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Situation Of The Regional Economic Development

As we known finance plays a core role in the modern economy. It improves the development of the regional economy. When the finance improves the development of regional economies, there have some defects in financing policies. It mainly showed that the difficulty of Small and Medium Enterprise (SMEs) financing (Yin, 2011). Because of the historical reasons and the financing policy the gap of regions become larger and larger.

Recently, all the big countries have to face the imbalance of the regional economy. China is not unique. From per capital GDP, there exists a significant gap in the four major economic regions in China (Armstrong and Taylor, 2000). In the late 1990s China opened some coastal cities for foreign direct investment, the Special Economic Zones (SEZs) quickly blossomed into an export and created backward linkages with the hinterland (Sylvie, D et al, 2001). Linhua Nie and Chengyong Wang (2006) suggest that the primary products and resource products took a dominant position in the Midwest and northeast regions, in these regions there not high-tech industries and the consumption elasticity is low. This situation was limited the Midwest and northeast economy and SMEs financing development. So government pays attention to the SMEs financing problem in the Midwest and northeast regions.

In 2003, SMEs accounted for 98.9% of total number of businesses in China, and made up 65.6%, 63.3%, and 77.3% of gross industrial output value, sales revenues, total profits, and employment respectively (China Statistics Press, 2004). Therefore SMEs have become one of the major driving forces for Chinese economic and social development. So if the government wants to developed regional economies, it must solve the problem of the SMEs financing.

Literature review

When China to implement the policies of reforms and opening up, the gap of regional increases continually. So the regional economy gap becomes the top problem, and government must take measures to control this situation (Yang and Xu, 2006). Shufa (2002) points out that because of different historical reasons and the gap in regional economic development, the regional distribution and the development of small and medium sized enterprises (SMEs) have a large imbalance. In the end of 2008 Chinese SMEs accounted for 99.8 percent of total firms. Further, they can produce 60 percent of national GDP and provide about 70 percent of jobs (Xueli Huang, 2009). So SMEs play an important role in the regional economy.

Different regional entrepreneurships have different characteristics. These figures to talk about the different characteristics in different regional of China (China Statistic Press, 1999a,b 2001a,b 2003a,b).

According to the figure (China Statistics Press, 1999a, b, 2001a, b, 2002, 2003a, b) Zhejiang, Jiangsu, Guangdong and Shandong provinces are the most active regions. In other words entrepreneurship in these four provinces more free and the development of SMEs were more batter. These exists a gap between them and the gap continues to increase. However, Henan, Hebei and Shanxi’s SMEs industrial output have a high speed than that of the whole country. But most of industrial enterprises were built up in the northeast of China, and the ownership structure and industry structure were so outdate that they limited the SMEs development. And the enterprises in the west area need advanced facilitation and management.

China can learn from the UK. As we know that SMEs can contribute to wealth and net employment growth in the developed countries (Brich, 1979; Brich et al, 1993). According to Chami (2001) in the recent years, the government of UK wants to make policies to solve the supply enough and specific finance for SMEs. In the UK banks can provide short-term finance to limit SMEs capacity to undertake strategic planning for long-term (Deakins and Hussain, 1994). Mason and Harrison (1996) state “UK bank leading policies have increased institutional control upon managerial lending decision and, in turn, this resulted in greater centralization tendencies.” According to the research that SMEs owners/managers financing decision and the “pecking order” theory are equal (Holmes and Kent, 1991; Scheer et al, 1990; Mayers, 1984). According to Petersen and Schulman (1987), the pecking order theory is the owners have not a sufficiently financial organization in order to get best capital structure (i.e. debt versus equity ratio). So Cosh and Hughes (1994) advices that owner and manager first choose a personal source of finance; second choose short-term borrowing; third choose long-term debt; and finally his/her equity finance might affect the business control.

China can learn from India. The small scale industry (SSI) is an institutional network in India. There have other institutions to help small firms. Rajesh, k and Suresh, K, (2010) argues that:

“Firstly the Small Industries Development Bank of India implements schemes for technology development and modernization of SSI units. Secondly the government helps SMEs in marketing their products by organizing international exhibitions. Thirdly establishment of tool rooms helps in providing tooling, dies, moulds and fixtures to small-scale units at a very low price to enable SMEs to produce quality goods to meet the requirements of the markets.”

According to the literature review the vast majority of SMEs in China do not possess enough self-accumulated capital to meet their full capital requirements. For example, it appears that there exists a finance gap for SMEs in China, which might limit their future growth. Javed, H et al (2006) suggested that the SMEs financing in China has significant effects that can support their sustainable competitive in international markets, future financing and support policies in this country.

Research objectives

Analyze the situation of the regional economic development.

According to the literature review we found that the gap of regional economy became large and the SMEs have a large imbalance. Most of industrial enterprises were built up in the northeast of China, and the ownership structure and industry structure were so outdate that they limited the SMEs development.

Compare with other countries methods and solve the problem of the SMEs financing.

According to the literature review compare the financing methods with UK and India. We can learn some methods from these countries. But we also found that some financing methods cannot fit China. In my dissertation will put forward some advices to solve this problem.


Research method



Research objective

Literature analysis

Relevant research articles

Compare the methods of SMEs financing in China and foreign countries


ICBC bank financing manager

Talk about what factors to limit regional economy development

Talk about which services bank provided to help SMEs financing

In my proposal literature analysis is my main research method. From the literature analysis we found that the SMEs financing in China has more problems. Literature analysis will be used to compare to the foreign SMEs financing. After “open up” policy the east coast area with its special location and policy can attract foreign investment (Hualin Nie and Honghan Ma, 2009). From developed countries’ capital technology and management method can improve the regional economy. So in order to solve the imbalance of regional economy, we should solve the SMEs financing problem. So I will find more materials to compare the SMEs financing difference between China and developed countries. In my dissertation the SMEs financing policy cases will be analyzed. And finally I will conclusion and put forward some advices to improve our SMEs financing.

Secondly, will be interviewed the financing manager of ICBC (Industrial and Commercial Bank of China) at Yuhong district in Shenyang. And I had record the answers. The questions include which elements limit Chinese regional economy development, and which services were provided by bank to solve SMEs financing problem. The reason for choosing it is that interview can exactly know the problems of SMEs in China, and government will provide policies to solve the problem. That is an effective way to acquire specific information.


Firstly, because of the limitation of time, I only interview the manager of ICBC financing department at Yuhong district in Shenyang. To provide policies only suit the development in Shenyang. That only stands for the northeast economy development.

Secondly because of the limitation of time and materials, I only compare with the financing methods in UK and India. But some methods cannot fit China, and have not other articles to compare with Chinese financing method. I cannot find more relatively sample and the level of statistical analysis. That will affect comprehensive of data. Consequently the limitation will limited my thinking, methods and results.


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