Abstract
Relying on our field survey in Southern Jiangsu Province, this work tries to clarify the mechanism that trade credit develops and works as a sound financial intermediation path there. Our main findings are as follows. First, competitive market environment motivates firms to offer trade credit for promoting their sales in China, which can develop trade credit. Second, investment by both sellers and buyers in a relation with their business partners prevents credit transaction from resulting in default or arrears. In particular, Chinese firms tend to save the time to build reliable business relationship by spending monetary costs. Third, not only informal institutions such as information network within firms but also formal institutions such as legal system help trade credit finance function well.
