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What are the Sources of Financing of the Chinese Firms?

HKIMR Working Paper No.19/2010

33 Pages Posted: 20 Sep 2010  

Galina Hale

Federal Reserve Bank of San Francisco

Cheryl X. Long

Colgate University - Economics Department

Date Written: July 30, 2010


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.

Suggested Citation

Hale, Galina and Long, Cheryl X., What are the Sources of Financing of the Chinese Firms? (July 30, 2010). HKIMR Working Paper No.19/2010. Available at SSRN: or

Galina Hale (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-3131 (Phone)
415-974-2168 (Fax)


Cheryl X. Long

Colgate University - Economics Department ( email )

13 Oak Drive
Hamilton, NY 13346
United States

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