The influence of the entry of the foreign banks on the financing constraints of small and medium-sized enterprises in China

Abstract

Since China joined the WTO in 2001, its foreign trade has developed rapidly. From December 11, 2006, China officially granted the national treatment to foreign banks, RMB deposit and loan business will be fully open to foreign banks, which marks the comprehensive entry of foreign banks into China. However, it is worth asking whether foreign banks with abundant capital and advanced management concepts can provide substantial help to Chinese SMEs related to easing financing constraints. This paper uses cash flow sensitivity model and data of A-share listed company data in China to study the influence of foreign banks' entry on financing constraints of Chinese SMEs. The result shows the entry of foreign banks has significantly aggravated the financing constraints of SMEs. The financial constraints of SMEs with an export business are modestly eased as a result of more study, whereas those of SMEs without an export business are greatly worsened. This study draws attention to the issue of the factors which may affect the financing constraints and in particular the influence of the entry of the foreign banks.