The Impact of Shadow Banking on Small and Medium Enterprise in China - Based on Trust Company Statistics

Abstract

With the development of the Chinese economy, small and medium enterprises have made up an essential part of the national GDP. However, the difficulty of financing of SMEs remains unsolved. This paper evaluates the current situation of shadow banking influencing the funding of SMEs in China. This paper starts with introducing SMEs funding and trust companies' performance, SMEs financing situation during COVID-19 and then examines the chance of survivorship and risky nature of SMEs. Lastly, a conclusion was made that even though shadow banking could help SMEs resolve their financial difficulty in the short term, however, due to their risky nature and low chance of survivorship, the positive effects of those loans are limited. As a result, the uncertainty poses many risks on nonbank institutions, exacerbating their reluctance to grant loans to SMEs. Therefore, to achieve stable and healthy growth of SMEs, more concrete and suitable funding policies must be endorsed. This paper has the goal of uncovering the core obstacles SMEs face and finding the possible solutions from variety of perspectives, including government policies, reconstructing companies' structure, etc. This is done through researching in the field of SMEs' capital structure and trust companies' funding mechanism, as well as SMEs' performances with relation to their funding methods. The importance of this paper ties closely into solving the financing difficulty SMEs in China currently facing, and providing a deeper understanding of current SMEs financing situation in China, lastly providing possible solutions to those difficulties.