Dual Credit Markets and Household Access to Finance: Evidence from a Representative Chinese Household Survey

44 Pages Posted: 20 Apr 2016 Last revised: 27 Apr 2018

See all articles by Robert Cull

Robert Cull

World Bank - Development Research Group (DECRG)

Li Gan

Texas A&M University - Department of Economics; National Bureau of Economic Research (NBER)

Nan Gao

Southwestern University of Finance and Economics (SWUFE)

Lixin Colin Xu

World Bank - Development Research Group (DECRG)

Date Written: October 22, 2015

Abstract

Using a new and representative data set of Chinese household finance, this paper documents household access to and costs of finance, along with their correlates. As in most developing countries, informal finance is a crucial element of household finance, and wealth tends to be associated with better access to formal and informal finance. Better financial knowledge shifts loan portfolios toward formal sources relative to informal ones. Connections to the Communist Party are associated with significantly better access to finance in rural areas but not in urban areas. A larger social network is positively associated with access to informal finance. Controlling for household characteristics, rural residents pay interest rates on loans similar to urban residents. Younger residents pay higher rates, while households on firmer economic footing face lower rates. Taking financial classes and college education is associated with higher interest rates for urban residents, suggesting perhaps that financial knowledge coincides with greater demand for credit in areas with more economic opportunity. Overall, the findings suggest that Chinese residents face dual credit markets, with the poor, young, those with poor financial knowledge, and those with larger family sizes relying much more on informal finance, while others are better able to access formal finance.

Keywords: Urban Housing, Urban Governance and Management, Urban Housing and Land Settlements, Municipal Management and Reform, Access to Finance, Educational Sciences, Financial Literacy, Inflation

Suggested Citation

Cull, Robert and Gan, Li and Gao, Nan and Xu, Lixin Colin, Dual Credit Markets and Household Access to Finance: Evidence from a Representative Chinese Household Survey (October 22, 2015). World Bank Policy Research Working Paper No. 7454. Available at SSRN: https://ssrn.com/abstract=2678783

Robert Cull

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
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HOME PAGE: http://econ.worldbank.org/staff/rcull

Li Gan

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nan Gao

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Lixin Colin Xu (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H Street, N.W.
MC 3-427
Washington, DC 20433
United States
202-473-4664 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/cxu

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