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Tackling Small and Medium-Sized Enterprises (SMEs) Financing in China

Author

Listed:
  • W. Raphael Lam

    (International Monetary Fund)

  • Yan Liu

    (World Bank)

Abstract

China's small and medium enterprises (SMEs) have contributed to growth and created millions of jobs. However, SMEs are frequently perceived as facing financing difficulties. This paper illustrates that (1) financing difficulties are more acute in smaller cities; (2) spreads between SMEs and large enterprises appear higher in part due to implicit fees and charges by banks and higher credit risks for SMEs; and (3) greater financial penetration in small cities could reduce the financing cost. These findings could help formulate policies to support SME financing. Strengthening financial inclusion with safeguards, particularly in small cities, could bring significant gains. Measures to build a sound financial infrastructure would improve credit to SMEs, including unified credit registry and extending eligible collaterals. Broadening sources of finance by taking advantage of technology—provided with adequate supervision—and addressing implicit guarantees could help SME financing.

Suggested Citation

  • W. Raphael Lam & Yan Liu, 2020. "Tackling Small and Medium-Sized Enterprises (SMEs) Financing in China," Annals of Economics and Finance, Society for AEF, vol. 21(1), pages 209-239, May.
    • Handle: RePEc:cuf:journl:y:2020:v:21:i:1:lamliu
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    References listed on IDEAS

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    More about this item

    Keywords

    China; Small and medium-sized enterprises; SME financing; Credit registry;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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