Formal finance and trade credit during China's transition

Robert Cull (First Author), Tian Zhu (Participant Author), Lixin Colin Xu (Participant Author)

Research output: Contribution to journalJournal

122 Citations (Web of Science)

Abstract

Using a large panel dataset of Chinese industrial firms, we find that poorly performing SOEs were more likely to redistribute credit to firms with less privileged access to loans via trade credit. While that could be consistent with the efficient redistribution of credit, it is more likely that these SOEs extended trade credit to prop up faltering customers that were in arrears. By contrast, profitable private domestic firms were more likely to extend trade credit than unprofitable ones. Trade credit likely provided a substitute for loans for these firms' customers that were shut out of formal credit markets. As biases in lending become less severe, the allocation of lending became more efficient, and the amount of trade credit extended by private firms declined. Our evidence implies that redistribution of bank loans via trade was not a major contributor to China's explosive growth.
Original languageEnglish
Pages (from-to)173-192
JournalJournal of Financial Intermediation
Volume18
Issue number2
DOIs
Publication statusPublished - 2009

Corresponding author email

rcull@worldbank.org

Keywords

  • BANKS
  • BUREAUCRATS
  • DETERMINANTS
  • ECONOMIC-GROWTH
  • ENDOWMENTS
  • INSTITUTIONS
  • LAW
  • NEW-WORLD
  • STATE-OWNED ENTERPRISES

Indexed by

  • ABDC-A*
  • Scopus
  • SSCI

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