The Pattern of Financing Industrialization in China: Understanding Sources of Fixed Investment

Abstract

This paper explains a puzzling feature of China's industrial financing, i.e., an extremely low share of domestic loans and an unusually high share of ‘self-raised funds and others’ in a developing country. After an overview of historical patterns of financial industrialization in other countries, it looks into the details of sources of industrial finance in China and suggests some explanations on the country's unique pattern of financing industrialization based on data available. It also discusses implications to the future of China's industrial financing.

Keywords:

• China
• finance
• industrialization
• informal market

Notes

1. Rosovsky (1965, p. 273) argues: “… there are only two modern historical models that depict the pattern of … industrialization … One would be the Gerschenkron model … and the other is Rostow's Stages of Economic Growth.” Considering the fact that Rostow's model is about the general growth process of countries and is not a comparison between forerunners and latecomers, Gerschenkron's model was the only one at that time about catching-up – if we trust Rosovsky's contention. It seems to us that, even to date, no comparable historical–comparative model has been advanced by other scholars.

2. Gerschenkron (1970, p. 123).

3. Chang and Park (1999) initially made this addition of South Korean figures. However, they used Corbett and Jenkinson's earlier working paper which employed gross figures, not net figures. They also made some mistakes in interpreting Korea's flow of funds, and Shin (2008) corrected them.

4. In this spirit, Shin (1996) regards the Japanese Zaibatsu or Keiretsu as functional substitutes for German universal banks.

5. Those “mentioned above” include state budget, domestic loans, and foreign capital.

6. It is also very difficult to draw the boundary between “self-raised” and “others,” according to Xu (2010).

7. For instance, property developers are required by the government to raise minimum 35% of total funds for each project from self-owned funds.

8. ^“China's shadow-banking system: trust belt,” The Economist, 12 February 2011.

9. ^“Small, mid-size firms facing financial strains in Wenzhou,” China Daily, 17 February 2011.