Access to Capital in China: Competitive Conditions for Foreign and Domestic Firms

Author(s)

Katherine Linton

The Chinese financial sector is illustrative of the hierarchy of privilege that has dominated the country’s transition from a centrally planned economy to a more market-based system. Despite their declining contribution to GDP, large state-owned enterprises (SOEs) sit at the pinnacle of privilege and financial access. They obtain a disproportionate share of funding from all sources: bank loans, stock markets, venture capital, and bond markets. Private firms, domestic and foreign, which in the last five years have played a critical role in China’s growth, face substantial capital access barriers. Greater access to capital markets for these firms, and the full implementation of international standards of lending and market regulation, would fuel China’s fastest growing firms and enterprises and precipitate greater domestic competition.