Trade Credits under Imperfect Enforcement: A Theory with a Test on Chinese Experience

It is widely recognized that trade credit is an important financial mechanism, particularly in developing economies and transition economies where institutions are weak. This paper documents theoretical analysis and empirical accounts on what facilitates an effective supply of trade credit based on original surveys conducted in P.R. of China. Our theory predicts that trade volume and trade credit are increasing function of cash held by the buyer and enforcement technology of the seller. Furthermore, if the state sector’s enforcement technology is high, it has positive external effect to expand the volumes of trade credit and trades in the whole economy. From the data, we found that government made active commitment in enforcement of trade credit contract and the government owned firms are main supplier and receivers of trade credit, which suggest that enforcement by government and state sector were effective against presumptions in the previous literatures.

Financial Aspects of Transactions with FDI: Trade Credit Provision by SMEs in China

This paper will document financial aspects of transactions, and trade credit supply behavior with FDI among small and medium-sized enterprises(SMEs) based on two original surveys, conducted in four cities in China in 2003. The survey was designed to capture the nature of inter-firm transactions, trade credit and other financial conditions. Literature on FDI mainly refers to technology transfer, employment or investment. This paper focuses on the role and significance of FDI in the supply of trade credit due to its trade credit enforcement technology. Yanagawa, Ito and Watanabe [2006] developed a model which indicates that when a seller has higher enforcement technology or a buyer has richer liquidity, both trade credit and transaction volume will be increased. In this paper, we confirmed that FDI and G contributed to the provision of trade credit and had a positive external effect on trade credit enforcement towards China’s economy. (1) Sales towards FDI customers have the power to increase the trade credit ratio,even when controlling other factors such as choice of payment instrument, competitiveness, and expost default management. This implies that FDI does provide trade credit, not only because it has superior liquidity, but because it is also superior in terms of enforcement of trade credit repayment.(2) Cash constraints of the buyer influence the decisions concerning trade credit provided by the seller, as a model in Yanagawa, et al. [2006] predicted, and this implies that strategic default is a serious concern among SMEs in China. (3) Spillover effect exists in payment enforcement technology in transactions with FDI customers.

Myanmar Sugar SMEs: History, Technology, Location and Government Policy

Small and medium enterprises (SMEs) engaged in sugar processing in Myanmar appeared in the last decade of the socialist era. An acute sugar deficit, restricted trade in white sugar, and high demand from the conventional dairy business led to the growth of sugar SMEs by appropriate blending of semi-finished products (syrup) in the fields, which were then processed in vacuum pans and centrifugals to obtain white sugar. This became a tradable commodity and sugar SMEs grew in clusters in big cities. They are family-owned businesses. However, they lack the bagasse-based power generation. In recent years, large modern sugar factories operated by private and military companies have emerged as key players. The current shortage of fuel feedstock and competition for raw materials have become driving forces that shift sugar SMEs from market-oriented to raw material-oriented locations. Internal competition among key players made sugar price highly volatile, too. Being placed on a level playing field, the whole industry should be upgraded in terms of price and quality to become export-oriented.

Vietnamese Local State-owned Enterprises (SOEs) at the Crossroads: Implications of SOE Restructuring at the Local Level

This paper aims to capture the changing features of local SOEs under the national SOE restructuring program in the 2000s. The national policy on SOE reform in this phase had an effect of considerably clarifying and narrowing down the raison d'être of SOEs, which has been put into practice at the local level through provincial master plans. Consequently, some signs of an important change are observed: the structure of the local SOE sector is being standardized to a certain extent, and the remaining local SOEs are becoming more geared to the needs of a market economy. This trend would have far-reaching implications for the policy implementation and public service delivery by localities, which in turn would affect the long-term development of non-state sectors.

Separation of Control and Cash-Flow Rights of State Owned Listed Enterprises: Channels of Expropriation after the Discriminated Share Reform in China

Literature on agency problems arising between controlling and minority owners claim that separation of cash flow and control rights allows controllers to expropriate listed firms, and further that separation emerges when dual class shares or pyramiding corporate structures exist. Dual class share and pyramiding coexisted in listed companies of China until discriminated share reform was implemented in 2005. This paper presents a model of controller to expropriate behavior as well as empirical tests of expropriation via particular accounting items and pyramiding generated expropriation. Results show that expropriation is apparent for state controlled listed companies. While reforms have weakened the power to expropriate, separation remains and still generates expropriation. Size of expropriation is estimated to be 7 to 8 per cent of total asset at mean. If the "one share, one vote" principle were to be realized, asset inflation could be reduced by 13 percent.

The innovation process of a privately-owned enterprise and a state-owned enterprise in China

This study compares the innovation process of a privately-owned enterprise and a state-owned enterprise in China using their patent data. Huawei and ZTE were selected for this study because they experienced the same historical environment in the same industry from the same region in China leaving their owner types as their critical difference. This study investigates the difference in the innovation process in R&D between a privately-owned and a state-owned enterprise by analyzing (1) domestic and international patent application pattern, (2) co-application and co-applicants, (3) knowledge accumulation inside Huawei and ZTE, and (4) knowledge spillover to domestic and foreign firms.