Does banking competition alleviate or worsen credit constraints faced by small- and medium-sized enterprises? Evidence from China

Terence Tai Leung Chong, Liping Lu*, Steven Ongena

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

•We examine the effect of banking competition on SMEs' credit constraints in China.•Lower banking market concentration alleviates financing constraints of SMEs.•The joint-stock banks have a larger effect than the city commercial banks.•The joint-stock banks have a larger effect than the state-owned banks.•The effect is through prices rather than the offering of relationship lending. Banking competition may enhance or hinder the financing of small and medium-sized enterprises. Using a survey on the financing of such enterprises in China, combined with detailed bank branch information, we investigate how concentration in local banking market affects the availability of credit. We find that lower market concentration alleviates financing constraints. The widespread presence of joint-stock banks has a larger effect on alleviating these constraints, than the presence of city commercial banks, while the presence of state-owned banks has a smaller effect.

Original languageEnglish
Pages (from-to)3412-3424
Number of pages13
JournalJournal of Banking and Finance
Volume37
Issue number9
DOIs
Publication statusPublished - 1 Sept 2013

Funding

For many helpful comments on earlier versions we thank Ike Mathur (the editor), an anonymous referee, Allen Berger, Fabio Castiglionesi, Lin Chen, Hans Degryse, Olivier De Jonghe, Murray Frank, Alessandra Guariglia, Karolin Kirschenmann, Weicheng Lian, Ming Lu, Fei Wang, Junjian Yi, Haiyang Zhang, and participants in the 2011 China International Conference in Finance (Wuhan), the 16th International Economic Association World Congress (Beijing), and the 2010 CCER PhD Forum at Peking University, and seminar participants at the University of Hong Kong, Fudan University, and Nanjing University. Chong gratefully acknowledges the Universities Service Center at The Chinese University of Hong Kong for kindly supplying the data. Lu gratefully acknowledges financial support from the European Banking Center, National Natural Science Foundation of China (Project No. 71103038), and the Beijing Social Science Foundation (Project No. 11JGC124). Appendix A

Keywords

  • Banking competition
  • Credit constraints
  • SME financing

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