Abstract:
Small and medium-sized enterprises are playing an important part in improving the transition and development of China’s economy, however, they do not get enough financing from banks. Based on all financial institutions in 90 counties of 14 provinces from 2005 to 2013, this paper investigates the effect of bank competition on SME lending and offers a new perspective combined with government policies and incentive arrangements. Our findings show that the decrease of market concentration does not lead to the increase of market competition in terms of pricing capability and elasticity of profits to marginal cost, which has a positive effect on SME lending. According to this detailed survey data, we suggest regulatory authorities relax the limitation on the access of the banking industry, increase the elasticity of loan interest rate, accelerate the write-off of non-performing loans, and deepen the reforms of banks’ incentive mechanism, which improves the transition of banks from passive lending to active lending.
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