A Case Study of SMEs in Shaanxi City, China (Essay Sample)

Barriers for SMEs to Access Finance in China: A Case Study of SMEs in Shaanxi City, China
Declaration
I……………………………………………………..hereby declare that this piece of work is my original work and has never been presented in any institution of learning institution.
Abstract
This study primarily sought to explore the qualitative relationship between Chinese SMEs and banks or other financial institutions in terms to access to finance, with a focus on barriers. A case study of SMEs in Shaanxi was used, and a survey involving 87 managers and owners of SMEs undertaken to address the research questions. Consistent with several past studies, this study establish that bank loans remain unpopular source of finance among the SMEs, with majority resorting to finances from their personal savings and loans and grants from families and friends. This state of affairs is attributed to a number of issues and barriers associated with banks loans, including high costs of access, institutional and procedural bureaucracies and unwillingness on part of banks to negotiate on rates. The situation is unlikely to change fundamentally in the near future, due to information asymmetry which prompts loan rationing among others. The study recommends various policy measures that may be adopted to address the issue.
Key words: SMEs, bank loan, Shaanxi, access to finance
Dedication
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Acknowledgments
I would like to express my sincere gratitude and appreciation to a number of individuals without whom my dream to obtain a [level of the degree eg. Bachelors , masters ,doctoral] degree would have been extremely difficult.
I would like to acknowledge my awesome dissertation committee members, [Names] for their professionalism, advice, and support, particularly throughout the dissertation process.
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Table of Contents
TOC \o "1-3" \h \z \u Declaration PAGEREF _Toc397581923 \h ii
Abstract PAGEREF _Toc397581924 \h iii
Dedication PAGEREF _Toc397581925 \h iv
Acknowledgments PAGEREF _Toc397581926 \h v
1.0 Introduction PAGEREF _Toc397581927 \h 1
Problem Statement PAGEREF _Toc397581928 \h 1
Aim and Objectives of the Study PAGEREF _Toc397581929 \h 2
Research Questions PAGEREF _Toc397581930 \h 2
Justification and contributions of the Study PAGEREF _Toc397581931 \h 3
Dissertation Structure PAGEREF _Toc397581932 \h 3
Development of SME in China PAGEREF _Toc397581933 \h 4
Sources of Finance for SME PAGEREF _Toc397581934 \h 5
Factors Influencing SMEs to Access Finances PAGEREF _Toc397581935 \h 7
Structure of the Chinese Financial System PAGEREF _Toc397581936 \h 9
Current SME Financing Policies in China PAGEREF _Toc397581937 \h 10
Financial Policies in Other Nations PAGEREF _Toc397581938 \h 12
Relationship between Chinese SME and Financial Institutions PAGEREF _Toc397581939 \h 14
Barriers to Access of Funds by SME PAGEREF _Toc397581940 \h 15
Lack of appropriate collateral to banks PAGEREF _Toc397581941 \h 15
Poor Credit Ratings Assessment PAGEREF _Toc397581942 \h 16
Lack of Transparency in Accounting and Auditing PAGEREF _Toc397581943 \h 16
Economies of Scale PAGEREF _Toc397581944 \h 16
Political Risks PAGEREF _Toc397581945 \h 17
Investment and Tax Policies PAGEREF _Toc397581946 \h 17
Summary of the Chapter PAGEREF _Toc397581947 \h 17
Chapter 3: Methodology PAGEREF _Toc397581948 \h 19
Epistemological Approach PAGEREF _Toc397581949 \h 19
Research Design PAGEREF _Toc397581950 \h 19
Research Strategies PAGEREF _Toc397581951 \h 19
Sample and Sample Size PAGEREF _Toc397581952 \h 20
Inclusion Criteria PAGEREF _Toc397581953 \h 20
Data Collection Methods PAGEREF _Toc397581954 \h 21
Data Analysis PAGEREF _Toc397581955 \h 22
Validity and Reliability PAGEREF _Toc397581956 \h 22
Ethical Considerations PAGEREF _Toc397581957 \h 23
Chapter 4: Findings and Analysis PAGEREF _Toc397581958 \h 25
The overall condition of SMEs’s ease of access to finance PAGEREF _Toc397581959 \h 25
Duration taken to access credit facilities PAGEREF _Toc397581960 \h 28
Opening a bank account PAGEREF _Toc397581961 \h 28
Enterprise age and access to finance PAGEREF _Toc397581962 \h 30
Sources of Finance PAGEREF _Toc397581963 \h 34
Issues and Barriers PAGEREF _Toc397581964 \h 36
General difficulty in accessing finances PAGEREF _Toc397581965 \h 36
Impact PAGEREF _Toc397581966 \h 41
How Chinese SMEs’ access to finance PAGEREF _Toc397581967 \h 43
Chapter Summary PAGEREF _Toc397581968 \h 44
Chapter 5: Discussions PAGEREF _Toc397581969 \h 45
Access to Finance PAGEREF _Toc397581970 \h 46
