Regulatory sandboxes and SME financial constraints: evidence from China’s FinTech innovation regulatory pilot and implications for development

Jianing Tan and Papar Kananurak

International Journal of Development Issues, 2026, vol. 25, issue 3, 274-293

Abstract: PurposePersistent financing frictions among small and medium-sized enterprises (SME) remain a structural constraint in emerging and transitional economies. Regulatory sandboxes have emerged as institutional innovations designed to promote financial technology experimentation while managing risk. This study aims to examine whether regulatory sandboxes alleviate SME financial constraints.Design/methodology/approachExploiting the implementation of China’s FinTech Innovation Regulatory Pilot across cities, this study adopts a quasi-natural experimental framework using firm-level panel data from 2017 to 2023. A two-way fixed effects difference-in-differences model is used to estimate the baseline effect, complemented by a dynamic event-study specification and the Callaway-Sant’Anna estimator to strengthen causal identification.FindingsSandbox exposure significantly reduces SME financial constraints, with effects emerging gradually after implementation. The authors’ provide suggestive evidence on four potential mechanisms: FinTech innovation, the development of FinTech firms, trade credit availability and transaction cost reduction. The impact is stronger among non-manufacturing firms and in financially developed regions, indicating that regulatory innovation complements existing information structures and financial infrastructure in shaping development outcomes.Originality/valueThe study provides causal evidence that regulatory experimentation can influence real-sector financing outcomes. By linking sandbox policies to SME credit access, it contributes to understanding how adaptive regulation supports inclusive development in emerging economies.

Keywords: FinTech; Regulatory sandboxes; SMEs; Financial constraints; Quasi-natural experiment (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijdipp:ijdi-03-2026-0084

DOI: 10.1108/IJDI-03-2026-0084

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