Financial Discipline in the Enterprise Sector in Transition Countries: How Does China Compare?
This paper makes some selective comparisons of the empirical evidence relating to financial discipline and soft budget constraints in the enterprise sector in China and the transition countries of Central and Eastern Europe and the former Soviet Union (CEEFSU). The paper finds that: (1) in both CEEFSU countries and China, budgetary subsidies have fallen as prices have been liberalized, and the budgetary subsidies which remain are not clear evidence of soft budget constraints; (2) firms in both CEEFSU countries and China typically impose hard budget constraints on each other; levels of trade credit in China were roughly constant in 1994-96, implying inflows have approximately equaled outflows, i.e. inter-enterprise debts are being paid; the level of total trade credit observed in China, at about 20-25% of GDP, is similar to that observed not only in CEEFSU countries but also in developed Western economies; (3) in a comparison of bank financing of Chinese and Hungarian firms, Chinese banks were providing poorly-performing firms with new financing, whereas in Hungary, banks were reducing their exposure to bad firms; and (4) tax arrears in CEEFSU economies have emerged as a major source of soft budget constraints in recent years, but enterprise-level data for China show that as of the early 1990s, tax arrears were not an important source of financing for loss-making Chinese firms.
|Date of creation:||01 Feb 1998|
|Date of revision:|
|Contact details of provider:|| Postal: 724 E. University Ave, Wyly Hall 1st Flr, Ann Arbor MI 48109|
Phone: 734 763-5020
Fax: 734 763-5850
Web page: http://www.wdi.umich.edu
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Schaffer, Mark E., 1998. "Do Firms in Transition Economies Have Soft Budget Constraints? A Reconsideration of Concepts and Evidence," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 80-103, March.
- Rajan, Raghuram G & Zingales, Luigi, 1995.
" What Do We Know about Capital Structure? Some Evidence from International Data,"
Journal of Finance,
American Finance Association, vol. 50(5), pages 1421-60, December.
- Raghuram G. Rajan & Luigi Zingales, 1994. "What Do We Know About Capital Structure? Some Evidence from International Data," NBER Working Papers 4875, National Bureau of Economic Research, Inc.
- Cornelli, F. & Portes, R. & Schaffer, M., 1996.
"The Capital Structure of Firms in Central and Eastern Europe,"
DELTA Working Papers
96-05, DELTA (Ecole normale supérieure).
- Cornelli, Francesca & Portes, Richard & Schaffer, Mark E, 1996. "The Capital Structure of Firms in Central and Eastern Europe," CEPR Discussion Papers 1392, C.E.P.R. Discussion Papers.
- Zou, Liang & Sun, Laixiang, 1996. "Interest Rate Policy and Incentives of State-Owned Enterprises in the Transitional China," Journal of Comparative Economics, Elsevier, vol. 23(3), pages 292-318, December.
- Kornai, Janos, 1986.
"The Soft Budget Constraint,"
Wiley Blackwell, vol. 39(1), pages 3-30.
- G. Alfandari & M.E. Schaffer, 1996. ""Arrears" in the Russian Enterprise Sector," CERT Discussion Papers 9608, Centre for Economic Reform and Transformation, Heriot Watt University.
- Perotti, E. C., 1998. "Inertial credit and opportunistic arrears in transition," European Economic Review, Elsevier, vol. 42(9), pages 1703-1725, November.
- Schaffer, Mark E, 1995. "Government Subsidies to Enterprises in Central and Eastern Europe: Budgetary Subsidies and Tax Arrears," CEPR Discussion Papers 1144, C.E.P.R. Discussion Papers.
- M Belka & S Estrin & M Schaffer & I.J. Singh, 1995. "Enterprise Adjustment in Poland: Evidence from a Survey of 200 Private," CEP Discussion Papers dp0233, Centre for Economic Performance, LSE.
- J Bonin & M Schaffer, 1995.
"Banks, Firms, Bad Debts and Bankruptcy in Hungary 1991-4,"
CEP Discussion Papers
dp0234, Centre for Economic Performance, LSE.
- J. P. Bonin & M. E. Schaffer, 1995. "Banks, firms, bad debts and bankruptcy in Hungary 1991-4," LSE Research Online Documents on Economics 20764, London School of Economics and Political Science, LSE Library.
When requesting a correction, please mention this item's handle: RePEc:wdi:papers:1998-124. 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: (Laurie Gendron)
If references are entirely missing, you can add them using this form.