Accounting for the Issues and Barriers PAGEREF _Toc397581971 \h 48
Chapter 6: Conclusion and Recommendations PAGEREF _Toc397581972 \h 51
Recommendations PAGEREF _Toc397581973 \h 52
Limitations and Implications for Future Research PAGEREF _Toc397581974 \h 54
References PAGEREF _Toc397581975 \h 55
Appendix 1 PAGEREF _Toc397581976 \h 59
Questionnaire PAGEREF _Toc397581977 \h 59
List of tables TOC \h \z \c "Table"
Table 1: Frequency distribution on perceived ease of access PAGEREF _Toc397581978 \h 26
Table 2: Statistics Perceived ease of access to bank finance PAGEREF _Toc397581979 \h 27
Table 3: Frequency table-Business life span before opening a bank account PAGEREF _Toc397581980 \h 28
Table 4: Frequency table- Enterprise age and access to finance PAGEREF _Toc397581981 \h 30
Table 5: Statistics: Duration taken to open a bank account and to obtain loans PAGEREF _Toc397581982 \h 32
Table 6: Major sources of finance PAGEREF _Toc397581983 \h 34
Table 7: Key barriers /issues to accessing finances PAGEREF _Toc397581984 \h 37
Table 8: Impact of difficulty in accessing bank finances PAGEREF _Toc397581985 \h 41
Table 9: Measures to improve access to bank and financial institutions’ loans PAGEREF _Toc397581986 \h 43
Table of Figures
TOC \h \z \c "Figure" Figure 1: The participants in the study, by their tittles PAGEREF _Toc397582010 \h 25
Figure 2: Perceived ease of access PAGEREF _Toc397582011 \h 26
Figure 3: Business life span before opening an account PAGEREF _Toc397582012 \h 29
Figure 4 Enterprise age and access to finance PAGEREF _Toc397582013 \h 31
Figure 5: Major sources of finance PAGEREF _Toc397582014 \h 35
Figure 6: General difficulty in accessing finances PAGEREF _Toc397582015 \h 36
Figure 7: Difficulty in accessing finances from bank or other financial institutions finances PAGEREF _Toc397582016 \h 37
Figure 8: Key barriers to SMs financing PAGEREF _Toc397582017 \h 39
Figure 9: Impact of difficulty in accessing bank finances PAGEREF _Toc397582018 \h 42
1.0 Introduction
Access to finance has been shown to be a major challenge to SMEs across the globe and China in particular (Chong & Ongena, 2013; Dollar et al., 2000; Kostka et al., 2013; Li, 2011). The SMEs’ difficulty in accessing finance among the Chinese SMEs is well captured in a study by Hussain, Millman and Matlay (2006), which brings out the contrast between UK’s SMEs’s financing, and the Chinese SME financing. Though in both countries the SMEs have considerable difficulties getting start-up capital from financing institutions. In the UK, this difficulty is short lived among well performing SMEs because after five years of uninterrupted growth they easily access finances from financing institution. However, in China, the problem appears prolonged and indefinite as SMEs mainly depend on the immediate family for financing and to a limited extent financial institution, even for those that have been in continuous business for long. Given crucial role played by SMEs in providing economic productivity of the country and well being of the people supported by income generated from SMEs, it is crucial to investigate into details factors accounting for such barriers, and explore the most viable way forward.
Problem Statement
As aptly captured by the capital structure theories, firms’ developmental needs to financial structure. One of the most influential models is Berger and Udell’s (2006) financial growth cycle which asserts that financial needs of an organization change overtime as its size and age of operations increase. At a young age and small size, firms may survive on entrepreneurs personal sources. However, as it grows and become older, it needs access to larger funds such as debt market and personal equities (Berger & Black, 2011). Despite being crucial for their expansion, access to finance remains a serious difficulty for SMEs in many countries (Dollar et al., 2000). In their study of SMEs access to finance in Tanzania, Woldie, Mwita and Saidimu (2012) note that access to microfinance facilities has been severely inadequate due to lack of collaterals, limited skills to develop and manage bankable projects as well as high transaction costs. These constrains, they argue could be limited by having applicants take micro-insurance as collateral and stream lining accessibility.
The situation in China is no different, as various studies indicate that SMEs in China face serious financial constraints, and that this is the major barrier to their growth and innovation (Chong & Ongena, 2013; Kostka et al., 2013). Studies also indicate that the Chinese SMEs have limited access to financial resource, as compared to oth...