Local Financial Development and Constraints on Private-Firm Exports: Evidence from City Commercial Banks in China
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| Sandra Poncet (University of Paris 1) | |
| Tuesday 28 March 2017 at 4:00 pm (Hong Kong time, GMT +8) | |
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IAS2042, 2/F, Lo Ka Chung Building, Lee Shau Kee Campus, HKUST |
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Key insights
In her IEMS Academic Seminar, Sandra Poncet (University of Paris 1) explores whether the entrance of City Commercial Banks (CCBs) in China have relaxed the credit constraints faced by private firms. Drawing from her study spanning 260 cities between 1997 and 2012, Prof Poncet shows that CCBs have helped some private firms but overall have yet to deliver on their promise to provide greater commercial lending. Loan allocation in China is heavily influenced by the state, inhibiting the competitiveness of the Chinese business environment.
Previously, the lack of private sector lending put local firms at a disadvantage compared to their foreign counterparts. Dr Poncet finds that CCBs have helped close the gap, enabling private firms in China to develop exports, particularly in sectors overlooked by big, state-owned lenders. However, lending-bias when compared to state-owned firms continues to grow disrupting China’s growth potential. Private firms absorb most new workers entering the labor force and boast export performance five times larger than their larger, state-owned cousins, making the private sector a key player for supporting employment rates. However, state-owned enterprises continue to dominate borrowing in China, which is missing out on the high potential return on investment offered by private firms.
Relaxing the credit constraints on private firms is important if China wishes to maintain its pace of growth. Poncet recommends that CCBs first strive towards independent corporate governance.
Abstract
The paper investigates whether the development of city commercial banks (CCBs) across China has alleviated the constraints from China's domestic financial-market inefficiency on the export activity of domestic private firms. Considering the export behavior of 260 cities between 1997 and 2012, we confirm the well-established under-performance of domestic private firms in financially more vulnerable sectors compared to foreign affiliates in China. We show that a greater number of city commercial bank branches raises domestic private-firm exports disproportionately more in financially-dependent sectors, and so reduces the systematic disadvantage of domestic private firms relative to foreign-owned firms in export markets resulting from their greater financial exclusion. We however also find that private-firm export performance has deteriorated relative to that of State-owned firms, casting doubt on the ability of CCBs to end the systematic bias of lending in favor of the State sector.
About the Speaker
Sandra Poncet is professor of Economics at the University of Paris 1. She is an associated member at the Paris School of Economics. Her research focuses on the process of economic development in a context of globalization. Her work consists mainly of empirical analyses applied to the Chinese economy. Her work has been published extensively in academic journals such as Journal of Development Economics, Review of Economics and Statistics, World Development, World Bank Economic Review.
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