Does registration status matter for companies´ quest for loan quota in China?

Abstract: This thesis analysis if company registration plays a significant role when obtaining credit from formal financial institutions in China. It then goes on to explore if obtained credit for the same companies results in higher total profits. The growth of the private sector in China is a unique marvel, the sector has long been discriminated against by the Chinese government and the rapid development since the opening up policy goes against most economic development theories. Using Investment Climate survey from China for the year 2004, two econometric models are presented. The study shows how registration status of companies matters in the quest for formal bank credit in China and despite the lack of formal credit private firms are returning considerably higher total profits. The results indicate that private firms turn to alternative informal sources once in need for credit rather than trying to obtain credit from formal financial institutions in China.