درون جعبه سیاه: تخصیص اعتبار های بانکی در بخش خصوصی چین

This study examines how the Chinese state-owned banks allocate loans to private firms. We find that the banks extend loans to financially healthier and better-governed firms, which implies that the banks use commercial judgments in this segment of the market. We also find that having the state as a minority owner helps firms obtain bank loans and this suggests that political connections play a role in gaining access to bank finance. In addition, we find that commercial judgments are important determinants of the lending decisions for manufacturing firms, large firms, and firms located in regions with a more developed banking sector; political connections are important for firms in service industries, large firms, and firms located in areas with a less developed banking sector.

China’s transition from a centrally-planned socialist economy to a vibrant and fast expanding commercially oriented economy is well documented (Allen et al., 2005 and Lardy, 1998). This transformation involves moves toward the adoption of free-market policies, improvements in the commercial banking system, developing modern financial markets, and the writing and enforcement of commercial laws. At the corporate level, the reorganization of wholly-owned state enterprises into listed joint-stock companies with minority private ownership, has led to some improvement in efficiency (Chen et al., 2008). However, the biggest spark for economic growth has been the emergence of privately owned non-listed firms. According to the National Bureau of Statistics, the private sector accounted for roughly 50% of GNP in 2005 and this is expected to rise to at least 75% by 2010.1 One interesting, and as yet unresolved, question relates to the role that the banking sector has played in helping finance the expansion of private firms. The focus of our study, therefore, is to shed some light on this issue and, in particular, to gain an understanding of how banks make lending decisions with regard to non-listed private businesses. Our interest in this issue is piqued by the seemingly mixed messages from prior research. International evidence provides some background on the conditions that are deemed necessary for economies to flourish. La Porta et al. (2000) argue that the rule of law (including law enforcement), private ownership, and corporate governance are crucial elements in explaining economic success and corporate value. Other studies have stressed the need for highly developed capital markets and financial intermediaries to help foster a successful corporate sector (e.g. Rajan and Zingales, 1998). Using this “law-finance-growth” research as a backdrop, Allen et al. (2005) conclude that China does not display the conditions necessary for a vibrant private sector. For example, it is argued that despite some recent improvements, China still has an underdeveloped and capricious legal system, weak investor protection, a chronic lack of law enforcement, and overarching government interference and control. This suggests that China’s private sector should be subdued at best and completely irrelevant at worst, but this clearly flies in the face of the available evidence.2Allen et al. (2005) seek to explain the paradox by arguing that private firms make use of informal financing channels such as trade credits and private credit agencies that rely on alternative governance mechanisms such as family connections and the personal reputation of the entrepreneurs. By implication, banks do not play an active role in financing private firms in China. However, international evidence has shown that the support of formal financing to private firms determines the sustainability of this sector (Beck and Demirgüç-Kunt, 2006) and informal financing based on relationships is detrimental to business exchange, competition and innovation (Biggs and Shah, 2006). Thus, the importance of informal finance, especially in the longer-term, is a controversial topic and one that deserves additional investigation. In this study, we focus on the formal financing and governance mechanisms of non-listed private Chinese firms using survey data from the World Bank. There are numerous criticisms of China’s banking system including factors that inhibit it from providing finance to the private sector. These include the stylized facts that the banks are state-controlled (almost 100% owned by the government during the period of our study)3, carry out policy lending that follows government directives rather than commercial considerations, and discriminate against private firms (Brandt and Li, 2003 and Cull and Xu, 2003). As support for the latter stylized fact, bank statistics show that although the private sector accounts for 50% of the economy, it accounts for just 7% of bank lending. In light of these and other criticisms, the Chinese government has introduced a series of reforms to the banking sector to promote the availability of bank loans to private firms. However, systematic evidence on how bank loans are allocated to private firms in China remains scarce. Based on a World Bank nation-wide survey, this paper attempts to look inside the black box of bank lending decisions and answer the following questions about the determinants of bank financing to the private sector: Do the banks allocate loans to private firms according to a firm’s financial performance? Do political connections still matter in the allocation of loans to the private sector? Does managerial experience and corporate governance facilitate private firms’ access to bank loans? Do the determinants of lending decisions vary with industries, firm size and level of market development? We find that banks tend to allocate loans to private non-listed firms with higher profitability, more experienced and incentive-compatible CEOs, and more independent corporate boards. The results suggest that the banks are extending loans to financially healthier firms and better-governed firms. As a complement to the conclusions in Allen et al. (2005) regarding the importance of informal channels of finance, we present evidence that the banking sector uses commercial judgments in lending decisions. We also find that having some state ownership helps firms gain access to bank finance. Thus, political connections do carry weight in the decisions to lend to the private sector. Further analyses reveal that the determinants of the lending decisions vary across industries, firm size and levels of institutional development. Specifically, commercial judgments are important determinants of the lending decisions for manufacturing firms, large firms, and firms located in regions with a more liberalized banking sector. Political connections are important for firms in service industries, large firms, and firms located in areas with a less liberalized banking sector. Our results indicate that, after 30 years of reform, China’s banks have begun to behave more like the commercial corporate banks in the developed world. We find that the influences of political connections still persist, although the weaker role of political connections in regions with a more liberalized banking sector suggests that the banks are becoming more and more market-oriented as the reforms take effect. Our findings add to the recent literature on the structure, performance and functioning of China’s banking sector (e.g. Berger et al., 2009, Fu and Heffernan, 2009 and Lin and Zhang, 2009). This paper is structured as follows. Section 2 discusses the research background. Section 3 describes the data and the empirical models. The empirical results and their interpretations are reported in Section 4. Section 5 concludes.

