Development of SMEs and Banking Structure: An Empirical Study based on the Reform of Trading Rights in China
XIA Junjie, DENG Shangyuan, XU Mingzhi
School of Economics, Central University of Finance and Economics; Development Research Center of Futian District,Shenzhen; Institute of New Structural Economics, Peking University
Summary:
The development of the banking sector plays a crucial role in supporting and facilitating China's economic growth. Although banking structure is a widely studied topic in current research, there is a notable lack of in-depth exploration of the underlying reasons for its adjustments. This study utilizes the refrom of import and export operation rights in China in 2003 as the quasi-natural experiment and employs a DID model to investigate the impact of SME development on banking structure. Prior to 2003, China imposed high registration capital barriers for domestic enterprises wishing to participate in direct exports, thereby allowing only a limited number of firms to engage in such activities. Starting from 2003, these entry barriers were gradually lowered and were eliminated by 2004, facilitating greater access for SMEs to international markets and generating new financing demands that could influence the supply structure of the banking sector. The findings suggest that as trade barriers were relaxed, regions with a high concentration of SMEs experienced a shift in banking structure towards a pattern dominated by medium and small banks, supporting the viewpoint that smaller banks have a comparative advantage in serving SMEs. Mechanism analysis reveals that SMEs' participation in direct trade drove adjustments in regional banking structure. SMEs that relied on external financing, exhibited comparative advantages, and those facing financing gaps tended to establish closer connections with the banking sector. Further analysis indicates that the comparative advantages of medium and small banks primarily arise from their relational and geographical benefits, which are reflected in superior capabilities for processing soft information and shorter decision-making chains. In regions characterized by a low social credit environment and relatively decentralized economic activities, the comparative advantages of medium and small banks were further accentuated. Drawing upon these findings, this paper proposes three policy recommendations. Firstly, the development of medium and small banks should be aligned with the growth trends of local SMEs. As trade policy uncertainty increases and deglobalization trends, like decoupling of international industry chain, escalate, the development of SMEs is constrained to some extent. Consequently, medium and small banks should avoid unconsidered expansion and should promptly adopt contraction and restructuring measures to mitigate potential financial risks associated with serving single region. Secondly, adjustments in banking structure should target SMEs that heavily rely on external financing, possess competitive advantages, and face significant financing gaps. As China's industries undergo transformation and upgrade, appropriate policies should be formulated to direct financial resources towards emerging sectors, such as new energy and information technology. This involves establishing differentiated regulatory frameworks and incentive measures to encourage medium and small banks to sustain financial support for SMEs with high financing demands and growth potential in the new developmental stage. Finally, as large banks enhance their service offerings to SMEs through FinTech, small banks should fully leverage their relational and geographical advantages to serve SMEs that possess insufficient information and lack loan records, thereby establishing differentiated competition with large banks. Moreover, medium and small banks could offer integrated services, including market expansion, financial consulting, and tax planning to maximize their unique role within the banking system. The marginal contributions of this study are primarily reflected in three aspects. Above all, in terms of research, existing literature predominantly focuses on the supply side, examining the positive impact of a banking structure dominated by medium and small banks in serving SMEs. The innovation of this study lies in shifting the focus to the demand side, investigating how the development of SMEs affects the banking structure, an approach that is relatively less explored in current academic research. Additionally, in terms of research content, this paper elucidates the relationship between changes in banking structure and characteristics of the real economy from three dimensions: financing dependence, comparative advantages, and financing gaps, providing a substantial reference for smaller banks to enhance their connection with the real economy. Lastly, in terms of research conclusions, using regional heterogeneity test, this study identifies the comparative relational and geographical advantages of medium and small banks in supporting SME development. This offers valuable strategic insights for medium and small banks seeking to achieve differentiated competition in an environment where large banks are enhancing inclusive financial services through FinTech and other technologies.
夏俊杰, 邓尚沅, 徐铭梽. 中小企业发展与银行结构——基于进出口经营权改革的经验研究[J]. 金融研究, 2024, 533(11): 76-93.
XIA Junjie, DENG Shangyuan, XU Mingzhi. Development of SMEs and Banking Structure: An Empirical Study based on the Reform of Trading Rights in China. Journal of Financial Research, 2024, 533(11): 76-93.
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