The Financing of TVEs (Small and Medium Enterprises) in China.

Essay by zjzjUniversity, Bachelor'sA-, March 2004

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As reforms progress and the Chinese economy becomes increasingly open, the role of small and medium-sized enterprises-----township and village enterprises in the country is growing. They produce 30% of gross industrial output, despite its growing importance, at the end of 2000, the TVEs accounted for only 8 percent of bank lending , and only 3 percent of the companies listed on the Shanghai and Shenzhen stock exchanges were TVEs firms. The discrepancy between the dynamism of the TVEs and its limited use of intermediated financing suggests that if TVEs want to sustain its current rate of growth ,they must to increase its access to financing.

1.0 Chinese TVEs Financing patterns

Generally, smaller firms are expected to have less debt, according to the statistics data produced by association of TVEs in china in 2000, it revealed that about 78 percent considered their lack of access to finance to be a serious constraint ,they relied heavily on self-financing for both start-up and expansion.

more than 90 percent of their initial capital came from the principal owners, the start-up teams, and their families. Among external funding sources ,in formal channels ,credit unions, and commercial banks were about equally represented. Outside equity, including public equity, and public debt markets played an insignificant role. additionally , size as an explanatory variable is supported when measured by total debt . Internal sources tend to become less important as firms grow larger. External sources for the smallest firms are mainly informal channels, but their share tends to decrease, as firms grow bigger, while the share of commercial bank loans increases with firm size. Commercial banks are the second most important source of funds for the largest firms, after retained earnings. This seems to indicate that banks provide more support for larger and relative successful chinese TVEs. but...