The negative impacts and countermeasures of the shadow banking system on small and medium-sized enterprises in a Chinese coastal city

Author: 
Qun Chen, Gongkan Chen, Yan Wu, Huazhong Chen and Huiqing Tao
Abstract: 

This paper discusses the problems that the interest rates of shadow banks under the current Chinese financial system are too high, which is unhealthy to small and medium-sized enterprises (SMEs), and that the magnitude of the amount of total debts released by shadow banks cannot be measured accurately. In order to support that, this paper collects information of financial data of nine SMEs from one bank and of their connections with shadow banks. The result shows that eight out of nine (88.9%) SMEs have connections with shadow banks. Furthermore, all six medium-sized enterprises could pay off their interest by their existing profit, while two out of three (66.7%) small businesses do not have sufficient net-income for their interest expenses, which may lead to their bankruptcy. Thus, if the government could adopt financial innovations proposed in the later part of the paper –establishment of differentiated credit policy, rural banks, micro-credit companies, and private lending institution, the issues discussed before could be solved.

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   Vol. 07, Issue 02, February 2017

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