Transformations  in
Business & Economics

FINANCIAL OBSTACLES, BANK CREDIT, AND TRADE CREDIT: EVIDENCE FROM FIRM SURVEYS IN CHINA
Zheng-cheng Wu, Jin-long Chen

ABSTRACT. The objective of this study is to explore the role of trade credit as an informal financial channel in China and propose policy recommendations to solve the financing problem facing private enterprises. The article analyses survey data on China that were obtained by the World Bank in 2012; these data are representative of numerous small and medium-sized firms. The study first analyses the situation of firms using trade credit for purchases and the proportion of trade credit in firms' working capital and subsequently establishes a regression model to investigate the interaction among bank credit, financial obstacles, and trade credit. Evidence shows that firms in China are generally financed by bank credit. Trade credit is positively correlated with bank credit. Firms with financial obstacles use supplier financing to complement bank credit. Trade credit can alleviate financing constraints to some extent but not enough to replace bank credit. Firms' access to formal finance should be facilitated.

KEYWORDS: trade credit, bank credit, financial obstacle, operations management, China.