Bank Loans and Trade Credit Under China's Financial Repression

China has maintained a financial system with favorable treatments toward state-owned enterprises. Albeit having been denied access to formal financing such as bank loans, China's non-state firms have grown rather fast. China's experience has often been interpreted as indicating that alternative informal financing channels such as trade credit can substitute for formal financing and support firm growth. In this study, we systematically compare the relative importance of bank loans and trade credit in promoting firm performance and firm growth, and find that access to bank loans is more important than does availability of trade credit. Our results imply that firms cannot get around financial repression through alternative financing channels, and suggest that it is an imperative to dismantle the financial repression regime so as to promote firm growth and performance