China's Financial Development Path Under The Background Of Financial Repression:Theory And Empirical Studies

This paper aims to find the financial development path for China's economic transition. First of all, with an accurate understanding of the operating rules of economy in double-track transition and the inapplicability of existing literature in explaining China's financial development issues, this paper depicts the basic features of China's financial development path, that's, the financial development advances during the process, in which the government represses the banking system, allocates its credit funds through quantity method of credit rationing, and thus makes sure the in-system department gains priority in development with subsidy from the policy loans, so as to promote the outside-system department-led economic growth with the in-system department as the foundation. And then, in order to verify the financial development path depicted as above can really achieve financial development, this paper manages to get two factors highly related to the economic transition, namely the factors of decentralization and its motivator local government intervention, and treats them as the macro and micro factors that affect financial development, and later examines the actual effects of these two factors on financial development in Chap.3and Chap.4, respectively. For the concrete way in which such two factors influence financial development, this paper points out that, by promote the marketization process of the real economy, decentralization and local government intervention can change the structure of demands of credit funds of the real economy, forcing the monetary authorities to shift its way of allocating credit, that's, market loans substitute for policy loans, thus promoting the improvement of bank marketization. Later, the theory modeling and empirical testing both verifies the positive effects of decentralization and local government intervention on financial development. Therefore, the financial development path with the features above is definitely capable of promoting financial development.Since the government plays a dominant role in China's financial development, and there exits government failure when government allocates resources, the financial development path tested above inevitably suffers flaws. And also since it's inherently required to analyze the flaws of financial development path when researches related to financial development are carried out, this paper also investigates the flaws in subsequent chapters. Generally, this paper summarizes two important negative effects when government dominates the financial development, namely, the problem of non-performing loans, which caused by credit rationing, and banking monopoly, which takes place because of government's repression policies. This paper investigates these two problems in Chap.5and Chap.6, respectively. In Chap.4, this paper mainly investigates the effects of financial development (which reflects the size of policy loans), government factors (which reflects the soft budget problems caused by policy loans), the degree of financial repression and loan supply size on the non-performing loans. In Chap.6, this paper mainly analyzes the adverse effects of "inverse financial development" brought about by banking monopoly on economic growth, and meanwhile, this paper also discusses the promoting effects of the banking monopoly which satisfies the needs of financial support, and based on these findings, this paper concludes that only when the banking monopoly surpasses the level required by financial support will lead to "inverse financial development" effect.With all the findings above, this paper gets the following conclusions:first, financial repression constitutes the prerequisite condition for financial development, and has a long-lasting direct positive effect on non-performing loan reduction; second,"adaptive efficiency" or "dynamic efficiency" are the more proper criteria to evaluate financial development, thus, moderate financial development, and the similar concepts of moderate non-performing loans and moderate banking monopoly, are the optimal financial development, non-performing loan size and banking monopoly level, which ensures a smooth economic transition. To sum up, such conclusions offer important guidelines to investigate the outcomes of financial system reforms, which means, successful financial reforms must be the outcome of successful economic reforms.