Enterprise Development And Bank Financing

In the market economy, banks and enterprises are both economic entities with independent economic interests and full power of managerial decision-making. Along with the growth of enterprises, financing services will from the banks become more active, and expand in scope, which, in turn, will further accelerate the development of the enterprises in a positive manner. A financing transaction may be successfully implemented when an enterprise has a need for fund and a bank holds the motive for financing the former, which therefore may formalize bilaterally accepted market conditions bound by market practices between the two gamed parties. This is a two-way choice process. From enterprises' perspective, the capital structure, which has been established in the light of business objectives, will influence the enterprise's decision-making on capital financing to a large extent. While from the perspective of banks, selection of clients and risk management are the key components in a financing activity. A complete financing process of a bank must include establishment of credit policy, market analysis and credit analysis, loan disbursement and collection and recourse process on non-performing loans. In addition, the bank-enterprise financing transaction is also an interactive process. The transaction presents different features depending on different phases in the life cycle of an enterprise. The motive for capital financing, the goal of investment and actions taken by enterprises in the financing process will differ accordingly. Banks need to decide whether to proceed or exit, or whether to increase or reduce credit line for the enterprise according to the performance of the enterprise at particular time and the potential for future development. The objective of the bank is to avoid or reduce any opportunity of making a reverse choice or taking any moral risk. After the financing transaction is completed, on the one hand, micro-effect will be determined by whether the enterprise can enjoy development from the financing and whether the target of investment can be realized. The enterprise will make profit provided that the expected target is met, and the bank will safely collect the principal and gain interest thereof. Otherwise, the transaction will affect the business operations of the enterprise in reverse or even endanger the survival of it. Under the circumstances, the bank is likely to lose principal and interest. On the other hand, as macro-effect, financing activity can promote effective transformation of national savings to practical investment and a rational allocation of social and economic resources as long as the financing activities taken by the banking sector can be carried out effectively. Banks and enterprises will progress under interactive forces and this will form a sound cycle of the economic activities. Otherwise, with ever-worsen asset quality, banks will not have the intention or ability to expand their financing activities, which will drive enterprise into a pitiable plight either for business operations or for capital required for further expansion. It will block in the way of the transformation from savings into investment, and thus it may result in the irrational allocation of resources, and if serious enough, may trigger the out-break of financial crisis and economicturbulence. Therefore, the objectives of the studies on the development of enterprises and banks' financial activities are to seek rationalized and effective behaviors between enterprises and banks with aim to promote economic growth and to prevent or dissolve economic risk.This dissertation falls into four parts to examine the development of China's enterprises and financing activities of banks. First is the analysis of the changes of financing activities between enterprises and banks during the transitional period. Second, it analyses the debt difficulty of enterprises and solutions to the issue. Third is an attempt to explore a new financing model that can meet the requirements of China's socialist market econo...