History, Culture and the Rise of Informal Finance in China

HKIMR Working Paper No. 12/2017

29 Pages Posted: 6 Jun 2017  

Jinyang Hu

Shandong University

Chicheng Ma

The University of Hong Kong

Bo Zhang

Shandong University

Date Written: June 5, 2017

Abstract

This paper examines the long-term effect of historical financial institutions on the development of informal finance in contemporary China. By using data on 137 counties in north China, our analysis finds that the density of local financial institutions (qianzhuang and diandang) in the late Qing period (circa 1911) has a positive effect on the number and total assets of Small Loan Companies, a dominant institution of informal finance today. This finding is robust to the inclusion of a variety of confounding variables and instrumenting historical financial institutions using the frequency of crop failures in the Qing period. We also find that the persistent effect of historical financial institutions can be explained by Confucian culture, which instills integrity, lineage solidarity and acquaintance networks.

Keywords: Informal Finance, Small Loan Companies, History, Confucian Culture, China

JEL Classification: G21, N25

Suggested Citation

Hu, Jinyang and Ma, Chicheng and Zhang, Bo, History, Culture and the Rise of Informal Finance in China (June 5, 2017). HKIMR Working Paper No. 12/2017. Available at SSRN: https://ssrn.com/abstract=2980540. or http://dx.doi.org/10.2139/ssrn.2980540

Jinyang Hu

Shandong University ( email )

27 Shanda Nanlu
South Rd.
Jinan, Shandong 250100
China

Chicheng Ma (Contact Author)

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Bo Zhang

Shandong University ( email )

27 Shanda Nanlu
South Rd.
Jinan, Shandong 250100
China

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