What are the Sources of Financing of the Chinese Firms?
Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 19/2010
Frontiers of Economics and Globalization, Volume 9, ISSN: 1574-8715. New title: "What are the Sources of Financing for Chinese Firms?"
33 Pages Posted: 20 Sep 2010 Last revised: 7 Sep 2022
Date Written: July 30, 2010
Abstract
This working paper was written by Galina Hale (Federal Reserve Bank of San Francisco ) and 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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