Joint Liability Lending and the Rise and Fall of China's Township and Village Enterprises

Albert Park and Minggao Shen (minggao.shen@cebm.com.cn)

No 462, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Using data from a recent survey of bank and enterprise managers and government officials in southern China, we present a new explanation for the rise and fall of collectively-owned township and village enterprises (TVEs) based on the willingness of banks to finance collective enterprise development. Until recently bank loans to TVEs exhibited the key features of joint liability lending, supported by the unique sanctioning ability of local leaders. Beginning in the mid 1990s, liquidation costs fell, firm performance deteriorated, real interest rates rose, and financial competition increased. These changes led to a dramatic change in the lending preferences of banks in favor of private firms. Empirical estimates of the determinants of bank lending preferences, the involvement of township leaders in lending, and the ability of firms to obtain loans support our explanation.

Keywords: joint liability; banking; China; privatization; collective (search for similar items in EconPapers)
JEL-codes: G2 O1 P3 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2001-07-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Joint liability lending and the rise and fall of China's township and village enterprises (2003)
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