How Banks in China make Lending Decisions

Yeung, Godfrey

doi:10.1080/10670560802576034

Cited by 52 publications

(28 citation statements)

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“…Beyond the pressures of competition, the CCP treats its banks as basic utilities that provide unlimited capital to the cherished SOEs.' There are ample studies that confirm the lending bias of the state banks -particularly of the 'Big Four' state-owned commercial banks (SOCBs) -in favour of the SOEs: size, ownership and political connection are key variables determining a firm's access to bank credit (for example Firth et al 2009;Yeung 2009;Poncet et al 2010).…”

Section: Mattias Vermeirenmentioning

confidence: 96%

Foreign Exchange Accumulation and the Entrapment of Chinese Monetary Power: Towards a Balanced Growth Regime?

Vermeiren

2013

New Political Economy

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Section: Mattias Vermeirenmentioning

confidence: 96%

Foreign Exchange Accumulation and the Entrapment of Chinese Monetary Power: Towards a Balanced Growth Regime?

Vermeiren

2013

New Political Economy

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“…Thus, China's banking model is specific in that it distinguishes between official and unofficial lending criteria (Yeung 2009). The official lending criteria favor asset-based lending while unofficial lending criteria offer rentseeking opportunities.…”

Section: China Economic Journal 27mentioning

confidence: 98%

Financial deepening and income inequality: Is there any financial Kuznets curve in China? The political economy analysis

Kotarski

2015

China Economic Journal

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The interconnectedness of financial deepening and income inequality has been a highly controversial discussion which has not been concluded despite many empirical and theoretical studies up to date. One of the basic building blocks for many research designs is the reliance upon the Kuznets inverted U-shaped curve which postulates that in the first phase of economic growth income inequality increases, peaks and then decreases to a tolerable level in the later phase after a certain income level had been attained. The role of financial deepening in financing economic growth is an indispensable and necessary condition enabling us to easily draw an analogy between financial deepening and income inequality in a financial version of the Kuznets curve. In spite of 30 years of economic and financial reforms in China, which represents a fairly young history of economic growth and development, there are many indicators that Chinese experience significantly deviates from the presupposed inverted U-shaped curve trajectory and its final equalizing effect. This paper relies on financial deepening data measured by monetary aggregate M2/GDP and domestic banking credit/GDP ratios in its claim that they significantly correlate with rising income inequality. The author's intention consists not in claiming that financial deepening per se causes income inequality, but provides a political economy analysis of the specific institutional and power configuration which leads to their positive relationship. This configuration is determined by the prevailing banking model, the hukou system, financial repression and the decentralized authoritarian system. On the other hand, the absence of inequality-narrowing institutitons further aggravate the problem. All the aforementioned factors are geared at avoiding mechanical and spurious claims that financial deepening increases or decreases income inequality across countries. A historical institutionalism approach to explain China's path related to the Kuznets curve prediction shows the central validity of open and inclusive institutions in generating inequality-narrowing benefits of financial deepening.

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“…In the borrowing-lending scenario, research and practice show banks make lending decisions based on not only 'hard' quantitative criteria, such as balance sheets and income statement information, but also 'soft' qualitative information like ownership structure and the industry situation of borrowers (Berger and Udell, 2002;Yeung, 2009). Openness, acting as an important form of 'soft' qualitative information, could help substantially to alleviate the level of information asymmetry and to serve as a source of decision-related information for bank officials.…”

Section: Firm Openness and Bank Financingmentioning

confidence: 99%

Lending to Private Firms: Evidence from China on the Role of Firm Openness and Bribery

Ruan

Xiang

2018

The Chinese Economy

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This paper investigates the effects of firm openness and bribery on bank lending decisions. Using World Bank data covering 1869 private firms, we find evidence that paying bribes helps firms obtain bank credit in China. But after adding firm openness into the analysis, the significance of the effect of bribery on banking finance disappears. Instead, we find that banks in China prefer to allocate loans to firms with a higher level of openness. This finding holds true only for large firms, manufacturing firms, and firms located in regions with good banking development. We also find that private firms with greater government assistance are more likely to obtain bank loans, and more credit overall.Abstract: This paper investigates the effects of firm openness and bribery on bank lending decisions. Using World Bank data covering 1869 private firms, we find evidence that paying bribes helps firms obtain bank credit in China. But after adding firm openness into the analysis, the significance of the effect of bribery on banking finance disappears. Instead, we find that banks in China prefer to allocate loans to firms with a higher level of openness. This finding holds true only for large firms, manufacturing firms, and firms located in regions with good banking development. We also find that private firms with greater government assistance are more likely to obtain bank loans, and more credit overall.

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How Banks in China make Lending Decisions

Cited by 52 publications

References 0 publications

Foreign Exchange Accumulation and the Entrapment of Chinese Monetary Power: Towards a Balanced Growth Regime?

Foreign Exchange Accumulation and the Entrapment of Chinese Monetary Power: Towards a Balanced Growth Regime?

Financial deepening and income inequality: Is there any financial Kuznets curve in China? The political economy analysis

Lending to Private Firms: Evidence from China on the Role of Firm Openness and Bribery

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