The relationships between banks and small and medium-sized enterprises in China

Abstract

The aim of this research is to examine the role of social and human capital in decision makers’ determination of the creditworthiness of SME owners in financial institutions in China. Four objectives were set to achieve this aim.

The thesis focuses on the relationship between SMEs and banks in China, together with the obstacles that SMEs face when applying for bank finance. It traces the three stages of the country’s economic development since economic reform commenced, known in China as the period of ‘opening-up’. It investigates the contribution that SMEs, including micro enterprises, have made to economic development in China and it details the difficulties they have faced when seeking loans from the banks.

Further, the thesis highlights, through the literature review, a number of gaps in the research into the bank/SME relationship and the credit assessment system in China, in particular the function of social capital and human capital in evaluating individual SMEs and their owners. As a result of this dearth in the relevant literature in China, the theoretical framework is heavily influenced by the writings of Western academics.

The study captures the experiences of 10 bank managers, by means of face-to-face interviews, and also that of 327 SMEs through a questionnaire survey, which was constructed from the analysis of the bankers’ interviews. All questions were designed to obtain the data required to accurately detail the deficiencies in the credit assessment system.

The research resulted in the creation of a model which could help lending bankers make a more accurate judgment in assessing the credit worthiness of SMEs and SME owners in the context of the Chinese economy. It seemed appropriate that this study was undertaken at this particular time, as China is entering a new phase of economic development.

The Five-Step Model presented is the result of the analysis of the data and information related to the evaluation practices of banks in China, where the experiences of lending bankers have been recorded and analyzed for the first time.

Date of Award	Oct 2015
Original language	English
Supervisor	Mark Durkin (Supervisor) & Pauric Mc Gowan (Supervisor)