Policy-Oriented Finance

By discussing the basic theory and China's practice of the policy-oriented finance (the POF), the paper is to deepen the understanding of the operation and reform of the POF, and to highlight some countermeasures and proposals about promoting the sustainable and healthy development of China's POF. Therefore, with the guidance of Marxism and the method of the New Institutional Economics, the paper will analyze the formation of the POF system, the operational mechanism, the reason of evolution and the reform in China, comprehensively and deeply, on the basis of the extensive review of the POF.Firstly, supposing that there are diverse options of institutional arrangements to meet the needs of POF, it is not necessary for the government to establish the professional POF system in one way. Instead, it is optional for the government to build the POF system, including the establishment of state-owned financial institutions, the cooperation with the commercial financial institutions, the operation of the public finance, and the organization of professional POF institutions. As the symbol of POF, the policy-oriented financial institution (POFI) is formed due to its greater expected profits under certain conditions than other options. Based on the analysis of formation of the POF system, the paper will further discuss the main factors about the impacts of the POF, such as the size, quantity and quality of the state-owned financial institutions, the government's control on the state's commercial financial institutions, the state's financial power and function, and the quality of the POFI. Furthermore, it will also point out that the operational margin of the POF will expand or contract according to the change of the factors stated above, to indicate the interaction between the POF and the commercial finance, between the POF and the public finance.In the aspect of operation of the POF system, the paper will discuss the interaction among the government, the POFI and the users of POF. The POF system will to some extent be diverted from the ideal status and even be in disorder, which is affected by different aims, motives and interests. In contrast with the international patterns, it is the effective incentive mechanisms that bring success to their POF. The mechanisms, between the public and the government agencies, between the government agencies and the POFI and between the POFI and the environments, inhibit the patterns' selfish actions and make POF system achieve a virtuous circle. Therefore, it will come to the conclusion that "inherent conflicts of the different patterns' aims and behavior are the source of disorder of POF operation, so it is necessary to introduce systematic arrangements and mechanisms to force effective incentive and restraint on the patterns, and then to achieve a virtuous circle of the POF system."The paper is to summarize the patterns and characteristics of the POF evolution in recent years, and analyze the causes and factors of its innovation. The change of many states' POF systems (such as privatization, merger or cancellation) leads to the breakdown of the original balance and the start of a new round, owing to the original system is too costly or the change of the external environment causes that of the institutional needs. Meanwhile, it is the pursuit of efficiency and the different environment that make different states show the new coexistence in spite of their diversity and each other's identity. In addition, the paper is to point out main factors of the innovations of the POF, including the development of productivity and the state's economic, the impacts of economic globalization and financial liberalization, inherent contradictions of the original operation of the POF, and a state's basic economic system and its changes.Finally, the paper will analyze the development, the problems and challenges of our state's POF. Meanwhile, based on the above analysis, it will discuss and clear the reform patterns of our POF, indicating that our state should develop and reform the original POFI, rather than eliminating them or diverting their business to the financial institutions. Only in this way can we meet the POF demands of our state's economic and social development. In addition, it will give some countermeasures and proposals about how to reform and improve our state's POF, including management and operation systems.