A Case Study of SMEs in Shaanxi City, China - 275 Words

A Case Study of SMEs in Shaanxi City, China (Essay Sample) Content: Barriers for SMEs to Access Finance in China: A Case Study of SMEs in Shaanxi City, ChinaDeclarationIà ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬..hereby declare that this piece of work is my original work and has never been presented in any institution of learning institution.AbstractThis study primarily sought to explore the qualitative relationship between Chinese SMEs and banks or other financial institutions in terms to access to finance, with a focus on barriers. A case study of SMEs in Shaanxi was used, and a survey involving 87 managers and owners of SMEs undertaken to address the research questions. Consistent with several past studies, this study establish that bank loans remain unpopular source of finance among the SMEs, with majority resorting to finances from their personal savings and loans and grants from families and friends. This state of affairs is attributed to a number of issues and barriers associated with banks loans, including high costs of access, institutional and procedural bureaucracies and unwillingness on part of banks to negotiate on rates. The situation is unlikely to change fundamentally in the near future, due to information asymmetry which prompts loan rationing among others. The study recommends various policy measures that may be adopted to address the issue.Key words: SMEs, bank loan, Shaanxi, access to financeDedication[Mention people you wish to dedicate the work to ]AcknowledgmentsI would like to express my sincere gratitude and appreciation to a number of individuals without whom my dream to obtain a [level of the degree eg. Bachelors , masters ,doctoral] degree would have been extremely difficult.I would like to acknowledge my awesome dissertation committee members, [Names] for their professionalism, advice, and support, particular ly throughout the dissertation process.Sincere thanks also to my wonderful and [Friends and relatives]I am eternally grateful to you all and will never be able to repay you for all you have done to help me make my commitment a reality.Table of ContentsTOC \o "1-3" \h \z \u Declaration PAGEREF _Toc397581923 \h iiAbstract PAGEREF _Toc397581924 \h iiiDedication PAGEREF _Toc397581925 \h ivAcknowledgments PAGEREF _Toc397581926 \h v1.0 Introduction PAGEREF _Toc397581927 \h 1Problem Statement PAGEREF _Toc397581928 \h 1Aim and Objectives of the Study PAGEREF _Toc397581929 \h 2Research Questions PAGEREF _Toc397581930 \h 2Justification and contributions of the Study PAGEREF _Toc397581931 \h 3Dissertation Structure PAGEREF _Toc397581932 \h 3Development of SME in China PAGEREF _Toc397581933 \h 4Sources of Finance for SME PAGEREF _Toc397581934 \h 5Factors Influencing SMEs to Access Finances PAGEREF _Toc397581935 \h 7Structure of the Chinese Financial System PAGEREF _Toc397581936 \h 9Current SME Financing Policies in China PAGEREF _Toc397581937 \h 10Financial Policies in Other Nations PAGEREF _Toc397581938 \h 12Relationship between Chinese SME and Financial Institutions PAGEREF _Toc397581939 \h 14Barriers to Access of Funds by SME PAGEREF _Toc397581940 \h 15Lack of appropriate collateral to banks PAGEREF _Toc397581941 \h 15Poor Credit Ratings Assessment PAGEREF _Toc397581942 \h 16Lack of Transparency in Accounting and Auditing PAGEREF _Toc397581943 \h 16Economies of Scale PAGEREF _Toc397581944 \h 16Political Risks PAGEREF _Toc397581945 \h 17Investment and Tax Policies PAGEREF _Toc397581946 \h 17Summary of the Chapter PAGEREF _Toc397581947 \h 17Chapter 3: Methodology PAGEREF _Toc397581948 \h 19Epistemological Approach PAGEREF _Toc397581949 \h 19Research Design PAGEREF _Toc397581950 \h 19Research Strategies PAGEREF _Toc397581951 \h 19Sample and Sample Size PAGEREF _Toc397581952 \h 20Inclusion Criteria PAGEREF _Toc397581953 \h 20Data Collection Methods PAGEREF _Toc397581954 \ h 21Data Analysis PAGEREF _Toc397581955 \h 22Validity and Reliability PAGEREF _Toc397581956 \h 22Ethical Considerations PAGEREF _Toc397581957 \h 23Chapter 4: Findings and Analysis PAGEREF _Toc397581958 \h 25The overall condition of SMEsà ¢Ã¢â€š ¬s ease of access to finance PAGEREF _Toc397581959 \h 25Duration taken to access credit facilities PAGEREF _Toc397581960 \h 28Opening a bank account PAGEREF _Toc397581961 \h 28Enterprise age and access to finance PAGEREF _Toc397581962 \h 30Sources of Finance PAGEREF _Toc397581963 \h 34Issues and Barriers PAGEREF _Toc397581964 \h 36General difficulty in accessing finances PAGEREF _Toc397581965 \h 36Impact PAGEREF _Toc397581966 \h 41How Chinese SMEsà ¢Ã¢â€š ¬ access to finance PAGEREF _Toc397581967 \h 43Chapter Summary PAGEREF _Toc397581968 \h 44Chapter 5: Discussions