By Wu Qing

Date: 2004/09/04

Abstract:

Loaning to small and medium-sized enterprises brings higher risks and transaction costs to the banks. The small and medium-sized enterprises are in an inferior position in "one-on-one" negotiation due to higher opportunity cost they bear. Therefore most commercial banks favor clients in bigger sizes; as a result the small and medium-sized enterprises are always first caught when a tight financial regulation is implemented. In addition, the banking market for small and medium-sized enterprises is geographically segmented. In the places where financial agencies are clustered, the small and medium-sized enterprises are better treated. The loaning service to the small and medium-sized enterprises is also constrained by the deployment of the branches of the banking system. The state-owned banks are still the main provider to the small and medium-sized enterprises. Relevant policy suggestions are made based on this study.