A Study On The Financing Cost Of China 's Capital Market

Over the years, under the investment-driven economic growth mode in China,millions of enterprises bear unreasonable financing costs. On the one hand, the enterprises in the traditional industries, especially "3 tall one low" industries, are on the verge of bankruptcy. The business model of these enterprises is "heavy investment+ natural resource + initial processing = heavy assets + low turnover + low profit margin + low value". Even in 2016, the rising debt ratio, the imbalance of the structure of corporate finance and the increasing financial expenses squeeze the profits of the enterprises, deteraiorate default risk of the firms and accumulate the credit risk. On the other hand, under the “new normal”, economy of China transforms from elements-investment-driven mode to innovation-driven mode. At the same time,Premier Li encourages Chinese youngsters to make innovation and bring out the creativity. The start-ups require low cost of long-term funds. Therefore, the way to reduce the financial costs has become highly urgent. And, it is valuable to find out which way to finance firms’ operation and investment can reduce financing costs more efficiently.Firstly, based on literature review, I analyse the development patterns of overseas capital markets. Then, I analyse the data of the Shanghai Stock Exchange and Shenzhen Stock Exchange which founded in 1990. I find out the structure and the cost of direct financing. I divide the timeline into Pre-IPO, IPO and refinancing. And, in the case study of Goretex Inc. through the calculation of the cost of equity financing and critical thinking, I find out that the cost of equity financing in China is lower than the cost of debt financing. Moreover, as the company applies equity financing progressively, the cost of equity financing becomes much lower.In the Chinese capital market, equity financing can reduce the financial costs effiently, And, the way to optimize the enterprise financial structure is important.Therefore, accelerating development of the capital, standardizing market order, therationalization of IPO pricing system, accelerating construction of multi-level capital market, optimizing the macroeconomic environment, and reducing the risk-free rate,can reduce the cost of equity financing.