| Looking through the history, the effect of financial innovation is unignorable in the financial developing process of each nation. In 1960s, the financial innovation which to avoid the policy made American commercial out of the problem; in 1970s and 1980s, the financial innovation which mainly transplanted or prevented the risk urged the financial liberality; However, in 1990s, the frequent financial crisis made us think: Has the financial innovation caused some negative effect to each nation's financial development while it urges each nation's financial development? How to react positively and prevent the negative effect, especially in such a special national character as in China, is the important problem of this article.After the reform and opening, the Chinese financial sector is growing steadily in the instructing of Deng xiao ping theory. By the end of 2002. China has 1224 domestic public companies (A & B stocks) and 73 public companies abroad (H stocks). The total market price of stocks is 3832 . 9 billion Yuan. Investor's account number is 68. 84 million, and the issuing amount of the treasury bill is 593 . 4 billion Yuan, the amount of the company bonds is 32 . 5 billion Yuan. Meanwhile, in 2002. the volume of the future transaction is 3949 billion Yuan, the premium of the property insurance company is 78 billion Yuan and the life insurance company is 227 . 4 billion Yuan. After China enters WTO, with promises gradually carried out and QFII DR developed step by step, Chinese financial sector will mature increasingly and People have gradually realized the importance of the financial sector in the economic growth.However the factor of system translation and policy reform have acted the main role in the financial development. With the establishment of the socialism market economy system, the financial development will mainly rely on the inner force of the social economv: the financial innovation. The translation of the own-statedcommercial bank to the joint-equity commercial bank, the event oi'all kinds of the financial services and the building of the second-stock market have promoted the financial development, But the financial market's structure is unreasonable, the financial tools are few. the problem of non-protection in law still exists etc, how to eliminate the factor that restrains the financial innovation, what is the aim and emphasis of the financial innovation in future? They will be discussed in this article.This article is divided into four parts. First, it will discuss the background of studying the financial innovation's effect to the financial development. Then, it will expound the western effect theory of the financial innovation. Third, it will put emphasis on present state and refraining factor of Chinese financial innovation, and how to cope with the financial innovation's effect to the financial development. Fast, it will provide the aim and emphasis of Chinese financial innovation in future.This article mainly uses the method of connecting theory with reality, and takes some data prove some problems.The popular financial innovation theory after 1970s still adopted Schumpeter's innovation theory. China is still a developing country and the financial sector is still in the junior level. In such a special national character, it's obviously not advisable to copy the theory of western financial innovation, flow to create when taking in and how to use the financial innovation theory in reality is still a question which needs to be discussed.
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