Informal Finance in China American and

Informal finance consists of nonbank financing activities, whether conducted through family and friends, local money houses, or other types of financial associations. It has provided much-needed financing to small and medium enterprises (SMEs) in particular, in the face of a tightly constrained and overburdened formal banking system. Unable to obtain a bank loan, firms have relied upon individuals and informal organizations outside of the banking system to obtain financing for their ventures or working capital (operating funds). Presently there is a scarcity of information on informal finance in China and it is expected to have a significant impact upon GDP and money supply. This book, with contributions from leading scholars, describes the evolution, characteristics, and variation of informal finance in China from American and Chinese perspectives. Literature by Jiang Shuxia, Jiang Xuzhao, and Li Jianjun has heretofore been available only in Chinese, while work by Kellee Tsai, Jianwen Liao, Harold Welsch, David Pistrui, and Sara Hsu has been available in English. For the first time, they come together to discuss informal financing and its many aspects. Most of the essays are based upon original survey research conducted locally, as this type of data is not normally collected by the government. The papers pioneer the description and analysis of the nuances of informal finance from several perspectives; the authors look at the social, cultural, political, and economic causes of informal finance, its many variations, and its economic, personal, and political ramifications.

Jianjun Li is Professor of Finance at Central University of Finance and Economics in Beijing, China. He has published seven books and one hundred papers on informal finance, monetary policy, banking performance measurement, financial crisis, financial reform, and liberalization.
Sara Hsu is Visiting Assistant Professor at Trinity University in San Antonio, Texas. Her areas of interest include development economics, China's economy, informal finance, and international economics.

List of Figures	p. xi
List of Tables	p. xiii
List of Abbreviations	p. xv
List of Contributors	p. xvii
Introduction	p. 3
Informal Finance in the Literature	p. 4
Chinese Informal Finance	p. 6
Banking Reforms in the Formal Financial Sector	p. 8
Overview of Chapters	p. 9
The Evolution of Informal Finance in China and Its Prospects	p. 12
The Economic Influence of Informal Finance in China	p. 12
The Historical Evolution of Informal Finance in China	p. 15
The Fundamental Defects of Informal Financial Institutions in China	p. 25
The Features of Societal Transition in Informal Finance in China	p. 27
Cause of the Distortion of Informal Finance in China-Culture Lag	p. 28
The Potential of Informal Finance as a Financial Industry in China	p. 30
The Scale of Informal Finance-Local Investigations	p. 31
Reforming the Formal and Informal Financial Systems	p. 32
The Development Opportunities and the Future of Informal Finance in China	p. 34
Informal Finance, Underground Finance, Illegal Finance, and Economic Movement: A National Analysis	p. 39
Background	p. 40
Definition, Types, and Cases of Unobserved Finance	p. 41
National Survey on Unobserved Finance	p. 47
The Scale of Nonbank Financing in China	p. 48
China's Informal Finance Interest Rate Level	p. 53
Analysis of Unobserved Financial Funds Industrial Inflow Patterns	p. 54
Conclusions and Implications	p. 56
A Comparative Analysis of Regional Informal Financial Organizations in China	p. 60
The Main Types of Informal Financial Organizations: in Northern China	p. 61
The Main Types of Informal Financial Organizations in Southern China	p. 64
Other Types of Informal Finance in China	p. 70
Underground Insurance Markets in Southern and Northwestern China	p. 72
Trader's Credit, Micro Nongovernmental Loans, and Rural Mutual
Savings Funds: Transitional Forms from Informal Finance to Formal Finance	p. 73
Usury, Illegal Underlying Capital Companies, and Money Brokers	p. 76
Conclusion	p. 77
Beyond Banks: The Local Logic of Informal Finance and Private Sector Development in China	p. 80
Financing the Private Sector Informally (and Illegally) in China	p. 81
The Political Economy of Local Variation in Informal Finance	p. 85
Explaining Local Variation in Informal Finance	p. 94
Conclusion	p. 97
New Venture Financing: An Empirical Investigation of Chinese Entrepreneurs	p. 104
Existing Research in Venture Financing	p. 105
Venture Financing in China	p. 109
Research Methodology	p. 112
Results	p. 114
Discussion	p. 118
Conclusion	p. 120
Is Informal Finance Faster, Cheaper, and Better than Formal Finance? A Study of Small and Medium Enterprises in Shanghai and Nanjing	p. 125
China's Financial Market Segmentation	p. 125
Transactions, Financial, and Physical Cost Model	p. 127
Survey Methodology	p. 128
The Average Firm	p. 129
Number of Informal and Formal Loans	p. 129
Transactions, Financial, and Physical Costs	p. 132
Implications of Study	p. 135
Policy Recommendations	p. 137
Conclusion	p. 138
Conclusion: Regulating Informal Finance in China	p. 140
The Economic Effects of Informal Finance	p. 140
Economic and Political Factors in the Development of Informal Finance	p. 145
Geographical Features of Informal Finance in China	p. 146
Countermeasures for Regulating Informal Finance	p. 149
	p. 160
	p. 187
Index	p. 193
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Informal Finance in China American and Chinese Perspectives

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