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China's GrowthThe Making of an Economic Superpower$
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Linda Yueh

Print publication date: 2013

Print ISBN-13: 9780199205783

Published to Oxford Scholarship Online: May 2013

DOI: 10.1093/acprof:oso/9780199205783.001.0001

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Financial and Legal Development: The Role of Private Enterprises in Growth

Financial and Legal Development: The Role of Private Enterprises in Growth

Chapter:
(p.231) 7 Financial and Legal Development: The Role of Private Enterprises in Growth
Source:
China's Growth
Author(s):

Linda Yueh

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199205783.003.0007

The rapid rise of the entrepreneurial private sector in China is one of the key reasons for the success of its transition from a centrally planned economy toward becoming a market-oriented one since the late 1970s, which was explored in part in the last chapter. At the same time, China is a country known for its incomplete legal system, which includes the lack of an independent judiciary, and adjudication is not free from interference from the executive branch. In addition, there is evidence of financial repression whereby legal and institutional constraints impede the development of financial intermediaries, thereby retarding the development of the financial sector. In China, this is manifested insofar as the rules favour state-owned enterprises (SOEs) despite three decades of reform. SOEs still dominate credit allocation, such that the majority of private small- and medium-sized enterprises (SMEs) obtain no bank financing even in 2006 (Lin 2007). This chapter investigates the impact of lagging financial and legal systems on private sector development and complements the previous one.

Keywords:   entrepreneurship, private sector development, legal development, financial repression, small- and medium-sized enterprises, state-owned commercial banks, institutional constraints, financial sector development

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