Informal Finance And China's Economic Growth, A Finance Innovation View

As a source of financial innovation, informal finance exists far and wide in the world; its influence on economic growth cannot be ignored. To China, a fast growing and transferring economic entity, the role the informal finance plays during the economic growth, its influence on China's financial system and economic growth, are all the content this thesis discussed about.This paper analyzed the inevitability of informal finance existence and the main forms. Then the paper first analyzed the economic effect of informal finance from the micro angle of view, informal finance could enhance the function of finance, and influence the economic growth from four channels: the saving rates, the proportion savings convert into investment, marginal productivity of capital, the efficiency of financial institution. From the macro angle of view, the informal finance could encourage the competition in the financial system, promotes the efficiency of the whole financial system; informal finance broaden the financing sources of small and medium enterprises. Then, on the financial innovation basis, the paper introduced the informal finance factor into a macroeconomic model, analyzed the influence informal finance had on the policy effects and economic output. In the last part of the third chapter, the negative effects of informal finance were discussed.As to China, the paper first analyzed informal finance current condition from four aspects. At present, Informal finance is the natural reflect to China's financial control and the fast growing non-state owned economy. The analysis of China's informal financial performance found that the informal financial effectively raise the rate of capital formation.In order to make the informal finance have a positive impact on China's long-term economic growth, and reduce its negative effects, the paper raised the relevant policy recommendations. First the government has to change its role, various informal finance should be treated differently, rather than blindly ban. To ensure financial security, informal financial should be included in the financial supervision system and establish effective crisis management system. At present, first, market-oriented withdrawal should be introduced to financial institutions, and establish a deposit insurance system. To enhance the operational efficiency of informal finance, informal financial services system should be established. At the same time, the supply of formal financial should be increased to ease financial constraints, deepen financial reform and opening up various investment channels, guide the direction of social investment to attract back some of the capital diverted by the informal financial.