Lending facilities versus banking service: Unbalanced bank lending to SMEs in China

This paper examines gaps in bank lending and services to SMEs in China, the problem of productive SME-bank relationships and the reasons behind these gaps. Specifically, it distinguishes between lending facilities and lending services in order to highlight an imbalance in the current banking context for Chinese SMEs. It combines data from Berry (2006) with own matching data in China, drawing on Berger and Udell's (2006) conceptual framework of credit availability. This study adopts stylised comparisons with Germany, the UK and the USA, and Hong Kong. The results reveal that China has developed a banking infrastructure which is equivalent to comparable developed countries. However, China is deficient with regard to the quality of bank services. The results are discussed in the context of government policies, the financial infrastructure, SME credit availability, and the intricacies of the SME-bank relationship in China.