Financial constraints in China: firm-level evidence

This paper uses a unique micro-level data-set on Chinese firms to test for the existence of a"political-pecking order" in the allocation of credit. Our findings are threefold. Firstly, privateChinese firms are credit constrained while State-owned firms and foreign-owned firms inChina are not; Secondly, the geographical and sectoral presence of foreign capital alleviatescredit constraints faced by private Chinese firms. Thirdly, geographical and sectoral presenceof state firms aggravates financial constraints for private Chinese firms (“crowding out”).Therefore it seems that ongoing restructuring of the state-owned sector and furtherliberalization of foreign capital inflows in China can help to circumvent financial constraintsand can boost the investment of private firms......