Background Note | HBS Case Collection | January 2009

Financial Networks and Informal Banking in China: From Pawnshops to Private Equity

by Elisabeth Koll

Abstract

Provides an analysis of why informal financial networks and institutions still play an extremely important role in China's economy in the 21st century. Although China has emerged as one of the fastest growing economies in the world, it still suffers from a weak financial system dominated by state-controlled banks and severely limited access to capital for private entrepreneurs and consumers. The case shows how the political climate, economic regulatory environment, and social attitudes towards lending practices have shaped the approach to and structure of financing private enterprises over time. It also addresses the response of the Chinese government to the resilient curb market in the context of the economic reforms and policy changes for the banking and financial sector.

Keywords: Entrepreneurship; Private Equity; Banks and Banking; Financing and Loans; Governing Rules, Regulations, and Reforms; State Ownership; Business and Government Relations; Networks; China;

Citation:

Koll, Elisabeth. "Financial Networks and Informal Banking in China: From Pawnshops to Private Equity." Harvard Business School Background Note 809-111, January 2009.