Trade credit, SMEs credit constraints, and contagion: Evidence from China

This research project aims to identify the SMEs that experience credit constraints and analyze the firm, banking system, and macro-level factors that may affect the supply and demand of bank credit. Furthermore, this project intends to explore the effect of trade credit on credit constraints faced by SMEs. Specifically, the heterogeneous effect of trade credit for firms due to firm characteristics and macro factors is highlighted in the paper, which helps facilitate the incentive of using the trade credit. Subsequently, the economic effect of trade credit is analyzed, and it could help determine whether the utilization of trade credit is practically beneficial to the survival and development of SMEs. Innovatively, this research explores the supply chain and network of credit, focusing on the impact and contagion of the recent Covid-19 shock on firms' credit supply chains and inter-firm credit networks, and attempts to establish and analyze strategies to prevent credit risk contagion. In this way, this study puts forward targeted policy suggestions for solving the financing puzzles of Chinese SMEs and provides broader insights and scientific references for the government to formulate reasonable solutions.