Strength concealed by weakness in China’s credit markets: comparing the impacts of creditworthiness vs. rent-seeking on loan access

Current theories basically characterize rent-seeking as a ‘lubricant’ for Chinese private enterprises to secure bank loans. By contrast, this study finds that rent-seeking significantly improves loan accessibility only for enterprises with a strong credit foundation, while resorting to rent-seeking activities does not further enhance the substantial positive impact of creditworthiness itself on loan accessibility. Even in high-risk markets that exclude highly creditworthy enterprises, the influence of rent-seeking on loan accessibility is constrained by the credit levels of the enterprises. This study contributes to understanding that China’s financial system, although perceived as weak, coexists with its strong economic development. The involvement of creditworthy firms in rent-seeking calls for policy changes, including innovative regulations and strengthened enforcement. It also highlights the need to improve financing channels and the multi-tiered banking system.