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How Should Banks Support SMEs to Manage Funding Risks in China? The Role of Relationship Banking

Yajing Liu

Kenya Fujiwara

Toshiki Jinushi

Nobuyoshi Yamori

Risk Management in Emerging Markets

ISBN: 978-1-78635-452-5, eISBN: 978-1-78635-451-8

Publication date: 29 December 2016

Abstract

It is broadly recognized in China that funding risks due to a lack of sufficient financial support from banks are the most crucial constraints that prevent the growth of small and medium enterprises (SMEs). In developed economies, such as Japan and European countries, the relationship banking business model is commonly used to help support SMEs to deal with funding risks. In this chapter, we investigate whether the relationship banking business model can be applied in China. This chapter uses the results of a unique survey study that was conducted by Professor Hiroyuki Kato of Kobe University and Professor Tang Cheng of Chuo University. They studied 183 SMEs in Zhejiang Province in China. After cleaning the data, the final sample size for this study was 100 firms. Using this data, we estimated the ordered logistic and OLS models to examine several hypotheses regarding relationship banking. We found evidence suggesting that relationship banking can mitigate funding risks for SMEs in China. Our study suggests that, although Chinese banks are still underdeveloped in terms of providing relationship lending, promoting the relationship banking model may be a significant way to resolve the financial difficulties of Chinese SMEs. It is generally very difficult to test hypotheses regarding relationship banking in China because of a lack of relevant data about Chinese SMEs. Due to our unique data set, which contains relevant information directly provided by Chinese SMEs, we can examine these hypotheses.

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Acknowledgements

Acknowledgments

The authors wish to thank Professor Takahiro Sato of Kobe University, Professor Hirofumi Uchida of Kobe University, and Professor Fumiharu Mieno of Kyoto University for their useful comments, as well as Professor Tang Cheng of Chuo University, Professor Hiroyuki Kato of Kobe University, and Professor Kai Kajitani of Kobe University for providing us with their survey data set.

Citation

Liu, Y., Fujiwara, K., Jinushi, T. and Yamori, N. (2016), "How Should Banks Support SMEs to Manage Funding Risks in China? The Role of Relationship Banking", Boubaker, S., Buchanan, B. and Nguyen, D.K. (Ed.) Risk Management in Emerging Markets, Emerald Group Publishing Limited, Leeds, pp. 365-398. https://doi.org/10.1108/978-1-78635-452-520161025

Publisher

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Emerald Group Publishing Limited