Research on the beneficial interactions between small and medium-sized private firms and banks

Small and medium sized firms play important roles in increasing labor employment, market competition, and optimizing industry structure. Nonetheless, these firms face severe financing constraints. Their contributions to the national economy are more than the financial support they receive. China´s present banking industry cannot solve this problem. Small and medium-sized private banks outside the current system are needed.This paper applies the theory of market segmentation to discuss the advantages and feasibility of small and medium-sized private banks serving the above-mentioned firms, and proposes the path of their positive interactions. The paper also illustrates that relationship lending can solve the information asymmetry between these firms and banks, and that the model of integration of the industry and banks is the next logical step, which can better solve the problems of financing of these firms and growth of these banks.