Risks of private enterprise financing in Nanjing and Shanghai, China and gender relationships in credit channels of private firms in Nanjing and Shanghai, China

In Part One, risks of financing for Small and Medium Enterprises (SMEs) in Nanjing and Shanghai, China, are examined using original survey data. Risks of bank financing are compared to risks of nonbank (informal) financing. The hypothesis that segmented markets have an adverse effect on SME financing is confirmed. We also show that SMEs are mainly informally financed, and that this entails greater transactions costs, despite the fact that banks have the legal right to seize property and other assets. High levels of interest and higher perceived threat of violence are not present due to China's recent monetary policy of credit loosening (formal and informal loans are less costly). We end with policy suggestions promoting reform and integration of the formal and informal financing sectors, which would increase bank savings as well as the availability of loans. Immediate bank privatization and enforced illegality of the informal sector are strongly discouraged.; In Part Two, gender relationships in lending channels and gender attributes of private enterprises in Nanjing and Shanghai are examined. We find that female SME owners do not experience discrimination from banks. We show that women may be turned down because they have higher liability to asset ratios prior to the bank application process. We also find that owners of one gender prefer to employ workers of the same gender, and conjecture that wage discrimination may be present in SMEs based on lower expenditure to income ratios in mostly female firms. Gender bias in the employment of women holds across industries. Finally, we find correlations between lender gender characteristics, as well as evidence that SME owners of a particular gender prefer to borrow from lenders of a particular type, but that these relationships appear to be quite complex and to vary by city. This may be due to differences in economic development. Businesswomen prefer to borrow from their network of relatives in Shanghai, and males prefer to borrow from friends in Nanjing. Moneylenders appear to be a last resort due to higher interest rates and greater threat to life and livelihood.