A Study On The Impact Of The Adjustment Of Financial Structure On The Economy Of China

As an important feature of financial development, financial structure will determine the effects on the real economy by the financial system function. The adjustment of financial structure would effecting on the real economy through the technological innovation, easing the financing constraints and capital allocation effects which produced by financial function such as corporate governance, allocation capital,easing of information production and diversifying the investment risk. With sustained financial reform since1979, China’s financial structure has experienced a significant reform process. It’s very important to study the effects on the real economic of the adjusting of the financial structure in China after the most recent financial crises.The simple dichotomy of financial structure widely used in the study of the relationship of financial structure and economic growth by international comparison, has exploration of the bank based versus financial markets based structure as a typical financial structure impact on economic development. But the research findings of the financial structure adjusting between the two kinds of typical structure are inconsistent. This article analyzed the financial restructuring through the effects of technical innovation, financing constraints and capital allocation affecting economic growth introducing the financial function which has the relative stability character in time and space as the basis of the financial restructuring measures and based on analysis of the endogenous financial growth theory of financial function.Firstly, this paper investigates the effects of the financial structure adjusted on the technological innovation of the Chinese35Industrial industry’s patent application numbers and R&D investment ratios from1996to2011. Secondly, the paper investigates the effect on the financing constraints of financial structure adjustment by the data of the listed companies from1997to2012using the investment-cash flow sensitivity and index of cash-cash flow sensitivity index respectively. Thirdly, empirical tests of the financial structure adjustment effects on the capital allocation effects was made by an Industrial industry investment data and industrial added value from1996to2007in China as study sample based on the Wurgler model.The empirical study found that the adjustments of China’s financial structure since1979have had the significant promoting the technological innovation and the mitigation of financing constraints effects that important to promoting economic growth. But the financial restructuring had not raising the efficiency of capital allocation effectively as the same time. The major defects of the financial structure in China are:(1) the unreasonable size structure in Chinese commercial banks underpowered on the efficiency of supervision technology innovation investment, screening technology innovation opportunities and Innovation of in Industries. Oligopoly in the share of the loan policy of the state owned banks, curbed improvement of the efficiency of capital allocation, and (2) irrational investor structure of the stock market has not yet formed supervision and constraint company managers effectively, it is difficult to suppression the trends of the managers’abuse the free cash flow to the inefficient investment;(3) the unreasonable levels of capital market structure retardant the direct financial channel of the new type of high-tech small and medium-sized enterprises, and capital markets had not efficient allocation of capital into these industry efficiently.The conclusion of this article is that, giving priority to improve the structure of the investors will benefit the adjustment of China’s financial structure. It will help to promote competition between financial markets and banking by actively cultivating and monitoring institutional investors and improving the structure of the investors in China with construction of multi-level capital market and the reform of system of the listed, at the same time maintaining reasonable degree of competition of the banking.The outside competition will forced the commercial banks make their own structural adjustment to enhance the function of financial intermediation.