Despite its growing importance, at the end of 1999, the private sector accounted for only 1 percent of bank lending, and only 1 percent of the companies listed on the Shanghai and Shenzhen stock exchanges were nonstate firms. The discrepancy between the dynamism of the private sector and its limited use of intermediated financing suggests that the private sector may not be able to sustain its current rate of growth unless it can increase its access to financing. Among external funding sources, informal channels, credit unions, and commercial banks were about equally represented. Outside equity, including public equity, and public debt markets played an insignificant role. The relative importance of different sources of financing among surveyed firms depends on firm size.
Internal sources tend to become less important as firms grow larger.
External sources for the smallest firms are mainly informal channels, but their share tends to decrease as firms grow bigger, while the share of commercial bank loans increases with firm size. Commercial banks are the second most important source of funds for the largest firms, after retained earnings. This seems to indicate that banks provide more support for larger and relatively successful private firms. But, on average, Chinese banks tend to play a relatively small role in financing private firms. Only 29 percent of surveyed firms had secured loans in the previous five years.