Banking structure and government policies regarding SMEs financing

ABSTRACT This study adopts the view that at the current stage of economic development in China, the factor endowment structure is characterized as abundant labor and scarce capital, which determines that the viable industrial structure should be dominated by small- and medium-sized enterprises and the optimal banking structure should be dominated by labor-intensive banks. Using bank assets per employee to measure labor intensity of banks and investigating the data from various sources, we find that in China, major commercial banks and rural financial institutions are labor-intensive banks providing two thirds of the total bank loans to small enterprises. Furthermore, the cross-region investigation reveals that on average small-sized enterprises are positively associated with labor-intensive banks, and labor-intensive banks contribute significantly more to the SMEs business incomes than capital-intensive banks. This study also discusses some implications to researchers and policy makers.