PAGEREF _Toc397581969 \h 45Access to Finance PAGEREF _Toc397581970 \h 46Accounting for the Issues and Barriers PAGEREF _Toc397581971 \h 48Chapter 6: Conclusion and Recommendatio ns PAGEREF _Toc397581972 \h 51Recommendations PAGEREF _Toc397581973 \h 52Limitations and Implications for Future Research PAGEREF _Toc397581974 \h 54References PAGEREF _Toc397581975 \h 55Appendix 1 PAGEREF _Toc397581976 \h 59Questionnaire PAGEREF _Toc397581977 \h 59List of tables TOC \h \z \c "Table"Table 1: Frequency distribution on perceived ease of access PAGEREF _Toc397581978 \h 26Table 2: Statistics Perceived ease of access to bank finance PAGEREF _Toc397581979 \h 27Table 3: Frequency table-Business life span before opening a bank account PAGEREF _Toc397581980 \h 28Table 4: Frequency table- Enterprise age and access to finance PAGEREF _Toc397581981 \h 30Table 5: Statistics: Duration taken to open a bank account and to obtain loans PAGEREF _Toc397581982 \h 32Table 6: Major sources of finance PAGEREF _Toc397581983 \h 34Table 7: Key barriers /issues to accessing finances PAGEREF _Toc397581984 \h 37Table 8: Impact of difficulty in accessing bank finances PAGEREF _Toc397581985 \h 41Table 9: Measures to improve access to bank and financial institutionsà ¢Ã¢â€š ¬ loans PAGEREF _Toc397581986 \h 43Table of FiguresTOC \h \z \c "Figure" Figure 1: The participants in the study, by their tittles PAGEREF _Toc397582010 \h 25Figure 2: Perceived ease of access PAGEREF _Toc397582011 \h 26Figure 3: Business life span before opening an account PAGEREF _Toc397582012 \h 29Figure 4 Enterprise age and access to finance PAGEREF _Toc397582013 \h 31Figure 5: Major sources of finance PAGEREF _Toc397582014 \h 35Figure 6: General difficulty in accessing finances PAGEREF _Toc397582015 \h 36Figure 7: Difficulty in accessing finances from bank or other financial institutions finances PAGEREF _Toc397582016 \h 37Figure 8: Key barriers to SMs financing PAGEREF _Toc397582017 \h 39Figure 9: Impact of difficulty in accessing bank finances PAGEREF _Toc397582018 \h 421.0 IntroductionAccess to finance has been shown to be a major challenge to SMEs across the globe and China in particular (Cho ng Ongena, 2013; Dollar et al., 2000; Kostka et al., 2013; Li, 2011). The SMEsà ¢Ã¢â€š ¬ difficulty in accessing finance among the Chinese SMEs is well captured in a study by Hussain, Millman and Matlay (2006), which brings out the contrast between UKà ¢Ã¢â€š ¬s SMEsà ¢Ã¢â€š ¬s financing, and the Chinese SME financing. Though in both countries the SMEs have considerable difficulties getting start-up capital from financing institutions. In the UK, this difficulty is short lived among well performing SMEs because after five years of uninterrupted growth they easily access finances from financing institution. However, in China, the problem appears prolonged and indefinite as SMEs mainly depend on the immediate family for financing and to a limited extent financial institution, even for those that have been in continuous business for long. Given crucial role played by SMEs in providing economic productivity of the country and well being of the people supported by income generate d from SMEs, it is crucial to investigate into details factors accounting for such barriers, and explore the most viable way forward.Problem StatementAs aptly captured by the capital structure theories, firmsà ¢Ã¢â€š ¬ developmental needs to financial structure. One of the most influential models is Berger and Udellà ¢Ã¢â€š ¬s (2006)Âfinancial growth cycleÂwhich asserts that financial needs of an organization change overtime as its size and age of operations increase. At a young age and small size, firms may survive on entrepreneurs personal sources. However, as it grows and become older, it needs access to larger funds such as debt market and personal equities (Berger Black, 2011). Despite being crucial for their expansion, access to finance remains a serious difficulty for SMEs in many countries (Dollar et al., 2000). In their study of SMEs access to finance in Tanzania, Woldie, Mwita and Saidimu (2012) note that access to microfinance facilities has been severely ina dequate due to lack of collaterals, limited skills to develop and manage bankable projects as well as high transaction costs. These constrains, they argue could be limited by having applicants take micro-insurance as collateral and stream lining accessibility.The situation in China is no different, as various studies indicate that SMEs in China face serious financial constraints, and that this is the major barrier to their growth and innovation (Chong Ongena, 2013; Kostka et al., 2013). Studies also indicate that the Chinese SMEs have limited access to financial resource, as compared to oth...