Fiscalization Of China's Financial System Functions (1949-1978)

The incompatibility between the progress of market-oriented reform of financial system and the development of real economy is generally considered as one of the main reasons for the inefficiency and mismatch of financial resources allocation in China.What does hinder the market-oriented reform of China’s financial system? People concerning about the reform of China’s financial system have given different explanations and put forward their own policy recommendations from different perspectives.The main purpose of this paper is to put forward a new explanatory framework for the slow-moving of China’s financial system reform,and then put forward corresponding policy recommendations.The basic view of this paper is as follows: in the mid-1950 s,after the implementation of the industrialization strategy,which is dominated by national power,supported by state-owned enterprises and prioritized by heavy industry,China’s financial system had been entrusted with the task of centralizing and transporting cheap funds for state-owned enterprises;after the reform and opening-up in 1978,the marketization has become the general direction of China’s financial system reform,but the Chinese financial system with banks as the main body has not been able to relieve the function of "blood transfusion" for state-owned enterprises.The direct cause of this phenomenon is that state-owned enterprises,especially large state-owned enterprises,have not been able to cultivate "viability" and the financing mode is too single.Therefore,in order to push ahead the market-oriented reform of China’s financial system,we must speed up the reform of the operation and management system of state-owned enterprises,especially large-scale state-owned enterprises,and promote them to cultivate their "viability" as soon as possible.At the same time,we should reform the financing mode of state-owned enterprises which bear the strategic and social burdens,so that the financial system can truly be relieved of "blood transfusion" for state-owned.The focus of this paper is to describe how China’s financial system was entrusted step by step with the function of centralizing and transporting cheap funds for state-owned enterprises from 1949 to 1978.The full text is divided into five chapters:The first chapter mainly analyses the constraints faced by the top decision-makers when they chose the mode of financial development in the early days of the founding of New China.Under the condition of lack of capital and technology,to establish a complete modern industrial system as soon as possible,especially an independent heavy industry system,the most important factors the highest decision-makers in China must consider incluse: where did the money come from?how could we concentrate the limited domestic funds as much as possible? how could the pooled funds be guaranteed to be used in the priority development projects selected by the country? by whom it was carried ou? Historic experience and practical needs eventually prompted China’s top decision-makers to choose a fund mobilization,management and allocation system of plan control fiscal and fiscal controlling finance.The second chapter mainly describes the reorganization of the national financial system by the new regime in the early days of the founding of New China.With the progress of the Liberation War,the new regime reorganized the financial institutions in the new liberated areas in three categories: confiscating bureaucratic capital financial institutions to strengthen and enrichstate-owned financial institutions;pushing private financial institutions to concentrate and accept the leadership of the people’s government by state power;and abolishing the privileges of foreign financial institutions in China to make them to service Chinese economic recovery and development.After three years or so,the order of China’s financial market had been restored rapidly and showed the signs of prosperity,and the finance system basic functions had bgun to returm.By taking advantage of this opportunity,The new regime seized the lead of the financial system.In fact,it created the basic conditions for the establishment of a new financial system.The third chapter mainly describes how various non-public financial institutions approached state-owned financial institutions step by step,how the decision-making right of financial institutions was centralized step by step,how financial markets disappeared step by step from the mainland of China,how the "Great Unity" financial structure of the People’s Bank of China formed step by step,and how all financial institutions were integrated into the financial system step by step to become functional departments of the financial system.The forth chapter mainly describes how the basic functions of financial institutions were fiscalized step by step while financial institutions wre gradually incorporated into the fiscal system.The fiscalization of the functions of the financial system was mainly manifested in three aspects:the deposit and loan business of banks was fully subject to the state plan and arrangements,and became an effective supplement to the state fiscal;the currency issuance was gradually brought into the track of the fiscal budget;and the supervision of fiscal funds had gradually become the main daily work of banks.The fifth chapter mainly evaluates the performance of China’s financial system from 1953 to1978.Generally speaking,China’s new financial system had shown a strong ability to mobilize deposits and strongly supported the achievement of the government’s macroeconomic policy objectives.Specifically,it had concentrated a large number of cheap funds,allocated to economic programs according to the will of the government,and strongly supported the industrialization strategy based on heavy industry,and the development of the state-owned economy.However,the financial system inevitably had the following problems: financial resources was inefficiently allocated,and loan was used low-efficiently;new risks emerged,such as fiscal risks and financial risks mutually transmitted,decision-making external costs increased;financial leverage basically lost its role,such as cpuld not play the role of promoting trade and promoting enterprises to improve its management;The undue centralization of decision-making right and the lack of rudimental independence of the financial system seriously affected the stability of the operation of the financial system,and even the continuity of the existence of financial institutions.