Firm Growth in China: A Perspective of Informal Financing

Abstract

　China has experienced continuously spectacular economic growth, at an average rate of nearly 10% over the past decades. While in the first quarter of 2016, the GDP growth rate has declined to 6.7%. As the largest developing and transitional economy with many years of uninterrupted fast growth, China’s financial system is underdeveloped, and the legal protection environment is weak. There are no consensus results to explain this Chinese growth puzzle. Under the “New Normal” policy background, firm’s growth is focused on, this paper tries to discuss and answer this puzzle from the informal financing perspective. I investigate the relationships between TFP and net working capital, TFP and trade credit, and support a micro-level evidence that Chinese firms’ TFP is significantly related to informal financing, particularly the non state factors, but not state-owned enterprises.