A sound SME sector is maintained to be decisive for sustainability of economic development in a just now industrialized country, specifically a country going through shift from planned to market economy (Junjie, Jining and Catherine, 2008). Even though it is normally approved that SMEs have considerable giving on a country’s economic development, this sort of enterprises are question to financing complexities, predominantly those in developing or transitional economies. There is little proof of shortage of financing for SMEs in the majority of developed economies such as US, UK and Japan. However, there is a extensive difficulty of SME access to finance in developing or transitional economies (OECD, 2006). Today China as developing and transitional economy is ranked as the second largest economy in the world after the US, and when it comes to developing countries, it the first largest. SMEs play a significant role in Chinese economy. As evidently in 2009, SMEs in China threw in 35 percent of the country’s total GDP, however, SMEs access to financing accounted for just 6 percent of the total (Jiaobin and Yuanyi, 2011). For this reason, the issue of financing has turned out to be the major concern for SMEs in China. This study examines banking market concentration and SMEs bank financing difficulty in China, one of the leading developing or transitional economies in the world that accomplished most fast economic growth.
Financial services, mainly the loans required for SMEs growth in China far go over the real sum supplied. Even though nearly all funds starts off from self-accretion or fundraising, whilst first setting up a SME, more than 50 percent of SMEs yet depend on loans from banks. All through the route of making and investment growth, mostly working capital and a little fixed assets investment, the loans demand from banks are larger. If a SME wishes to invest, there requires funds from banks. Apart from for a few well-performing SMEs, the huge greater part does not have an adequate amount of self-accumulated funds to scrupulously get together investment supplies so they ought to come across a method to fill up the gap in financing. Because of definite confines, it is very complicated for SMEs to get hold of capital or venture capital from the capital market in a straight line. Consequently to a great degree, except they get a private loan, SMEs ought to depend on finances from banks and supplementary funding organizations to achieve outside funds (Junjie, Jining and Catherine, 2008).
China has attained an extraordinary economic development, and the country’s economic growth rate has already improved on that of France and is all set to go beyond Japan almost immediately. Moreover, it is forecasted that this growth will even catch up to the US in coming years. Behind this, however, banks’ bad loan problems have been deepening and a stock market slump has become apparent lately. SME sector plays a decisive role in the growth of Chinese economy contributing 35 percent, but the growth of the economy may be blocked if financing and credit system for the SME sector is not made smooth, given the fact that SMEs access to financing accounted for just 6 percent of the total. The fundamental problem is that there are flaws both in the SMEs management and financial system. Therefore, this study explores and analyse the problems which SMEs in China are faced with in terms of financing, particularly in relation to loans from banks.