The Differences Of Bank Credit And Moderate Investment: The Effect Of The Relationship Between Government And Enterprise

The relationship between government and enterprise is an important part of China’s overalleconomic system reform.For a long time, because of the parent-child relationship between thegovernment and state-owned enterprises (SOEs), the SOEs get special care, have unfairadvantage over the private enterprises, therefore disrupt the efficiency of allocating resourcesby markets.This paper sets out, from the bank credit differences between the SOEs andprivate enterprises,to analyses the the impacts of loan discrimination on the efficiency ofinvesting. The findings help to understand the problem of the government-enterprise.The thirdplenary session of18thCPC central committee put forward the market to play a decisive rolein resources allocation.Straighten out the government-enterprise relationship, especially theparent-child relationship between the government and SOEs, is the key factor in allowing themarket to play a decisive role. So the study of this paper has important theory meaning andpractical significance.Firstly,based on the documentation of the relationship between government and market, thegovernment-enterprise relationship, and the research of firms’political relationship impact onfinancial behaviors，this paper point out the limitations on research perspectives and methodsof the firms’ political connection.And then, this paper inspect from the perspective of the twodifferent government-enterprise relationship,that between government and SOEs,betweengovernment and private enterprises.Through the analysis of current situation ofgovernment-enterprise relationship, it explain that over-centralized and disproportionategovernment power could be due to the government-SOEs alliances. For the same reason, theprivate enterprises build relationships with government to create more developmentopportunities for the future.Secondly, this paper cast the sight on the external financing environment of Chinese firms.Through studies with the current situation and the external financing environment, this paperpoint out that credit financing is the major access to finance. In the banking system, the statedbanks have absolute monopoly position.The government master the approval rights of shareand corporate bonds issues.The government remain in control financial resources actuallydecide the fate of the firms.The dissertation mainly adopts empirical research method. Through empirical study, themajor findings and results are as follows:First of all, this paper discusses the bank credit differences between the SOEs and theprivate enterprises. The empirical results show that the borrowing differences between the SOEs and the private enterprises, as reflected in borrowing capacity, maturity and theproportion of credit borrowing, the private firms suffered credit discrimination. This paperalso research the effect of the SOEs strategic adjustment, which include “manage largeenterprises well while relaxing control over small ones” and redirecting investments of statecapital, on the credit discrimination. The research finds that the borrowing capacity andmaturity variation are greater between SOEs and private enterprises in the industries that aredominated by state-owned enterprises, and the variation decreased in the competitiveindustries. There have empirical show that credit marketization help reduce creditdiscrimination on private firms.For the more, this paper studies the consequences of the credit discrimination againstprivate firms. Empirical evidence shows that private firms’ investment is more sensitive aboutthe internal financing than SOEs. And then this paper distinguish the entire sample tomoderate investment, over-investment and under-investment group.In the under-investmentgroup,there have empirical evidence shows that the SOEs’ investment suffer from the creditfinancing constraints less than private enterprises. In the over-investment group, this paperfinds that the bank credits have definite inhibitory effect on over-investment, but theinhibition on SOEs are less than private enterprises. These findings suggest that creditdifference bring negative influences to resource allocation.The roles of financial markets in resource allocation are decreasing transactions costs,lightening financing constraints, and to improve investment efficiency. The results suggestthat because of government control of financial resources，special relationship betweengovernment and SOEs, that lead to unfair financing competition conditions.So to enable themarket to play a decisive role in resources allocation,we must restrain governments power,straighten out the relationship between government and enterprises.