China's transition," Policy Research Working Paper Series 4204, The World Bank.
  8. repec:cup:jfinqa:v:46:y:2011:i:06:p:1831-1863_00 is not listed on IDEAS
  9. 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.
  10. Cull, Robert & Xu, Lixin Colin, 2005. "Institutions, ownership, and finance: the determinants of profit reinvestment among Chinese firms," Journal of Financial Economics, Elsevier, vol. 77(1), pages 117-146, July.
  11. 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.
  12. 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.
  13. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
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