How do small companies in China typically finance their activities and growth plans?
Given that the PRC’s private ownership is still dominated by small firms, raising capital on the domestic equity markets, which until recently were still subject to stringent regulations and quotas for listings, is impossible for most of them. As a consequence, the tremendous growth of these domestic private firms has been financed mostly from retained earnings, such informal credit sources as personal networks, and extensive use of trade credit. The capacity to rely largely on self-generated funds for new investment ultimately is limiting the speed at which these small private firms can grow.