A major contributor to China’s growth has been the spectacular expansion of the private sector. This expansion is even more remarkable given the lack of a conventional financial infrastructure in China (Allen et al., 2005). In this study, we seek to determine whether in fact state banks do lend to private non-listed firms and what criteria they use in evaluating loan applications. The data come from a survey of private businesses and so our models are constrained by the information collected. We find that commercial criteria appear to be used in banks’ decision making. In particular, a firm’s profitability is used as a criterion in granting loans and in determining loan size. This finding is much more pronounced for large firms, firms in the manufacturing industry, and firms in regions with a more developed banking sector. Despite these promising developments, political connections via state minority ownership still play a significant role in getting access for bank loans for large firms, firms in the service industry and firms in regions with a less developed banking sector. We find that in the absence of credit bureaus and the exchange of loan information across the banking sector, banks rely on corporate governance as signals for borrowers’ quality. Our study therefore makes a useful complement to the literature that documents the positive roles of corporate governance in reducing the costs of debt financing. We show that, in a lending environment with severe asymmetric information, good corporate governance can serve as organization collateral to facilitate access to bank loans. We also find that small private firms in China have a lower capacity to signal their quality to the banks. The lack of effective signals for small firms indicates that outside guarantee services could play a useful role in facilitating private firms’ access to bank loans. The establishment of a nation-wide credit scoring system and an inter-bank information sharing database on loan repayment history would substantially reduce transaction costs and reduce information asymmetry in the lending process. However, China’s credit guarantee companies currently serve only about 1% of the country’s SMEs and so there is an urgent need for China to develop additional standard credit guarantee services. The Chinese government continues to recognize the importance of the banking sector and has promulgated further rules and regulations that will help create a more level playing field upon which private, public and mixed private–public firms operate. The rules also require banks to use commercial criteria in making loans and to hold them accountable for bad decisions. As examples, in July 2004 and May 2005, the government promulgated guidelines on commercial banks’ due diligence performance in credit business and guidelines on banks’ lending to small enterprises. These require each bank to clearly define the responsibilities and due diligence assessment criteria for every function involved in the lending process and to create a fair credit market and competitive lending culture to firms with differing ownership structures. The recent listing of state banks on domestic and foreign stock exchanges exerts external market pressures on banks and should reinforce the use of commercial criteria in lending decisions and reduce any discrimination against small private firms. In light of this, we expect that the financing of small private firms will come, in the fullness of time, to resemble the situation in the US and other developed nations.