A Study On Informal Finance Development

Under current economic situation, 63% of the total GDP and 74% of the industrialvalue-added are contributed by the non-state economy. Nevertheless, the investigationshows that even less than 30% of the banking credit investments are done bynon-stated-owned organizations. That is to say, the state is still dominating over 70%of the banking credits (Financing activities in securities markets also mainly serve forthe state-owned organizations). Attention to the factor that the state-ownedorganizations only contribute less than 30% to the industrial value-added. As a result,the bad debts rate will increase between the state-owned organizations and banks.Even worse, this will lead to financing encumbrances for non-state-ownedorganizations which involves the whole economic development and growth offinancial market of China. Therefore, there is an essential to have right balancing onfinancial resources in order to be equitable with China's economic revolution anddevelopment. However, informal finance is always ignored and even is regarded ashostile by the academic and official decision-making departments. Even thoughinformal finance has been "accused" of "disturbing financial order" by the public andthe authorities restrain or oppress its growth, it still exists with strong power. From"Sun Dawu event" to "bankruptcy of Fu'an aid association", the discussion oninformal finance issue becomes more and more intensive. After the happening of "SunDawun event", we can easily find out the embarrassment of financing for thosenon-state-owed companies. They have to seek indirect ways to solve the financialproblem. On the other hand, committing on absorbing public capital, which has lessformal assurance, will increase certain extent of financial risks. What's more, thebankruptcy of Fu'an aid association indicates the huge risks behind the informalfinance although this company has promoted the local economic development withoutdoubts. Then, for informal finance, how should we recognize it? And how should weevaluate it? Between the benefits and drawbacks, how should we decide? This studywill focus on this topic discussed above. It will aim to objectively illustrate the effecton China's economic development by the occurrence and development of informalfinance. Also, through the analysis of non-state-owned economic issues, the clearpicture of macro-economic status will be drawn so as to be able to raise appropriatesuggestions on policies. This paper empirically studies informal finance andconclusions are as following: firstly, financial demand expands expansion undereconomic growth is the pushing factor for informal finance. Second, comparativeadvantages of informal finance are driving factors. Thirdly, informal finance showspositive effects on fund flow and resource allocation, and negative effects on socialstability and macro policy. Finally, this paper offers policy suggestions.