On The Financing Of Township And Village Enterprises

In China, township and village enterprises (hereafter TVEs) play an important role in resolving the problem of countryside, agriculture and farmers. In recent years, TVEs have risen to near parity with the traditional industrial sector. Recent estimates suggest that TVEs now account for about 50 percent of China's industrial output and more than 30 percent of rural income. Howerever, the growth of TVEs has slowed down. In my opinion, the slow growth of TVEs results from the weak ability of financing in the financial market. Many TVEs are believed to lack adequate access to external sources of financing. The problem is of concern because TVEs are important in promoting technological innovation, expanding employment and increasing farmers' income. This thesis will provide a greater understanding of how TVEs are financed and what financial environments best promotes their growth. This study examines the sources of outside capital available to TVEs and identifies the factors that affect TVEs' access to external credit. The analysis includes national-wide studies that examine both bank and nonbank sources of financing, such as bank credit, share and bond. In this study I explore the impact of financial reforms on financial constraints of TVEs. These reforms have consisted mainly of the removal of administrative controls on interest rates and the scaling down of directed credit programs.TVEs are facing the dual constraints of "credit ration" and "limited direct financing". Barriers to entry in the banking sector have often been lowered as well and the development of securities markets was stimulated. Although the main objective of financial deregulation should be to increase the supply of funds for TVEs, the consequence of financial liberalization on the supply of funds for TVEs' investment is theoretically ambiguous. In a repressed financial system, governments often intervene by keeping interest rates artificially low and replace market with administrative allocation of funds. Interest rate liberalization is likely to lead to an increase in interest rates. The existence of informal credit markets can reverse the effect of an increase in interest rates on the total amount of savings. The effect of an increase in the deposit rate on the amount of loanable funds depends on whether households substitute out of curb market loans or out of cash to increase their holdings of time deposits. If time deposits are closer substitutes for curb market loans than for cash, then the supply of funds to TVEs will fall, given that banks are subject to reserve requirements and curb markets are not. Both theories have in common that financial liberalization changes the composition of savings and will not necessarily relax financial constraints for all classes of TVEs. Financial liberalization has failed to meet expected efficiency gains, becauseaccompanying the rise in loan rates was a rise in the required external finance premium for a substantial class of borrowers, and others say that financial liberalization has led to crises. However, to the extent that there are economies of scale in information gathering and monitoring it is expected that banks have an advantage over the curb or informal market in allocating investment funds, and this should lead to an increase in the access of external finance and a reduction in the "premium" of external finance over internal finance. At the same time, the elimination of subsidized credit programs could increase the financing constraints on those TVEs that previously benefited from the directed credit system.Building on recent theoretical and empirical work on corporate governance and the importance of the legal framework for financial sector development, this dissertation analyzed the role of ownership concentration in TVEs' financing structure, performance and valuation. The main source of data was the database of listed TVEs, which provides corporate financial data (balance sheet and profit and loss statements) as well as the names and holdings of large owners. That so...