The benefits of lending relationship: Evidence from foreign invested enterprises in China.

摘要

As China's accession to World Trade Organization is certain, China is now at the critical stage of changing from a planned economy to a market economy and the banking system is also undergoing dramatic changes. By focusing on the local and foreign currency loan markets for foreign invested enterprises in China, this thesis can make three major contributions: (1) providing the first empirical research to test the theories of financial intermediation in China; (2) modeling the competition among local and foreign banks by analyzing the borrowing pattern of foreign invested enterprises and their reliance on foreign and local banks; (3) examining the role of relationship banking and other factors in determining the loan pricing of both local and foreign currency loans by foreign and local banks.; From the empirical results, I found empirical support to the financial intermediation theories that the longer the banking relationship, the lower the rate on the foreign currency loans, suggesting that the length of relationship as a proxy for the private information the bank obtains over the course of relationship helps overcome information asymmetry between the banks and the foreign invested enterprises in the sample. I also found empirical support to the rate reducing effects of other key factors such as the majority shareholding by the foreign sponsors and provision of third party guarantee. However, none of these important factors are associated with the renminbi-denominated loan pricing. That points to the primary issue of the prevailing banking system in China that the regulated local currency interest rates prevented the commercial banks from playing a “real” role of financial intermediation. The empirical test also shows that the local currency loan pricing will be reduced as FIEs maintain relationship with more banks. This suggests that banks compete for customers by offering cheaper credits. If competition is the predominant determinant of loan pricing and that such level of competition does not stimulate more innovative and better quality bank services and products as a means of differentiation, the inflexible Renminbi loan pricing will ultimately deteriorate the profitability of the banks and affect the financial health of the banking system.; Whilst China's accession to WTO is now certain, the liberalization of local currency interest rates will take time and be approached cautiously, and ultimately, hinge on the success of the banking reform and the institutional strengthening of Chinese banks. (Abstract shortened by UMI.)