The Study On Obstacles And Solution Of China's Financial Innovation

Innovation is the key to the development of financial industry. Since the reform of financial institution in China has always been a government-led top-down activity, a series of problems arise due to the constraint of property right, market environment and financial regulation. With the acceleration of globalization and faced with the fierce competition after China's accession into WTO, a proper and prompt solution to these problems is essential to the development of China's financial industry. Though much concern has been given to this issue, more were with the micro-study on innovation of business among financial institutions, innovation of financial instrument, risk management and financial regulation than with the obstacles and performance of financial innovation, making the recent studies on financial innovation lack of theoretic support. Out of this consideration, the author of this paper conducted investigations and attempts to explore the deep-rooted causes and put forth practical suggestions. Based on theories from Development Economics, Information Economics, New Institutional Economics and financial intermediary theory, the paper made a thorough investigation on the history and motivation of financial innovation in western countries, discussed the existing problems and constraints in China's financial innovation, analyzed the low efficiency and paucity of innovation on the basis of empirical study, and finally drew three conclusions as follows. First, compared with the market-oriented innovation model adopted in developed countries, the system of a government-led top-down financial innovation in China is responsible for its low efficiency. Second, constraints of property right, market environment and financial regulation, misplacement of innovation supply body together with the motivation insufficiency of micro financial institutions represent the main obstacles facing China's financial innovation. Third, the key solution to improve China's financial innovation efficiency is to establish new institutional arrangement with the goal of innovation of working method, technology and service to enhance the performance.