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Running head: SME FINANCING COMPANIES IN CHINA 1 SME Financing Companies in China Name Student Number A dissertation submitted to the University of Huddersfield in partial fulfillment of the requirements for the degree of Course Name THE UNIVERSITY OF HUDDERSFIELD Month and Year (of submission) Word count
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SME FINANCING COMPANIES IN CHINA 2 Abstract Access to credit facilities is a critical success factor for Small and Medium Sized Enterprises (SMEs). This is because these SMEs usually have a slight problem when it comes to raising the necessary capital required to set up their businesses. SMEs in China face the same problem with serious constraints related to accessing capital for their business. This is especially attributable to the vast dynamics that make up the Chinese finance and credit markets. Key among these includes the credit risks as well as inadequacy of credit facilities. As such, this vacuum has created a room for the existence of alternative financiers. In most cases, these alternative financiers operate outside the typical banking industry. The following research paper reviews the relevance of these alternative financing companies within the Chinese market setting, especially with regard to their role in promoting the growth and existence of SMEs in the Chinese market. Conversely, the paper examines the rules of engagement that these alternative credit providers uphold when dealing their SMEs. Furthermore, the analysis also seeks to establish their means of full operations. The purpose of undertaking this investigation is to establish the possibility of introducing regulatory measured within this sector in order to prevent any negative monetary situation that may arise from their uncontrolled operations. In addition, this will also assist significantly in the creation of control options for players in this alternative credit facility sector. Therefore, the paper recognizes the critical role that these credit providers play within the Chinese SMEs market, but examines different options that could be used in regulating the market players in order to eliminate monetary risks that may arise from their uncontrolled operations in the market, like credit risks, excessive supply of money, and high rate of bankruptcy. The findings of this research study prove that market demand is the main factor that fuels the growth
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SME FINANCING COMPANIES IN CHINA 3 and prevalence of shadow banking services, especially because common Chinese SMEs cannot access credit facilities from conventional commercial banks. Therefore, it is advisable for the government and the banking industry regulators to ease on the credit threshold requirements in order to allow more SMEs have access to low cost credit from commercial banks.
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