Dual Credit Markets and Household Usage to Finance: Evidence from a Representative Chinese Household Survey

Abstract

Using a new and representative data set of Chinese household finance, we document household usage and costs of finance, along with their correlates. As in many developing countries, informal credit is a crucial element of household finance, and interest‐free informal loans based on reciprocal personal relationships are highly prevalent in our sample. Not surprisingly, wealth tends to be associated with greater usage of both formal and informal finance. Political connections, extensive social networks and certain household demographic characteristics (such as size) are all positively associated with formal or informal credit usage (or both). Overall, our findings show signs that a dual credit market is emerging in China, with the poor, politically unconnected, and those with larger family sizes still heavily reliant on informal finance, most of which are interest‐free, while younger, wealthier households with better political connections and financial knowledge are increasingly using formal finance.

What Are the Determinants of the Decision to Purchase Private Health Insurance in China?

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Business Environment and Dual-Track Private Sector Development: China's Experience in Two Crucial Decades

“…In the early stages of economic transition, firms can overcome the obstacle of under-developed financial markets by reinvesting retained earnings and draw funds from informal sources such as family and friends. When they use external finance, they largely rely on relationships such as social networks and political connections in the state-owned banking system (Cull et al 2019). As transition proceeds, profit rates decline due to entry, and investment projects become larger and require more time, leading firms to increasingly rely on external rather than internal financing.…”

Credit Constraints and Fraud Victimization: Evidence from a Representative Chinese Household Survey

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“…We collect the information on all the certificates of all bank branches in China and locate every bank branch. Since housing purchases are expensive and tend to rely on bank loans (Cull et al, 2019), we define our second instrumental variable as the total number of bank institutions within five kilometers of households' current residence (denoted as Branch).…”

“…Second, previous research has shown that rural and urban access to credit differ greatly. Rural residents have much less access to bank finance and depend to a much greater extent on informal finance (Cull et al, 2019). Finally, rural and urban residents also differ greatly in their fraud victimization behavior, with rural residents living in more sparsely-populated areas, facing less social interaction, and using the internet less (i.e., a major source of fraud).…”