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Chinese Informal Financial Systems and Economic Growth --A Case Study of China's Small and Medium Enterprises

Author

Listed:
  • Cong Ji

    (Associate Professor, Senshu University)

Abstract

This paper analyzes the role of China's informal financial system that supports small and medium enterprises (SMEs). China has experienced a transition from a planned economy to a market economy. During the course of this, its financial system has gone through many reforms. Despite the fact that the shift lacked consistency and coherence, because it was a series of trial and error patchworks, there is no doubt that China's strong growth is largely supported by SMEs. The author points out that the existence of informal rules based on relationships of trust such as reputation, geographical or family ties ("reputation and relationships") has not only helped financing SMEs which are suffering from asymmetry in information, but has also worked as an efficient engine to drive the growth of SMEs. Thus the informal financial system based on "reputation and relationships" is working as an important apparatus to complement inefficiency in the formal capital market.

Suggested Citation

  • Cong Ji, 2009. "Chinese Informal Financial Systems and Economic Growth --A Case Study of China's Small and Medium Enterprises," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 5(1), pages 63-88, October.
    • Handle: RePEc:mof:journl:ppr005d
    as

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    File URL: http://warp.ndl.go.jp/info:ndljp/pid/9908001/www.mof.go.jp/english/pri/publication/pp_review/ppr005/ppr005d.pdf
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    References listed on IDEAS

    as
    1. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    2. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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