Financial Development In Innovation: Theory And China's Financial Reform

There are a variety of financial development routes and levels in different countries, which resulted from the diversity of the subjects of the financial innovative activities, the process of producing and expanding those activities as well as the macro environment and system. The reason that the way to financial development in our country has disparate features compared to the western mature market-oriented countries, is resting with the differences between our transferring economy and the market-oriented economy in western countries, which not only determines financial innovation's environment and driving force, but also the differences of the new effects on the financial innovative activities.To internationally compare the financial innovative activities with developed countries, it can be seen that our starting point of the financial innovative activities is in the state of financial restraining. The features firstly are the degree of our financial reform is at the low level, the financial system has not been developed. Secondly, our financial system is a state-run system under the control of our country at the beginning, the micro subject of the financial innovative activities is lack of economical motivation. As the result, the country to some extent became to a main body that drives the financial innovative activities and controls the direction and macro process of the financial innovative activities. Consequently, our financial innovative activities are fundamentally presenting as the continuous reform process of our stated financial system, whose substantial characteristics are the financial system reform and innovation driven by our country.The essential features of our financial innovative activities have been investigated in depth in virtue of establishing an analysis model in terms of the principles of market permission and limitation, the main reasons to the dilemma with which the financial innovation confronts in china have been pointed. The substantial features of our financial innovation determine that financial risk also represents an institutional integrated risk in the transitional process of the financial institution. Furthermore, as a pusher of the financial innovation, the country is destined to be anundertaker of the financial risks. Therefore, our financial reform and innovation is facing difficulties. Due to the fact that the micro subject of the financial innovation lacks motivation and inspiration, the country turns into the subject of the financial innovation. On the other hand, the shortcomings on the structure of property right lead to the situation that financial institutions are seeking rent by making use of financial innovative activities, together with the inefficient supervision of our country due to the relatively high cost, consequently, our financial innovative activities in the financial reform would be easily transformed into institutional integrated risks, which lead our country falling into two embarrassing dilemmas. In order to accelerate the reform and enhance the efficiency of the financial resource's allocation, the innovative activities are needed to be encouraged in financial institutions by our country. The financial institutions, however, will intend to seek rent at the same time by making use of the innovative activities, which would subsequently bring the accumulation of social risks.Based on the model analysis, some significant issues in relation to the financial reform and innovative activities in china have been addressed in details, including the problems associated with stated-owned bank, the capital market reform along with the discussions on the developments of the financial derivative products in our country. Finally, some strategic suggestions have been proposed according to the whole situation.