Introduction To Credit Expansion In The Transition Economies

Our country has met with currency deflation and economic contraction since 1998. The currency deflation and economic contraction caused the rate of unemployment increased rapidly. Such macroeconomic condition is requiring us researching its causes, especially on economic system and bringing out policy advice. On the basis of using credit fund theory, we try to analyse and solve the above problem.With the monetary capital surplused by credit inflation, entrepreneur innovation investment forms the most important factor in economic development so that we have to analyse the impact of economic system reforms on solving the dilemma of credit inflation firstly.The dilemma of credit inflation refers to the financial sector may face the collide caused by credit inflation between keeps the society liquidity adequately and surpluses the fit monetary capital demanded by entrepreneur innovation investment .Different from the developed countries solving the dilemma of credit inflation on the basis of the market economy system successfully, our country tried to solve the same problem forever on the basis of the plan economy system with the empiricies of the USSR economic development model. The key point in solving the dilemma of credit inflation on the basis of the plan economy system is the financial sector wasn' t permitted surpluse monetary capital for entrepreneur innovation investment so that this problem seems solved at lest in Definition. However, the direct compulsory saving surplusing the monetary capital for entrepreneur innovation investment in the plan economy made the dilemma of credit inflation become worse more and more so that China was forced to begin economy reforms-oriented the market economy system in 1978.The direct compulsory saving' s dismiss helped China form and develop the credit inflation equiponderant organ on savers again and the financial sector regained the rights of surplusing monetary capital for entrepreneur innovation investment in 1978-1992. The government-owned economy strategical adjustmen thas made greater progresses in forming and developing the credit inflation equiponderant organs on entrepreneurs and central bank since 1998. The development in the credit inflation equiponderant organs on savers , entrepreneurs and central bank surpluses the good contion on economy system for dealing with the dilemma of credit inflation in China and helped our courtry gain the fastest economic development rates in the world more than 20 years.However, Chinese financial sector is still owned and control by government strictly. Thinking of its entrepreneur innovation capacity being inadequate, The government-owned financial sector have to make credit contraction crsisly to maintain its liquidity so that the government-owned financial sector could hardly surpluse adequatemonetary capital for entrepreneur innovation investment when economic contraction produces.It is the cause on economy system that currency deflation and economic contraction lasted so long.We think it is time to enhance financial sector reforms by developing the financial sector not belong to government to solve the problem of currency deflation and economic contraction in the end.