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Formal finance and trade credit during China's transition
 
Author:Cull, Robert; Lixin Colin Xu; Tian Zhu; Collection Title:Policy, Research working paper ; no. WPS 4204
Country:China; Date Stored:2007/04/13
Document Date:2007/04/01Document Type:Policy Research Working Paper
Language:EnglishRegion:East Asia and Pacific
Report Number:WPS4204SubTopics:Economic Theory & Research; Financial Crisis Management & Restructuring; Banks & Banking Reform; Investment and Investment Climate; Financial Intermediation
Volume No:1 of 1  

Summary: Using a large panel dataset of Chinese industrial firms, the authors examine the determinants of access to loans from formal financial intermediaries and extension of trade credit. Poorly performing state-owned enterprises were more likely to redistribute credit to firms with less privileged access to loans through trade credit, a pattern consistent with some of the extension of trade credit being involuntary. 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 private firms' customers that were shut out of formal credit markets. As biases in lending became less severe, the amount of trade credit extended by private firms declined.

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