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A Study on the Corporate Lending Paradox of China

Author: DengPinBo
Tutor: YinKeDong
School: Ocean University of China
Course: Financial
Keywords: corporate lending paradox countermeasures
CLC: F832.4
Type: Master's thesis
Year: 2013
Downloads: 5
Quote: 0
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Abstract


The allocation of credit resources affects not only the development of individual enterprises, but also the productivity of the whole society. Although many measures have been taken by the Chinese government to improve the efficiency of credit market, loan financing difficulties have never been relieved for small and medium sized enterprises (SMEs), while large-scale enterprises are tend to be over-financed. Based on previous researches, this paper takes a new perspective--corporate lending paradox--to study the malfunction of credit market. In this paper, the situation, negative impacts and causes of the paradox have been discussed accordingly before comprehensive solutions are constructed to optimize the allocation of credit resources.First, in order to depict the situation of corporate lending paradox accurately, this paper compares the loan financing of SMEs and large enterprises in four dimensions, from the demand for credit, the degree of credit satisfaction, pattern of lending to lending cost.Second, as for the negative impacts of corporate lending paradox, the analysis in this paper finds that, it not only jeopardizes the potential expansion of SMEs and the long-term development of large enterprise, but also restricts the sustainable growth of financial institutions’ lending business and the whole economy.Further, this article explores the causes of corporate lending paradox from the financial environment perspective, as the environment of transactions is bound to have profound impacts on all participants. The study found that the low level of interest rate liberalization, stringent capital requirement, poor credit management system, and rigid lending procedures, combined with other factors lead to large-scale enterprises to be favored by financial institutions, while SMEs susceptible to credit discrimination.In addition, an empirical test has been made to reveal the relationship between the availability&cost of loan financing and the characteristics of borrowing enterprises. The analysis result shows that two much emphasis is placed on the size and mortgage of applicants when banks making lending decisions, while other vital factors such as the solvency, profitability and development capacity receive insufficient attention. Due to banks’ incompetency in risk identification and pricing, corporate lending paradox is largely reflected in the amount of loans received by enterprises of different scales. For many SMEs, loans are still unavailable even if they are willing to pay a higher price.Finally, this paper presents countermeasures to crack corporate lending paradox, which requires the joint efforts of enterprises, financial institutions and government departments. Companies need to improve their management, cherish their credibility, and build up good reputations; financial institutions need to adjust lending strategies, refine credit services, and innovate loan pricing; government needs to deepen financial reform, regulate scientifically, and optimize credit transaction environment.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Credit
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