A Study Of The Chinese Financial Structure

In the past more than 20 years after reform and open policy, Chinese financial structure has been enormously changed, which is driven by the rapid development in economy and great changes in the economic structure. However, as the reform of the economic system goes further, the deep-seated contradictions that lie in our country'economy and life expose gradually, of which the unbalance of the financial structure is the most prominent problem that has blocked the process of the reform of the economic system and the adjustment of economic structure. Follows the problem's appearance and its importance, the financial structure has already been the focus of theoretical and practical study, which is important in the research of the financial structure in both the theory and practice. This paper is organized as follows: Chapter 1 Introduction. First, we describe the great meaning of the study of the financial structure to our economic development and the financial reform. Secondly, we make clear some fundamental concepts and their definition, especially the meaning of the financial structure. Then we introduce the plan and the methods of this paper. At last, we present the arrangement of this paper's structure. Chapter 2 The changes and the determinant factors of the financial structure. We generalize and classify the changes of the financial structure as for the different phases. From the point of the gross financial assets and the financial deepening and by the lengthwise and the international transverse comparative analysis of the mass data, we summarize some features in the transformation of the financial structure and evaluate them. As we affirm the positive effect of these years'improvements, we put forward the problem of the irrationality and the distortion unbalance. At last, we analyze the main factors that affect the financial structure, which can deepen the empirical analysis and the policy suggestion. Chapter 3 The financial structure and the economic growth. In this chapter we introduce the theoretical difference between the studies of the financial development and the economic growth. By "The Theory of Dichotomy"and using recursive estimation in cointegrated VAR model, we analyze the relationship between the financial structure and the economic growth. Then we evaluate the shock of the past economic policies in China on their relationship, especially the short-term impact and the long-term equilibrium. So we can assess the impact of bypast policies and present suggestions for the future reform of the financial system. Chapter 4 The financial structure and the efficiency of capital allocation. Using the definition of asset allocation efficiency and the methodology presented in Wurgler (2000), we estimate the efficiency of capital allocation across the range of the whole country and the state-owned industrial firms through their relating data from 1990 to 2003. We adopt two definitions of absolute financial structure and relative financial structure to depict our country's financial structure. According to the extent to which the financial structure can explain the asset allocation efficiency, we evaluate the relationship between them and present the existing problems. Chapter 5 The financial structure and the financial fragility. Based on summing up the appearance and the development of the theories in the financial fragility, we further the study into the recent trend which combines the financial structure and the financial fragility. We build the system composed of some indicators that reflect the fragility of financial system and figure out the critical values in many states. By computing the fragility that represents the different composing parts, the function of financial structure in the system stands out. And we discuss the diffuse mechanism of financial crisis byfinancial structure through a single equation made up of the management risk of banks, the scale-expanding and the liquidity of stock markets. Chapter 6 The evolution of future financial structure and the suggestions in policy. For the problems that the financial structure involves are complicated, we can only emphasize particularly on some problems and try to form them into the one. So in this chapter we focus on some important problems in our country's financial structure. By combining the results from the foregoing analysis, we present some policy suggestions about the financial structure's adjustment and optimization. The problems we discuss follow: choice between the Bank-or Market-based financial structure, optimization of the structure in financial markets and reform of the financial supervision system. We will consider the difficulty of medium-and small-sized financing, choosing specialized or mixed banking system by the way,and try our best to make the policies comprehensive,profound and reasonable。1. Basing on the meaning and the development of the financial structure, we consider that the financial in nature comprise the macro-level and the micro-level. In the macro-level, the financial structure can be generalized into four aspects: the structure of financial industry, the structure of financial institutions, the structure of financial instruments and the assets, and the international structure of the financial operation. In the micro-level, the financial structure can be generalized into three aspects: the asset structure, the operation structure and the yield structure of financial institutions. 2. Through analyzing the changes in the transformation of the financial instruments and assets, the characteristic of the Chinese financial structure is summarized in the paper. Some disadvantages of it such as the distortion and the unbalance are discovered, I think the following should be included: the unbalance in the structure of (1) financing, which includes the unbalance between the direct financing and indirect financing, between the external financing and internal financing in firms, and between direct financing and indirect financing of firms'external financing; (2) financial institutions; (3) financial markets, which includes the unbalance in the structure of sub-markets and participators in the markets; (4) financial instruments, which refers to the lack of financial instruments inthe money market, the irrationality proportion among the kinds of stocks and bonds synoptically; (5) financial functions. 3. There is a structure break in the relationship between financial structure and economic growth in the period of 1999Q1-2000Q4, which is due to the economic and financial adjustment after the Asian Financial Crises. These measures take on the negative functions in the short term and positive and effective ones in long term. Additionally, the causality between the development of banks and economic growth is bi-directional, but there is no causality between the development of stock market and economic growth or and banks. 4. None of the financial structure, financial development and economic growth in China does explain a significant amount of the countrywide efficiency of capital allocation. There is either "underinvesting"in the growing firms or "overinvesting"in declining firms in the process of economic activity; the financial structure is linked with the efficiency of capital allocation in state firms more significantly relative to the countrywide efficiency of capital allocation, this implies that the difficulty in financing of medium-and small-sized firms is due to the asymmetry between financial structure and economical structure partially. The conclusion will significant for the correlative research on state firms. 5. The fragility of the Chinese financial system went up firstly and dropped subsequently during the years of 1991-2002, which proves the financial reformation to prevent financial crises after the Asian Financial Crises effective; the fragility of the financial markets have been rising since 1996 and should be drew attention to much more. Additionally, the conclusion that the liquidity of stock market can reduce the management risk of banks makes sense to legitimate mixed banking system. At last, this thesis gives some suggestion about the evolvement and optimization of the Chinese financial structure: (1) It is feasible for the Chinese financial structure to continue the reformation of property right of the state banks and strengthen the complementarity between the financial institutions and financial markets at the bank-based financial structure currently;...