The Study Of Credit Effect On China’s Economic Growth

Since the reform and opening up, China has experienced a big development for over 30 years, during which both the financial system and financial structure have been changed deeply; however, financial system is still based on indirect financing, and bank credit is the main channel for capital formation and funds supply. Since 1978, China’s credit has increased continuously with a 30-year constant and rapid economic growth as well. In 2010, China’s GDP surpassed Japanese GDP to become the second largest economic power, which created a Chinese miracle regarding economic growth. After the subprime mortgage crisis, China’s banks have entered a stage with rapid expansion under the super-normal and emergent financial and monetary expansion policies adopted by government. Due to the large amount of credit, Chinese economy became to recover quickly earlier than Western countries. The credit has an obvious positive effect on economic growth. However, since the third quarter of 2010, the economic growth trend has been changed prominently with an obvious decline of economic growth. Different from the slower economic growth, the amount of credit still maintains a higher growth, though the growth speed is slowing down. It is confusing that the credit growth is inconsistent with economic growth. Credit is an extremely important variable affecting a nation’s micro operation and macro control, so how does it affect economic growth? With these questions, we hope to find answers in this paper with exploration and detailed research on the features of credit release. Besides, the effect of credit on economic growth will be analyzed, and on this basis, the positive effect will be explored, which will have important realistic significance for the sound and healthy development of economy by giving play to the functions of credit under the background of “new normal” state.Based on review of related theories and empirical documents, the paper first analyzes the economic environment of credit operation; besides, it gives detailed description on credit in our country from the total amount and the structure; in addition, the effect of credit release on economic growth has been studied from the total amount by combining theoretical analysis with empirical inspection; Then the effects of credit on economic growth under different terms as well as the effect of local credit on local economic growth have been researched. The main conclusions are as follows.From the perspective of actual economic operation, the effect mechanism of Chinese credit on economic growth has been constrained by many factors. After investment variable being introduced, financial constraints in Chinese enterprises have been relieved by credit; however, the relationship between credit and investment has also been affected by non-marketing mechanism, such as government intervention, credit rationing and soft budget constraints; besides, the economic growth has also been affected by investment scale and efficiency jointly. According to empirical test, the credit can affect economic growth in the short term, while its effect will be weakened in a middle and long term. Under different stages of economic development, the effect and function of credit on economic growth and investment growth is different. During the 30 years since the reform and opening up, the growth of credit in our country has promoted the investment growth and economic growth with limitations on economic growth periodically, resulted from political control. By offering invisible guarantee to state-owned commercial banks, government encourages and mobilizes national savings so that monetary resources of the whole society can be mastered by state-owned commercial banks; meanwhile, the loan and deposit rate is lowered with control on interest rate. Then enterprises are input with large amount of cheap funds through credit expansion of bank system; and thus they can have a larger investment with constant and rapid economic growth. Since 2011, China’s economy has been experiencing an extremely important structural transition period, during which economic growth rate has declined year by year, and it is confronted with adjustment and transition. Meanwhile, in this stage, the growth of credit has not promoted investment growth as well as the economic growth. Moreover, another key reason is the wrong allocation of credit resources caused by large expansion of credit resources in 2009.Both short-term loan as well as middle and long term loan have positive effect on economic growth. Comparatively, short-term credit has positive effect on economic growth in the short term, while the effect will be weakened as time passes by. The effect of middle and long term credit on economic growth is not obvious in the short term, and the effect can only be embodied in a middle and long term. The main reason is the credit of different terms have different influential paths on economic growth. Besides, credit growth in different areas also has different effects on economic growth. In the east, credit is not the major factor driving investment, but the increase of credit can promote economic growth effectively, indicating the financing and investment mechanism in the east is more flexible with high utility rate of credit. In the middle area, economic growth and investment growth have been greatly affected by the input of credit. In the west, investment relies on credit growth, but credit growth can’t drive economic growth synchronously, indicating the low utility rate of investment in the west. It also reflects that the economies in the west rely much on bank credits due to preferential policies, but the utility rate of credits is low, which may be closely related to the non-market allocation of credit.According to the research in this paper, suggestions are proposed for credit supply as well as formulation of macroeconomic policies. First, the level of macro control should be elevated to maintain a proper and stable growth of credit; second, the reform of economic system should be strengthened to improve the environment for credit operation; third, the reform of investment system should be deepened to enhance the utility rate of credit funds; fourth, the allocation efficiency of credit funds should be promoted by giving play to the function of market in resources allocation.