Internal capital market of China I & II

Abstract

There is an increasing number of Chinese firms gaining access to the external capital market for financing, especially from the international capital market. Despite the additional sources of external financing, an increasing number of Chinese firms are still involving in the “guarantee loops”, where Chinese firms provide guarantee to each other for bank loans. The total amount of guarantee can be as huge as over RMB 2 trillion in 2005 from merely 800 listed Chinese firms. This phenomenon reflects the importance of the internal capital market among Chinese firms. The objective of this research is to determine what causes the firms to participate in the internal capital market, particularly in the “guarantee loop”. [3rd Award]