What are the Sources of Financing of the Chinese Firms?

33 Pages Posted: 20 Sep 2010

See all articles by Galina Hale

Galina Hale

University of California, Santa Cruz

Cheryl 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 Xiaoning, What are the Sources of Financing of the Chinese Firms? (July 30, 2010). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 19/2010, Available at SSRN: https://ssrn.com/abstract=1679535 or http://dx.doi.org/10.2139/ssrn.1679535

Galina Hale (Contact Author)

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

Cheryl Xiaoning Long

Colgate University - Economics Department ( email )

13 Oak Drive
Hamilton, NY 13346
United States

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